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pix Record Label Profits Worksheet pix
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pix pix by Dan McAvinchey  

Page added in December, 1996

About The Author

Dan McAvinchey is a composer/guitarist living in Raleigh, NC.

He believes every musician or composer has the power to release their own record.

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His CD release on Guitar Nine was entitled "Guitar Haus".

Please direct all comments and suggestions for future columns to Dan McAvinchey.

© Dan McAvinchey

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Click here for a printer-friendly version of "Record Label Profits Worksheet".

 

Overview

The Record Label Profits Worksheet is designed to help you estimate how much (or how much more) you will make when you decide to proceed with starting a record label and you release your first record on CD. It can help you get a handle on where your money will be spent for each recording project, and how much you should charge for your CDs. The RLP worksheet will let you see the effect of giving away promotional copies and allow you to budget for shipping, advertising, and miscellaneous expenses.

Quick preview: If you want to get an idea of how someone might use the Record Label Profits Worksheet, press the 'Default Values' button. This button will load defaults for a fictitious guitar player, Joe Geetar, who has completed a 12-song master tape, recorded primarily in his home studio. Joe did a few overdubs and mixed the record in a commercial studio and spent $4000. He decided on an initial order of 1000 CDs from a national duplicator. Joe will give away 150 CDs for promotional purposes and publicity. He has budgeted for 9 months of advertising at $300 a month, and 12 months of administrative expenses at $50 a month. Joe has decided to market his record by mail order and the Internet, so he plans to ship out all of the CDs via U.S. Mail at $2.00 a CD. Joe also figures he'll move about 3000 downloaded singles through iTunes at a net price of about 59 cents each. You can see that by charging $14 for each CD, after selling only 850 pieces, Joe makes a modest profit of over $900!

By playing with the figures (spending less, charging more; spending more, charging less) you can get an idea of how much potential there is for you to make money by selling recordings under your own label. Use numbers like 3000 or 5000 for your product orders and you find profits can be quite healthy. Remember that 95% of all recordings released sell less than 10,000 units, and are considered total failures by larger record companies. Yet you can make money selling 1200-2000 units!

Following is more detailed help on how to best use the Record Label Profits Worksheet to your advantage. Good luck!



EXPENSES:
Recording costs
Copyright registration:
-- Number of original songs/Registration fee
Initial product order:
-- Number of CDs/Price each
Reorder product:
-- Number of CDs/Price each
Promo/free product:
-- Number of CDs given away
 
Advertising:
-- Months/Cost per month
Shipping to customers/promo:
-- Units shipped/Cost per unit
-- OR Percent shipped/Cost per unit
Misc. costs/office expense:
-- Months/Cost per month
---- Total Expenses
 
INCOME:
Product sales:
-- Number of Retail CDs/Price each
-- Number of Wholesale CDs/Price each
Manually override sales?
 
Download sales:
-- Number of Downloads/Price each
---- Total Income
 
------ Net profit or loss

Recording costs

Enter the total of all money spent recording your songs and mixing to a master CD If you can record, mix and master a top-quality tape in your home studio, enter zero.

Copyrights

Register your copyrights to protect your songs and the record! The U.S. Copyright Office currently charges $20 to copyright and each song and $20 to copyright the record, as a separate entity. Simply enter the number of original songs you anticipate being on your final master tape here. An additional $20 is added automatically by the worksheet to cover copyright registration for the record.

Initial product order

The per-unit costs for the first batch of CDs you have duplicated are higher due to one-time charges for items such as: glass master, print set-up, bar-code charge ($300), mastering/post-production, reference CD, etc. Check your pricing materials from prospective duplicators and decide how many CDs you can afford on your initial order and what the per-unit cost will be.

Make sure any additional charges such as shipping to your door, mastering, bar-code, etc. are prorated to each CD ordered. For example, if you are ordering 1000 CDs at a per-unit cost of $2.90, and you spend an extra $300 for bar-code, $400 for mastering, and $50 for shipping, you have an additional cost of $750. This cost, spread over 1000 CDs, adds 75 cents to the cost of each disc, bringing the total to $3.65.

You enter the initial number and per-unit cost for CDs, and the worksheet will figure the total cost for you.

Reorder product

Reordered product is generally much cheaper than the initial order. If you paid $4.38 per CD for your initial order of 500 discs, you might pay as little as $1.90 for another 500, or $1.65 for another 1000! Also, the only additional charge is usually the shipping of the discs from the duplicator to your door, which will only add 5 or 10 cents to your per-unit cost.

Once you enter the reorder number and per-unit cost for CDs, the worksheet will figure the total cost for you.

Promo/free product

A part of generating publicity and excitement for your release will be to send free copies of your record to radio stations, newspapers, magazines, etc. Decide how many you think you can afford to give away (don't forget the copy for your grandmother), and place those numbers here. As a starting point, anticipate giving away 15 to 20% of your initial order for promotional purposes. The numbers entered here are used to automatically reduce the number of CDs you can sell, down below in the income section.

Advertising

Some people don't advertise; others view their promo CDs as their only advertising. You should probably plan to spend money on some kind of advertising campaign, whether it's print ads, a sticker campaign, flyers, posters, post cards, Internet, etc. Figure how many months you can afford to advertise for (hopefully 12) and how much to spend each month. Start out with $200 to $400 a month for 6 months, then play with the numbers later if you can afford more. The worksheet will compute the total advertising cost.

