We all love music, which makes music big business. We know the names of the big record labels, but there are many smaller record labels in the industry. If you have a passion for music and discovering new bands, you could start your own record label and maybe someday you could be one of the big names.
Starting any kind of business, however, takes a lot of work. The key is to have the knowledge that you need before you start so that you avoid common mistakes people make when starting a record label. Here we provide a comprehensive 13-step guide to help you build a profitable business.
Step 1: Decide if the Business Is Right for You
Starting a record label requires time and effort. You will be taking a significant risk, so educating yourself is critical before making the decision to launch your business.
Pros and cons
Every business has its positives and negatives, which you should weigh before deciding if starting a record label is a good fit.
Here are some basic pros and cons of starting and running a record label.
- Creative freedom.
- Work from home when you want
- Unlimited profit potential
- Strong competition from other labels
- You need to know the right people
- Building a strong brand takes time
Record label industry trends
In 2021, German research firm Statista valued the global music industry at nearly $29 billion((https://www.statista.com/statistics/272305/global-revenue-of-the-music-industry/)) despite the pandemic taking a chunk out of the previous year’s revenue mainly due to canceled concerts and festivals.
But music streaming has increased sharply of late, and independent record labels today control nearly 42% of the market, with more than $3 billion in annual revenue.((https://www.statista.com/statistics/587216/music-streaming-revenue/))
Industry size and growth
Trends and challenges
In the past decade, according to Statista, streaming revenue has leapt more than 30-fold, from just over $400,000 in 2010 to $13.4 billion in 2020. The opportunity is there for the smart entrepreneur.
Trends in the record label industry include:
- Streaming is now a dominant form of music consumption
- Consumers prefer streaming rather than downloading albums
- New technologies, smartphones boost digital music consumption
Challenges in the record label industry include:
- Promoting artists and their music through digital channels
- Fierce competition
Popular streaming platforms
The most popular music streaming platforms in the US as of 2021 are:
- Spotify (32%)
- Apple Music (16%)
- Amazon (13%)
How much does it cost to start a record label?
The startup costs for a record label can range from about $15,000 to $30,000. These totals assume you’ll be setting up a recording studio, which you can do in your home when you’re first starting out.
You will need certain items to launch your record label. Here’s a list to get you started:
- Digital audio workstation
- Microphones and stands
- Studio chairs
- Acoustic panels
|Start-up Costs||Ballpark Range||Average
|Setting up a business name and corporation||$200 - $200||$200
|Licenses and permits||$200 - $300||$250
|Insurance ||$100 - $500||$300
|Business cards and brochures||$200 - $300||$250
|Website setup||$1,000 - $3,000||$2,000
|Initial marketing and promotions budget||$2,500 - $5,000||$3,750
|Studio equipment and setup||$10,000 - $20,000||$15,000
|Legal costs for contract drafting||$500 - $1,000||$750
|Total||$14,700 - $30,300||$22,500
How much can you earn from a record label?
Your profit will vary depending on:
- How many artists you sign
- The success of those artists and your promotions
Your largest ongoing expense will be promoting your artists and your label. Choosing to produce albums or CDs will of course increase your costs, but most small record labels today are digital-only.
Record labels generally have profit margins from 15 to 20%. If your artists bring in a total of $10,000 in monthly revenue from the start, your annual revenue for the first year will be $120,000. At a 20% margin, this would mean a profit of $24,000.
As your brand gains recognition and your artists become more popular, revenue should increase, perhaps to as much as $30,000 per month. This would mean annual revenue of $360,000 and a tidy profit of $72,000 if you’re able to maintain your margin at 20%.
What barriers to entry are there?
The barriers to entry for a record label are high. Your biggest challenges will be:
- Finding great artists and standing out from the competition
- Significant promotional costs and time required for brand-building
- Expense of building out a recording studio
- High-risk industry: most artists fail
Related Business Ideas
If you’re still not sure whether this business idea is the right choice for you, here are some related business opportunities to help you on your path to entrepreneurial success.
Step 2: Hone Your Idea
Now that you know what’s involved in starting a record label, it’s a good idea to hone your concept in preparation to enter a competitive market.
Why? Identify an opportunity
Since you have no track record in the business, you need to find a way to stand out from the competition.
Look at what is happening in the music industry. What types of music are hot today? Might you know any emerging artists in those genres? It’s best to get out and network, attend industry events, meet music professionals, and become part of your local music scene.
What? Determine your products or services
Choose your preferred genre of music and then seek out strong, undiscovered artists. A good way to start is to check your local event listings and start attending concerts you find of interest.
Your products, essentially, are the artists that you sign. You will be promoting and selling them so that they generate revenue. However, you are also providing services to the artists: recording, promoting, and distributing their music; and helping them build their brands.
It’s a good idea to examine what major record labels offer their artists and determine what is feasible for you as a fledgling label.
How much should you charge for record label services?
As the label owner, you will need to pay commissions to your artists, as well as their songwriters and publishers. Artists typically receive 10-15% of the revenues from their music, while composers and publishers receive 30% or more, which means you as the label owner will end up with about 60% of the revenues, give or take.
Publishers are responsible for the music itself and ensure that it is protected by copyright laws. They handle the future use of the music, as when music is covered by another band, for example.
When everyone else is paid including the artist, the record label generally receives about 60% of the revenue.
It might be a good idea to research other record labels and examine their commission models. Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Who? Identify your target market
Your target market will depend on the genre you choose. It’s probably wise to first find promising artists, then orient your label and promotions toward their genre.
