Industry sector: Business services

Record label: Royalty payments and advances

You need to work out how much you will pay to the artists on your roster. These payments may include an advance as well as royalty payments.

The advance

If you can afford it, you may decide to offer an advance to some of your artists to help them cover the recording costs they will incur in producing a record. The advance is a loan to the artist which you will recoup from the artist's share of the profits from the sale of the record. You will have to decide if you will offer inclusive or exclusive advances. With an inclusive advance, it is intended that the artist will pay for all of the recording costs out of the money that you give them and with an exclusive advance, you would give the artist a certain amount to cover their living expenses then arrange and pay for the recording yourself.

Royalty payments

Before signing artists to your roster it's a good idea to give some thought to the level of royalty payments that you will offer them. It is common for a small record label to offer to split the profits of a record equally with the artist, once the costs of making the record have been recouped. Alternatively, you may decide to use the method used by the larger record labels which is to pay a percentage of the Published Price per Dealer for each record sold. The Published Price per Dealer is essentially the wholesale price of a record - ie the amount that a record shop would buy a record for before it adds its own mark-up. The percentage offered to an artist varies but may be around 15%.