Shipping to customers/promo

If you sell recordings by mail-order, the Internet, or by phone, you will have to pay someone (U.S. Postal Service, UPS, FEDEX) to ship your music to your customers. Even if you plan to sell your recordings only at gigs, you should realize you will be paying postage when mailing out promotional copies. You can either enter in the actual number of CDs you plan to ship out with an estimated postage charge per unit, or use the box to select a percent (50%, 75%, etc.) of your recordings, along with the postage charge.

The advantage of using the percent is that if you adjust the numbers of discs you plan to buy in your initial order or your reorders, the number shipped out (and the corresponding postage charge) will be adjusted automatically. However if you plan to ship out only your promotional copies, enter the actual number of promotional copies you expect to mail, and leave the percent row unit cost blank. The worksheet will compute the total shipping costs for you, whichever method you choose.

Miscellaneous costs

This category is for all other costs associated with the project that just don't fit anywhere else. Things such as performance rights organization memberships, sample clearance fees, long-distance phone charges, paper, office supplies, etc. You can estimate a monthly amount for this and figure on about 12 months of costs to carry you through the first year of your release. By then your second record will be coming out anyway, right? The worksheet will compute the total miscellaneous costs for you.

Total expenses

The worksheet will automatically update your total expenses as you update your expense categories, or when you hit the 'Calculate Profit' button.

Product sales

This is the most fun area to enter figures into -- how much will you charge for your CDs? Now you can see the bottom-line effect of pricing your CDs a dollar higher or two dollars lower. Make sure you enter the price as inclusive of shipping, if you expensed the shipping above. The numbers entered here should reflect the amount of money your customers will give you (excluding sales tax, since sales tax is neither an expense nor income).

Notice that the worksheet enters the numbers of CDs sold for you; this is based on the number you ordered/reordered, less any promotional copies. So we're assuming you're cleaning out the warehouse, and you've sold everything. If want to try some more realistic scenarios (with less than a total sellout), you can set the 'Manually override sales' field to 'YES', and lower the numbers. This way you can answer questions like, "If I order 1000 CDs, but just sell 500 copies, where will I be?".

You'll also want to set the 'Manually override sales' field to 'YES' if you wish to use the 'Number of Wholesale CDs' income line. Many artists sell their CDs wholesale to Guitar Nine and other online stores, and if that applies to you, you can estimate a number sold at a somewhat lower price per CD (anywhere from 30% to 50% off of a retail sales price).

Most people assume they can price their CDs a lot lower than releases on major labels. They figure since they are one- and two-man operations that overhead is low, so therefore they can make a profit selling CDs for eight bucks. One of the main benefits of this worksheet is to remind you that there are other costs to consider besides manufacturing and postage. Yeah, if you didn't have to advertise or give away promos, and the recordings sold by themselves, you could make a lot of money selling CDs for eight bucks. Realistically, take into account all potential expenses before you make the decision to rock the world with an $8.98 CD list price.

Download sales

With the popularity of sites such as iTunes, which popularized selling mp3 versions of songs for 99 cents each, an artist today can figure his marketing efforts should yield download sales as well. Estimate your potential download sales based upon the strengths of individual tracks and the ability of a 30 second preview to 'make the sale'. Remember, the retailer gets the 99 cents from the customer; figure your end to be somewhere between 49 and 69 cents after expenses.

Total income

The worksheet will automatically update your total income as you update your income categories, or when you hit the 'Calculate Profit' button.

Net profit or loss

The worksheet automatically updates the net profit or loss as you update your income and expense categories, or when you hit the 'Calculate Profit' button.

If you see a positive number here, congratulations! You can possibly make a nice profit with your recording project, assuming sales go as expected. If you see a negative number, that means the project will lose money unless you cut costs, sell more CDs, or charge more money for your record. Play with the numbers; see if a larger initial order will get your unit cost under control. Think about reducing the number of promotional units. Consider the benefits of more advertising, which may trigger additional sales, and allow you to reorder 1000-2000 discs at a much better price.

Keep in mind most changes you make to the figures are really trade-offs of some sort. You can raise your initial order to 5000 discs to get the unit cost to $1.50, but can you pay for that many discs at one time? Is spending another $1000 in advertising really going to move 1000 more discs? Raising the sales price of the CD to $16 may generate more income, but will it price your indie release out of the market? You can try unlimited possibilities, but in the end, try to justify the final numbers as best you can with logic and reason, not just hopes and dreams.

Also, remember that selling your recordings is only one way to make money from your music. You can earn performance royalties when your songs are played if you join ASCAP or BMI; you can have your music recorded by other artists and earn mechanical royalties; you can earn money by touring to support your record. So if you break even or lose a little money on your recording project, your overall income will more than likely increase through your efforts.


Final tips

After you get your recording project looking like an even-money proposition or better, you can print this page and save the results. In a year, review your plan against the actual money you spent and the actual number of recordings you sold. Were you close with your estimates? Use the experience you gained from your first record to help you make better decisions for your next record, and your tiny record label will survive and grow, well into the next millennium.


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