Where? Choose your business premises
In the early stages, you can have a studio in your home at first and run the entire business from there to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out an office and a separate space for your studio. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
- Central location accessible via public transport
- Ventilated and spacious, with good natural light
- Flexible lease that can be extended as your business grows
- Ready-to-use space with no major renovations or repairs needed
Step 3: Brainstorm a Business Name
Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
Here are some ideas for brainstorming your business name:
- Short, unique, and catchy names tend to stand out
- Names that are easy to say and spell tend to do better
- The name should be relevant to your product or service offerings
- Ask around — family, friends, colleagues, social media — for suggestions
- Including keywords in the name, such as “music” or “records”, boosts SEO
- Choose a name that allows for expansion: “Jim’s Bakery” rather than “Jim’s Cookies”
- Avoid location-based names that might hinder future expansion
- Use online tools like the Step by Step business name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that setn your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Step 4: Create a Business Plan
Every business needs a plan, a rough outline that helps guide a startup through the launch process while maintaining focus on key goals. A business plan is also crucial for helping potential partners and investors understand your company and vision:
- Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
- Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
- Product and Services: Describe your shop’s services in detail.
- Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
- Competitive Analysis: Analyze main competitors, assess their strengths and weaknesses, and create a list of the advantages of your services.
- Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
- Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
- Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
- Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
- Appendix: Include any additional financial or business-related documents.
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist at Fiverr to create a top-notch business plan for you.
Step 5: Register Your Business
Registering your business is an absolutely crucial step — a prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s done, you have your own business!
Choose where to register your company
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to record labels.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Choose your business structure
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your record label business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
- Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
- General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
- Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
- C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
- S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using ZenBusiness’s online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Step 6: Register for Taxes
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate on a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.
Step 7: Fund your Business
Securing financing is your next step and there are plenty of ways to raise capital:
- Bank loans: This is the most common method, but getting approved requires a rock-solid business plan and strong credit history.
- SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
- Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
- Venture capital: Offer potential investors an ownership stake in exchange for funds, keeping in mind that you would be sacrificing some control over your business.
- Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
- Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
- Personal: Self-fund your business via your savings or the sale of property or other assets.
Bank and SBA loans are probably the best options, other than friends and family, for funding a record label business.
Step 8: Apply for Licenses/Permits
Starting a record label requires obtaining a number of licenses and permits from local, state, and federal governments.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Step 9: Open a Business Bank Account
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your record label business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Step 10: Get Business Insurance
Business insurance is an area that often gets overlooked but is vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
- General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
- Business Property: Provides coverage for your equipment and supplies.
- Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
- Worker’s compensation: Provides compensation to employees injured on the job.
- Property: Covers your physical space, whether it is a cart, storefront, or office.
- Commercial auto: Protection for your company-owned vehicle.
- Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
- Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.
Step 11: Prepare to Launch
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Essential software and tools
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use industry-specific software such as Reprtoir, AMPsuite, and SoundCloud to manage files of tracks and videos, share playlists, make royalty accounting easier, find new artists, and more.
- Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero.
- If you are unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.
Some of your business will come from online visitors, but you should still invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.
Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:
- Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area.
- Instagram: Same benefits as Facebook but with different target audiences.
- Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Buy Now”. This can sharply increase purchases.
- Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers.
Take advantage of your website, social media presence and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:
- Signage – Put up eye-catching signage at your store and website.
- In-Person Sales – Offer your tracks and videos at local markets and trade shows.
- Sponsor events – You can pay to be a sponsor at events that are relevant to your target market
- Post a video – Post a video about your record label. Use humor and maybe it will go viral!
- Start a blog – Start a blog and post regularly. Change up your content and share it on multiple sites.
- Press releases – Do press releases about new products, sales, etc.
- Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
- Make a podcast – This allows you to make a personal connection with your customers
- Offer a free download – Offer something of value to download from your website to capture emails.
- Create infographics – Post infographics and include them in your content.
Develop your website
Website development is crucial because your site is your online presence and needs to convince musical acts, and their fans, of your expertise and professionalism. They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
You can create your own website using services like WordPress or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web developer to create a custom website for your business.
Focus on USPs
Unique selling propositions, or USPs, are the unique characteristics of a product or service that set it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your music label meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your record label could be:
- Fill a market gap, such as an under-appreciated genre
- Unique and bold marketing plan
- Impressive list of valuable industry contacts
- Offer artists a comprehensive package of services
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a record company, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in the music industry for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in music. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.
Step 12: Build Your Team
Since your label needs to have a recording studio, you will likely need to recruit some employees right off the bat. These would include:
- Studio Manager — oversees recording process
- Marketing Lead – social media marketing, SEO, content creation
- A & R Supervisor — leads talent scouting and development
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Step 13: Start Making Money!
You’re now ready to start your record label. If you’re lucky, you’ll just need a couple of artists with a huge fan base to make your sales go through the roof. It’s wise, though, to always be on the lookout for promising new artists. Once you find a few, consider if their genre is what you want to focus on. You may want to be open to more than one genre at first so that you don’t miss out on artists with real potential.
Either way, to sign high-potential artists you are going to have to sell yourself and your label and have a comprehensive marketing plan for those artists.
Record label FAQs
How much does it cost to start a record label?
Depending on the quality of your equipment, start-up costs for a record label range from about $15,000 to $30,000 if you set up your recording studio in your home. Better quality equipment is often worth the investment because it will likely produce better music.
How do I start a record label with no money?
It’s pretty much impossible to start a record label with no money. But that doesn’t mean you can’t find another way. Reach out to everybody you know and ask if they might have access to funds or potential investors. An entrepreneur should be willing to exhaust his or her contact list to fulfill his dream.
What paperwork do you need to start a record label?
There are several bits of red tape to complete. You’ll need to establish your business name, choose an entity type, register for taxes, and obtain the required licenses and permits for your area. For a record label, you will also need to hire an attorney to draft contracts for you.