You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your record label. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a record label?
- Recording -- Zero to $15,000 or more. Producing a record at a commercial sound studio can cost hundreds of dollars an hour. If you’re going this route, be sure that your talent is well rehearsed before entering the studio and that the time is efficiently used. Some label owners enter the field as audio engineers or music producers and can record talent in their own commercial or at-home studios. And yet others might only contract with artists who’ve already recorded their work and focus on marketing and distribution of the music, avoiding recording costs altogether.
- Graphic design -- Many hundreds of dollars, on up. This includes the cost of the label’s logo design and the look of your first product.
- Manufacturing -- About $1.2 per unit for CDs and $5 or $6 or more for vinyl. Because of the steep cost of pressing music, many labels solely release digital music.
- Entertaining, networking -- Several hundred dollars a year or more. You’ll frequently attend shows and hang out with talent. This cost includes tickets, drinks, travel, and possibly more expensive recruitment costs. At the low end of this budget item the assumption is that you’ll find most of your talent locally. If you’re scoping out the scene nationally or even internationally, this cost obviously escalates considerably.
- Promotion -- Typically, a few thousand dollars. Some labels work with publicists, music promoters, booking agents and others to increase awareness and spur record sales, radio play and ticket sales to live shows.
- Legal services -- $500 to $1,000. You can find artist contract templates online, but you’re better off enlisting professional guidance in writing at least your first contracts.
What are the ongoing expenses for a record label?
Your largest ongoing expenses are likely to be the costs of pressing new physical units (CDs and/or vinyl, mostly) and promoting new releases. Most of your other costs will be reflected as a percentage of sales (ie: the cut of the recording artists, composers, and distributors).
Who is the target market?
Go to bars, clubs and other performance venues where your signed bands are playing and find out who your customers are in terms of age, fashion, education level, and lifestyle. This will help you determine how to target and communicate with your audience.
How does a record label make money?
Music is sold today in a variety of ways, including through both digital and physical channels. Fans buy vinyl records, compact disks, MP3 files and streams from websites such as Spotify. In addition, labels can earn money through licensing deals involving use of the music in soundtracks in film and television, and in commercials and video games and other commercial outlets. Additional income might be generated from digital and satellite transmission, such as by Sirius Radio. And finally, some indie labels sign their talent to what’s called 360 deals, in which the label takes a revenue split for booking the talent in live shows, selling t-shirts and other merchandise and generating other associated income streams.
How much can you charge customers?
Prices are pretty much determined by the market. Vinyl records generally sell for $18 0r $20, while compact disks sell for a bit less. Streaming services such as Spotify might pay a fraction of a penny per play and iTune downloads might sell for $7 or $10 for an album or a dollar for a single. Because manufacturing and packaging costs are so high for physical units, the label might only make a dollar a unit once the manufacturer, artist and music composer/publisher are paid. On the other hand, the label and its talent can snag more than half the cost of an iTune download.
How much profit can a record label make?
Consider XL Recordings, the small British indie label that discovered and released music for the likes of Adele, Radiohead, Vampire Weekend and other wildly popular national acts, selling million of units in the process. Almost 40 percent of music today is produced by indies. That’s because much of it can be streamed or downloaded, which greatly reduces physical material costs. Distribution is also easier online -- at least theoretically. The downside of all of that potential is that competition is steep. Many indie labels only sell a few hundred units, and much of the business is conducted on a part-time basis.
How can you make your business more profitable?
Consider producing compilation albums as samplers of your label’s artist roster. Also, explore opportunities to record music or other indie labels or consult in the distribution of their output. And finally, get the full involvement of your artists. They should perform frequently and sell records and merch at shows.
What will you name your business?
Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your record label is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, but if you still want to weigh all your options check our our article, What Structure Should I Choose for My Business?
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a record label. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Certificate of Occupancy
A record label is generally run out of a storefront. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a record label.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your record label will be in compliance and able to obtain a CO.
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a record label
Today’s young music buyers (and young describes the typical consumers of new music) are very savvy to the web and to social media. Make your music and band news available on Facebook Groups, YouTube, SoundCoud, Pandora, Spotify, and other venues where fans hang out or find new tunes.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
Try to get to the point where your label means something to an audience. Many music fans can’t even identify a single label, but if yours is identifiable with a certain genre, sound, attitude and level of quality, you can get to the point where they buy your latest release not because of the unknown band or performer, but because it comes from your house.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Record Label In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
You must love and recognize your definition of good music. Your communications skills are equally important since you’ll need to get unsigned bands to share your enthusiasm and be able to sell your music to listeners and possibly distributors, entertainment venues and other players in the field.
What happens during a typical day at a record label?
There are many facets to this business, so each day is exciting and different. Here are a few of your key responsibilities.
- Creating a social presence online to generate enthusiasm and give prospective fans a taste of your offerings
- Communicating with CD and vinyl pressing companies, logo and jacket artists, and other key vendors to create a quality product at the lowest possible cost
- Attending concerts, networking with fans and industry insiders, generating fan interest in your signed groups and and assessing unsigned bands for possible deals
- Drawing up contracts and discussing deals with talent and lawyers
- Monitoring unit sales, and electronic download and streaming figures
What are some skills and experiences that will help you build a successful record label?
You must have an ear for music and not be easily discouraged. You’ve got to be your talent’s biggest fan and be tenacious at getting the word out.
What is the growth potential for a record label?
Today’s music market is splintered, with more channels and sub-genres than ever. The cost of entering the market is also relatively small, with online-only distribution possible. However, unit sales can be modest. According to this source, about 90 percent of released music fails to break even. So you might want to keep the day job until your music breaks.
TRUiC's YouTube Channel
For fun informative videos about starting a busines visit the TRUiC YouTube Channel or subscribe below to view later.
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
What are some insider tips for jump starting a record label?
Learn all you can about the music business, and remember that it’s both music and business. You’re probably well motivated to hang out at performance venues listening to music and discussing the topic with fans, but don’t neglect the business side. Legal contracts are boring to read and learn about, but they’re critical. So is a thorough understanding of the various revenue streams and distribution channels involved.
How and when to build a team
You can run your label alone until you have the cash flow and need to draft talent scouts or a support team. You should expand your roster slowly and efficiently enough that you don’t lose focus. Try to form working partnerships with trusted producers, engineers and sound studios to rein in production costs and deliver a consistent sound.