You don't ask, they set the rate & you negotiate (to try to lower it.) Here is why and what is typical.
Let them tell you their rate
Most licensors don't care what you offer, they have set rates. They normally tell you the rate rather than listen to your offers. Let them tell you their rate so that is the "ceiling" for negotiations. Wouldn't you feel dumb if you offer them 20% of gross and find out their normal rate is 5% of gross and you had to pay 4 times what they charge others?
What is a general guideline?
One often quoted guideline is 25% of net profit from the licensed item, even though one prominent court has specifically disallowed that guideline. However, to make auditing easier and to avoid dependency on licensee profit margins or even getting nothing if the licensee doesn't make a profit, experienced licensors often base on gross. (hence the familiar licensing saying "Gross you get, there is no net") For a typical fan souvenir item where the markup is likely 200% that might be 6-8% of gross. That is easier, because you just tack that onto the gross selling price. (If the item would sell for $1.00, you charge $1.10 if there is a 10% of gross royalty rate.) For celebrities the rate can be somewhat higher than for a patent royalty or copyright royalty. I recall that at his peak Michael Jackson was requiring 25% of gross, figuring that the entire gross was really due to his persona on the item, say a glitter glove labeled MJ or some similar iconic MJ item.
If you have trouble setting royalty points
If you have trouble setting royalty points, you need to see a licensing agent or licensing attorney with experience in industry norms, but normally "the licensor will set the rate and the licensee will negotiate." Some licensors have fixed rates and don't vary from them. Licensors might do that to avoid triggering "most favored licensee" clauses that exist in many licenses. Licensing seems superficially simple, but can get very complex. If you don't use a licensing agent or licensing attorney you will, as a licensee, almost always leave money on the negotiating table.
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