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How to Start a Record Label
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.
$14,700 - $30,300
Time to build
$9,000 - $60,000 p.a.
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
In 2019, German research firm Statista valued the global music industry at $23.1 billion.https://www.statista.com/topics/4948/music-industry/#dossierKeyfigures The pandemic has since taken a chunk out of that, 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/
The key industry trend is that digital music is increasingly dominant. 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.
How much does it cost to start a record label?
The start-up 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.
|Start-up Costs||Ballpark Range||Average|
|Setting up a business name and corportation||$200 - $200||$200|
|Licenses and permits||$200 - $300||$250|
|Insurance||$100 - $500||$300|
|Business cards and brochures||$200 - $300||$250|
|Website setup||$1000 - $3000||$2000|
|Initial marketing and promotions budget||$2500 - $5000||$3750|
|Studio equipment and setup||$10000 - $20000||$15000|
|Legal costs for contract drafting||$500 - $1000||$750|
|Total||$14700 - $30300||$22500|
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 $5,000 in monthly revenue from the start, your annual revenue for the first year will be $60,000. At a 15% margin, this would mean a profit of $9,000.
As your brand gains recognition and your artists become more popular, revenue should increase, perhaps to as much as $25,000 per month. This would mean annual revenue of $300,000 and if you’re able to boost your margin to 20%, a tidy profit of $60,000.
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
Step 2: Hone Your Idea
Now that you know what’s involved in starting a record label, you should hone your idea in preparation to enter a competitive market. 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.
If you find a few artists with real potential, 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.
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
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 consulting 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.
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
You can have a studio in your home at first and run the entire business from there. As you grow, however, you will likely need an office and a separate space for your studio. Find commercial space to rent in your area on Loopnet, Craigslist, Crexi and Commercial Cafe.
When choosing a commercial space, you may want to follow these four 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
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 at a web cataloging site such as NameChk. 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. And if you’ve exhausted all your creative juices but still don’t have a business name, don’t stress! Instead, check out our business name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.
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, assessing 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 yourself before, it can be an intimidating task. Consider hiring an experienced business plan writer on Fiverr to create a professional 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 offer real advantages when it comes to the music industry.
If you’re willing to move, you could really maximize your business!
Choose your business structure
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your barbershop will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the four main options:
- Sole proprietorship – The most common structure for small businesses makes no legal distinction between company and owner: you get to keep all the profits, but you’re personally liable for all debts.
- Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses.
- Corporation – 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.
- 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.
We recommend that most new business owners form an LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can quickly and cheaply form an LLC using ZenBusiness’s online LLC formation service (it can take as little as 5 minutes). They will check that your business name is available before filing, submit your Articles of Organization and be on hand to answer any questions you have about the company formation process.
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.
The IRS website also offers a tax-payers checklist, and taxes can be filed online. 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.
- Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund an entrepreneur’s vision.
- Personal: Self-fund your business via your savings, the sale of property or other assets, and support from family and friends.
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, health license and permit 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 licenses and local county or city-based health licenses and permits. Additional permits may be required by your state, such as a general business permit or license. The license requirements and how to obtain them vary from state to state, so check your state government’s website or contact the appropriate person to inquire about licenses and permits needed to run a catering business. You could also use the SBA’s guide to identify your state’s requirements.
Your city, town, or county may also have additional requirements, such as signage and zoning permits. You may want to speak to representatives of your local governments about licensing requirements.
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.
For peace of mind and to save time, 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 you to make sure you’re fully compliant.
Step 9: Open a Business Bank Account
Before you begin making money, you will need to have somewhere 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 catering business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer business account options, just inquire at your preferred bank to learn about rates and features.
But it is a good idea to look at a few options, as banks vary in terms of offerings, and you want to find the plan that works best for you. Once you choose your bank, you just need to bring your EIN (or Social Security Number if you decide on a sole proprietorship) and your articles of incorporation or other legal documentation that proves your business is registered.
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, and your life.
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.
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.
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. We examine several of them below.
Some of your business will come from walk-by customers and web surfers, but you should still spend time on marketing! Especially as a new business, getting the word out and increasing customer awareness is crucial.
Once your website is up and running, make sure you link to your social media accounts and vice versa. Social media is a particularly good way of 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 over age 50 in the Cleveland area.
- Instagram: Same benefits as Facebook but with different target audiences.
- Website: Search engine optimization (SEO) will help your website appear closer to the top in relevant search results, a crucial element for increasing sales.
- 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.
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
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
Your business may at some point need to hire all of these positions, or just one or two of them, depending upon its size and needs. You might also hire multiple workers for a single role, or a single worker for multiple roles, again depending on your needs.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn or Facebook, or using free classified sites like Jobs and AngelList. You might also use a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Finally, you could also hire a recruitment agency to help you find talent.
Step 13: Start Making Money!
Focus on USPs
Unique selling propositions, or USPs, are the unique characteristics of a product or service that sets 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.
Some 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
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:
- Competitions and giveaways – Generate interest by offering prizes for customers who complete a certain action, such as being the 10th customer on Black Friday.
- Optimize calls to action (CTAs) – Experiment with text, color, size and position of calls to action such as “Buy Now”. This can sharply increase purchases.
- Signage – Put up eye-catching signage at your store and website
- Flyering – Distribute flyers in your neighbourhood and at industry events
- In-Person Sales (IPS) – Offer your products at local markets, tradeshows
Build Affiliate Relationships
Affiliate marketing is advertising in which you compensate third parties, who are your affiliates, in order to generate traffic to your website. You develop long-term relationships with these affiliates and generate traffic for each other on an ongoing basis.
Record label FAQs
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.
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.
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.
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