When can a Record Deal pay off?

When can a Record Deal pay off?

Do-it-yourself vs. record deal – both come with ups and downs. While selling your music all by yourself will generate a higher turnover per unit, a record label is able to move more units. Let’s try to find out how long you are better off alone and when working with a record label can be useful.

Let’s do a little math. Since prices and shares naturally vary and since particularly in DIY payment models are quite diverse (direct sales, wholesale etc.) we will be using average values.

Production costs are a big variable too (booking a studio vs. home recording), so we will gracefully ignore them here. You get the idea, we focus on revenue, not profits.

A huge „Thank you!” to Oliver at Believe Digital for sharing some numbers with me.

Do-It-Yourself
We will have to acknowledge the fact that due to our limited reach we will be selling far less units in comparison to a record label with its international distribution network and promotional budgets.

As per a statistic published by CD Baby a while back a DIY musician sells 88 units of an album on average. This statistic considered both physical and digital sales. If you can sell 500 copies of an album all by yourself, then you are doing pretty well. If you sell in the four-figure range, wow!

 

Do-It-Yourself physical:

  • Let’s presume you cash in an even $10.00 when you sell your CDs at live shows and directly through your website.
  • When selling through retailers and wholesalers you can keep an average of $6.00 per copy (as mentioned above, retailers, wholesalers and mailorder shops have very diverse participation models)

Now if both sales models balance each other (50/50) you can make $8.00 per longplay CD.

 

Do-It-Yourself digital:

  • Rights holders normally get to keep about 55% off the download pie. In the case of doing it yourself you own all the rights (i.e. you are artists and label in one).
  • With a digital album that sells for $9.99 you will keep $4.60.

 

Do-It-Yourself Total:

Physical is still a strong force, especially in underground scenes, where dedicated fans often still prefer holding a tangible record in their hands. Most Heavy Metal bands, both signed and un-signed, report physical sales as high as 90% of their overall sales. Even a Hip Hop artist recently told me his CD sales amount to almost half of his overall sales.

Let’s use a  physical : digital ratio of 60:40, which is quite realistic. It might be different in some styles, however.

This results in an average revenue of $6.64 per album (physical and digital put together)

Based on the number of units sold you can earn a total of

 

100 pc.:    $    664,00
500 pc.:    $ 3.320,00
1.000 pc.: $ 6.640,00

As mentioned earlier, this is „revenue“. You will still have to deduct your production costs and promotional expenses.


With a Record Deal
Of course, the record company wants to get its “fair” share in exchange for its services. In our example we will use a real, yes a serious, record company with proper accounting and a good promotional budget.

On the indie circuit license deals are common practice. This means, a record labels acquires the rights to market and distribute a finished recording. With a license deal you have probably already fully produced your album – and paid for it. In return you will get a bigger chunk of the cake, which can be as big as 12% to 20% off the price published to dealers.

 

Label physical:

  • Let’s be generous and use a share of 18%
  • Those 18% are cut from the price published to dealers (PPD), which revolves around $9.00.

That again results in a total of $1.62 in your pocket per copy sold.

This time we will add the mechanical royalties which you will receive, assuming you are the sole composer of all the songs on your album. Your so-called writer’s share can be roughly $0.60 per copy. Your label will want to keep the publisher’s share.

We have ignored mechanicals in our DIY example, since they just flow through: you pay them, you get them (if you do).

Bottom line, if you add mechanical royalties to your share you will make a total of $2.22 per copy sold through a record label.

 

Label digital:

  • On the basis of our takeaway from the DIY digital example you will have to hand a piece of your piece over to the record label.
  • Depending on the label’s role their share can vary. If the label only engages in administrative activities a 80:20 for your benefit. If the label does “real” label work and handles distribution and promotion in full an even 50:50 split has become standard.
  • Thus you will have to cut your digital revenue in two. From your original share of 55% you will then keep 27.5%
  • As a result your digital revenue of $4.60 (DIY) will shrink to $2.30.

 

Label total:

Assuming the 60:40 physical : digital ratio your revenue per unit sold will be $2.25 if you work with a record label.

 

100 pc.:    $    225,00
500 pc.:    $ 1.125,00
1.000 pc.: $ 2.250,00
2.000 pc.: $ 4.500,00
3.000 pc.: $ 6.750,00

 

Conclusion
Based on our intentionally simple sample calculation we can say by rule of thumb that using a record label can pay off for you once the label can sell at least three times as many units as you can by yourself.

At which point you will have stretched your limits is up to your own evaluation.

Please let me stress once again that we have been dealing with rough numbers here for the sake of simplicity. Every deal or payment plan is different. Depending on which distribution method you put your emphasis on prices and your shares can – and will – vary.

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MusicBizMadness

MusicBiz Madness is a Music Business Conference made for musicians. Creator Julian Angel is a chart-noted songwriter and film musician with Hollywood credits.

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