on sales' with the sale involving one unit of product. (Other forms of royalty are discussed later). Arithmetically, royalty (on sales) can be expressed as: Royalty = Payment-to-licensor/Product-sales-price or re-expressed as Royalty = Licensor-profit/Product-sales-price or as Royalty = Licensor-profit/Enterprise-profit x Enterprise-profit/Product-sales-price or more formally as ROS = LSEP x POS (A) where: ROS = Royalty on Sales price LSEP = Licensor's Share of Enterprise Profit POS = Profit on Sales (price) Thus, if a licensor wants to receive a 30% share of the enterprise's (licensee's) profit (LSEP) on a product that sells for $5, and on which the licensor estimates the licensee's profit on sale (POS) would be $1.50 or 30% (POS=$1.5/$5.0=30%), the licensor would negotiate to apply a royalty rate (ROS) of 9% on the sales price (LSEP=30% of $1.50 or $0.45; $0.45/$5=9%). (The terms 'price' and 'profit' as used here are undefined; they will receive greater precision in later discussion). Expression (A) above can be re-expressed as: LSEP = ROS/POS (B) or in the example: 30% = 9%/30% It exhibits an important facet of the royalty rate concept. For a given royalty rate (i.e. ROS), the licensor obtains a greater percentage of the profit on the product the lower the profitability of the product (and, vice versa, the enterprise gives away a smaller share of the profit to the licensor for a product of high profitability). It is important to differentiate between the percentage share of the licensor in the profit from the percentage royalty rate which is its most common form of statement. Royalty rate and the technology turnover concept A more elegant - and algebraic - way of looking at royalty payments is to attempt some form of consolidation of the quantitative variables in a licensing proposal (See Manual on Technology Transfer Negotiation, United Nations Industrial Development Organization, Vienna, Austria, 1996 pp.256, 1996). Table A demonstrates one form of consolidation. It takes the case of a technology license where the royalty rate is 4% on sales value over 5 years, with rights to the licensee to continue operations beyond that period without further payment obligations. For purposes of illustration, it is assumed that the annual sales volume and production cost are constant (later discussion allows for year-to-year changes): {| class="wikitable" |+ Table A. Schematic of Incomes and Cost Flows | Unit:'$000 |- | Year ! 1 ! 2 ! 3-5 ! 6 |- | Sales !