Posts Tagged ‘Catch 22’

Profit Potential in Starting an Indie Record Label

Sunday, June 7th, 2009
Kc Smith asked:

There are varying opinions about how much money (if any) a person or group can earn by starting an independent record label. The truth is that there is real money to be made, but you definitely earn it through hard work. Believe it or not, sometimes the artist ends up making more money through a small indie label than he or she would signing with one of the “big boys.” Now, that’s what we like to hear!

It’s true that the return on investment can be higher for an independently released album than for one that goes through the more traditional channels. The explanation for this revolves around the amount of money spent to get the album into circulation. Plus, indie labels are more likely to work equally for all of their artists. The bigger labels choose which artists to back with the most support. This is a bit of a catch-22, though, because the more money they spend promoting the music, the more sales have to be made to break even. The artist won’t see any money until those costs are recouped.

The independent record label is going to spend a lot less when promoting their artists, which may seem unfortunate, but they also have to sell significantly less copies before they start making a profit. If the indie label spends $1,500 producing and distributing an album, they only need to sell 100 copies at $15.00 each before they start profiting. On the other hand, if a larger label spent $30,000 promoting an album, they would need to sell 2,000 copies before breaking even. You may also be able to offer the artist a higher royalty rate, too, as the overhead expenses for your business are probably much smaller than those of a big label.

Because the small, independent labels have less funds to contribute to promotion, they often become masters at finding free and low-cost ways to do the job. Of course, one of the first orders of business is to create a web site so fans can order the music online or purchase any merchandise that may be promoting an artist or the label. Including that address on every item sold ensures that anyone who listens to someone else’s copy of a CD has the information they need to go online and buy one themselves. Live performances are also a great way to make sales. Often the band manager or even the artists themselves will set up a table at performances and sell copies of the CD. It’s even possible to set up CD signings at local music stores.

While these methods for selling albums aren’t as glamorous as cardboard cut-outs of the artist at the local music store franchise, they are necessary for the indie label. An event that leads to 20 CDs sold can add up to more money for the artist than having 1,000 sold through a huge record label. Remember that anything sold after recouping the original investment is pure profit!