What is a typical royalty rate for licensing a trademark?

Your preconceptions about trademark valuation are mostly incorrect. The value of a trademark is actually based on something called "goodwill." Goodwill is essentially the reputation of the trademark itself. Without some measure of goodwill in your valuation, relying simply on gross sales, profits, or the age of the trademark is essentially useless.

There are a number of different valuation methods. Different courts, economists, and accountants utilize their own methods. I understand the IRS even has its own methods for income tax purposes. One method, for example, involves capitalizing profits by multiplying the average annual net profits associated with goodwill by a multiple, which increases with the estimated strength of the goodwill.

There are few, if any, strict guidelines when dealing with private parties. Like any other type of licensing, trademark valuation will be a product of the free market. For the most part, trademarks with stronger goodwill will command a higher value than trademarks with weaker goodwill. Beyond that, it really needs to be determined on a case-by-case basis.

The most frequent royalty rates are 5% and 10% of net sales (gross receipts minus returns adjustments, sales taxes and the like); about 50% of publicly available licensing agreements have one of these two rates.

What is appropriate in a specific case depends on the expected profitability that the licensee can achieve; in high margin applications the rate can be higher than 5%, in low-margin applications, not so much. Another consideration is whether sales are made at wholesale or retail (higher rates in the former, usually half the rate in the latter).

An old "rule of thumb" still used as a starting point is 25% of the gross margin.