Think Like A Record Company

Think Like A Record Company
By, Diane Rappaport author of "How To Make And Sell Your Own Recording" and "The
Muician! Buine And "egal #uide$" The %ook are pu%lihed %y &rentice Hall$
Instead of asking the question, "Are 3 points per album a fair royalty," approach a deal from the point of
view of a record company. Put yourself in their shoes and try to think like them. Its a valuable way to
evaluate whether you should release your music on your own artist!owned label, look for an indie or ma"or
record deal, or evaluate the fairness of a contract.
#tart with these questions.
$. %ow many records will the artist sell in a years time&
a. 'ou can make some estimates about how many records you, the artist, can sell by totaling your best
rough guesses of....
($) sales to $*+ of the total amount of people who will see you perform at gigs during a year,
(-) sales to -+ of the total number of people on your mailing list, and
(3) sales of -!. records a month per local record store. /ost stores know (and will tell you) how many
records a month are sold by like artists in your genre who regularly perform in your area. (0or a recording
that is 1$..23 list price, a store will buy them from the record company for something near 14..* each,
depending on volume.)
b. /ost indie labels count on artists to be among their best distributors, because they will sell recordings at
gigs and mail order in the amounts estimated above, which is why it is valuable for you to make these
estimates. /ost indie labels, and some ma"or labels, will sell artists 56s at a price close to what they sell
them to distributors for!somewhere between 13.34!$*.7* depending on quantity for a 1$..23 recording.
(/y book provides ranges of costs for stores and distributors for vinyl, cassettes and 56s based on retail
prices.)
Indie labels will ask you what you figure you can sell at gigs, and they will then add some guess on their
part (based on the number of distributors they use, the stores they service, your draw and draw potential)
about what they will sell to other distributors. 8hey know that if you have consigned your records to some
stores, that this will be valuable information to a distributor. 9ecord companies who release more than .
recordings a year know what the e:pected rates of sale are for a first time artist and will tell you what you
can realistically e:pect.
c. ;now up front that there are appro:imately .* deals a year available from ma"or labels for first!time
artists. Perhaps - bands will recoup their costs, make a profit for themselves and their companies, and have
a chance to make another record. 8he others will fail, go into debt with the record company, and become
part of the notorious statistic that there is an 3.!2*+ failure rate among first!time signed bands. 8hat means
a ma"or label e:pects to lose money on a percentage of bands that they sign and only win on a few.
8hey will choose to prioriti<e their bets, and put their best efforts at sales and promotion for the lucky
artists selected. And they will have a pretty good idea of how many records they will manufacture for that
artist, what regions will be selected for primary e:posure, and how many records are likely to be sold.
If you know this, then you (and your lawyer) will ask yourself and the ma"or label who may be interested in
you these questions=
($) %ow many new bands (in my genre) did you sign within the last three years&
(-) %ow many of those new bands are making a profit for you& 0or themselves&
(3) >hat other bands will I be competing with on your label
(7) >hat can we do so that our band doesnt become part of the failure statistic.
(.) %ow many records can we realistically e:pect to sell if you get behind us the way you did (name of
recent first!time artist that was a winner)&
-. #ales estimates help set the boundaries of a recording and promotional budget.
?very label does this, big or small. %ere are some very rough figures to consider for 56s that are going to
sell under -*,*** a year and are priced at 1$..23 each. (8here are lots of variables, but this will give you a
starting place for your thinking like a record company.) (In another column, well talk about ma"or label
recordings.)
?:ample A. 'ou put out the record yourself and manufacture -.** copies. 'ou plan to give away .** for
promotion, sell $.** at gigs and mail order for a special price of 1$7.** (1-$,***), and sell .** to stores
for 14..* (134.*). 8hat gives you a total budget of 1-7,4.* to work with. %ow are you (the record
company) going to spend this money&
%eres one rough allocation=
0i:ed costs= manufacturing and printing of 56 and 56 booklets@tray cards A 1$.-. unit (13$-.). (Actual
cost depends on volume and can vary widely, depending on manufacturer and services desired.)
Braphic design of 56 cover and booklet, and graphic design and printing of all other promotional materials
(logo, letterhead, press kit, photography, fliers)= $.+ of e:pected sales or 134$-..*
9ecording= -.+ of e:pected sales) or 1C$34..*
Annual sales and on going promotional costs= (postage, phone calls, travel, office, photocopies, etc.)=$.+
of e:pected sales or 134$-..* (around 13** month).
8otal ?:pense 1$C,434..*
?:pected profit= 13*$-..*
In this budget, -@3 of estimated income have been budgeted for e:penses, leaving l@3 for profits and hedge
against une:pected e:penses or emergencies). Bood work, if you meet your e:pectations and stay within
the budget. An investor would be happy to see the realism here, because it means that even if your
pro"ections are somewhat off, you probably will meet your e:penses, and there is potential for profit.
?:ample D. Indie label figures it will sell 7.** copies to a distributor (one of which is you and your
estimated sales of $.** copies) at 12.** each (17*,.**) and use .** for promotion. In this budget,
however, the record company is going to reserve $@3 of this amount (1$3,.**) up front as a hedge against
failure, leaving appro:imately 1-4,*** to be realistically allocated between e:penses and profit. %ow will
1-4,*** be allocated& ?very company figures it differently depending on how many records they put out a
year, their cash flow, distributor relationships, risk, etc.
%eres one pro"ection. 8he record company will allocate .*+ of that 1-4,*** for recording and
manufacturing some of them recoupable from the artist.
0i:ed manufacturing costs for .*** 56s= 1$.-. each or 1C-.*. (8he actual figure may be as little as 1.2*
for an indie company pressing .*,*** recordings a year ($*!$. artists.) /anufacturing costs are not
recoupable from the artist.
9ecording 14-.* (which will be charged to you as a loan and recouped from your royalties). Possible,
depending on the type of music, readiness of band to be recorded, skill of the recording engineer and
producer to stay within budget
#ome percentage of budget remaining (with lots of variables in this arena) are reserved for sales and
promotional costs, which are not recouped from an artists royalties.

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