Gratis units
Gratis units: Gratis units are units of licensed product distributed without charge: salesperson and showroom samples, promotional and marketing giveaways, influencer or athlete seeding, employee product, and charitable donations. Licensing agreements treat them one of two ways — exempting them from royalty up to a cap (commonly expressed as a percentage of units sold or a fixed annual quantity), or requiring them to be reported at a deemed value such as cost, wholesale price, or a stated fraction of it.
Gratis is a recurring audit finding for two reasons. The first is uncapped distribution: a marketing program that seeds heavily can push gratis past the contractual cap without anyone tracking against it, and everything above the cap becomes royalty-bearing retroactively. The second is coding — gratis is frequently entered as a sale at a 100% discount so it moves through the order system normally, which lands it in gross sales at zero and makes it invisible to both the royalty calculation and the cap.
The control is a distinct order type or reason code for gratis, reported as a unit count against the contractual cap rather than as a zero-dollar sale — so the cap is measurable in-period, before an auditor measures it after the fact.
Related glossary terms
See how Royalty Reporting handles gratis units.
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