This is one of the most misunderstood topics that rarely gets addressed and talked about with musicians and artists, but the concept is incredibly simple. It’s so simple that it makes most musicians and artists upset because it forces them to face facts about their art (product/service). I’ve written about the important of reinvestment, but that assume there is some profit of some kind that can be reinvested.
For a musician to make a living there must be profit. That means a musician must make enough money from musical endeavors to cover expenses of said musical endeavors and have profit at the end of the day to buy things like food and water and to pay other bills – if music is how they make a living. Of course, this article is not aimed at hobbyist or semi-pro musicians who want to remain semi-pro, but rather this article is for people who are professional musicians who want to increase their profits or young musicians who aspire to be professional musicians. The difference between a hobbyist (or a semi-pro) and a professional is the prior spends money to make music while the other makes money (or some sort of profit) from music. I say some sort of profit because there are professional musicians who profit in priceless personal enjoyment or in giving away happiness and there’s nothing wrong with that, although it sure does suck, in my eyes, when I see a ridiculously talented musician who is trying to make money for food etc and can’t because they don’t understand the concept of ROI (return on investment).
The ROI is the what comes back to the person producing the product or service (This might be a great time to better define the word “producer” – A producer is a person responsible for creating something. In a band for example, there could be the member who creates the bass line melody/effects chain/etc and this person is indeed a producer. There could be a person who gives a strong vision to the final mix and arrangement of the song and this person too is a sort of producer. Or there could be a person who puts up the money to make it all happen and this person is a producer as well. The producer produces a product.). The producer invests time, skill, and or money. This investment may fail to return a profit, in which case the ROI is negative. If the goal is to have profit, or a positive ROI, then understanding the concept fully is a good idea.
So how do we get a positive ROI? Well, basically, we must adjust our business strategy to cost less than the final price. Sometimes we can control both of these variables and sometimes we can not. Lets look at an example:
Itunes (although it’s going away) sets the price of songs at about $1. If we make one sale of a song, then it must cost less than $1 for us to turn a profit. In this case, we don’t really get to change the sale price of the product as we are bound by iTunes’s rules (I know we actually can set the price to .69 cent or $1.29, but that withstanding…), so we have to look at other variables. We could sell more copies of the song like a million copies equaling $1 million dollars. So the price of the production of the song would have to be less than $1 million dollars, right?
Wrong. There are way more costs and we don’t actually get that million dollars anyway. Here in the US, by using a distributor like Distrokid for example, we get a portion of the sale. Apple keeps about 30% and we get about 70% – $700,000 from $1,000,000. Still we don’t actually get that $700k. About half of it goes to taxes so you get $350k and the government takes their $350k (this is something too many musicians don’t understand at all and we’ll talk about this elsewhere – it’s one of the reasons I’m running for president). Anyway, your $350k isn’t all profit either. Lets look at some setups for a single song production:
Case study #1
You buy a beat for $200 outright with all rights (so you don’t owe anything else ever), pay a studio engineer $300 for studio time and to master your song (and give no points/percentages/royalties/songwriting credit/etc). You do all the writing and singing/rapping. It cost about $20 to use Distrokid to upload and distribute your song. You do zero promotion, zero advertising, and the song just blows up and goes viral and those million people download your song. You spent $200 + $300 +$20 so you’re at $520 for costs right? Nope, wrong again. You’ve got to pay yourself for your time. If it takes you a year to make this one song and this is what you do for a living, then you’ve also got to factor in what you pay yourself. Maybe this only includes things like rent, electricity, cell phone bill, food, etc, but this stuff still counts toward what it costs to make the one song. So let’s say your total bills for the month come to $1500 and you are paying yourself only enough to pay your bills because you’re a shit employer. That means the cost of making this song is really closer to $520 + ($1500×12) which equals $520+$18,000 so $18,520 is your cost for one song… until you consider that maybe you don’t have a viral hit that takes zero dollars to promote. Let’s look at case study #2.
Case study #2
Here everything is the same from before, but you don’t have a viral hit and instead you have to make a music video, tour, pay to submit to blogs, and run a radio campaign. Ok, so let’s say the music video costs $500 and to tour it costs $10,000 for gas, lodging, merch, pay to play venue or festival fees and then maybe $100 for blog submissions and another $100,000 for a radio ad campaign… Now we’re at $18,520 PLUS $500 + $10,000 + $100 + $100,000 = $129,120 in costs to sell a record that costs $1. Still can be profitable, but that means for $129,120 you can make $220,880 if you sell a million copies at $1.
With Spotify, the payout is close to $0.008 per stream. Go have fun figuring out how many spins you’d need to be able to make a profit if the above costs stay the same… Imagine what had to happen for Drake’s video that cost more than a million dollars to be profitable. I don’t mean to sound disheartening, but I want you to understand that if you want to be a professional and make a monetary profit from music, you’re gonna have to crunch the numbers or pay someone to crunch them for you like an accountant at a label (or just hope you hit the viral lottery).
I want to help you build a plan that creates a positive return on your investment. You can make more money on a song that costs $5 to make than someone else could on a song that cost $1 million, but the opposite can be true too. It comes down to planning and understanding economics and business at the macro and micro levels. I understand these things. Reach out and I’ll be glad to work with you no matter what your budget is from zero to the sky.
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