From a marketing standpoint establishing your “price” is one of the cornerstones in the marketing mix.
It is always a challenge for marketers to figure out how much they should charge for their products. Many questions must be asked including: “How much did it cost to produce this item?” “How much are my competitors charging, and should I charge more or less?” “How will price play into our promotional efforts?” And “what will the consumer be willing to pay?”
Due to the radical changes over the past decade in the music business, these questions have become more complex. Core components have shifted including the distribution model and the value consumers place on music, which requires musicians to rethink how much they should charge for their tunes.
In the past, when people still purchased physical albums, the process was easier. Artists could simply figure out how much it cost to produce, manufacture, and market their album then add a little mark-up and…”BANG”…problem solved.
In business this is called either cost-plus pricing or mark-up pricing. Here is a simple break down of what this looks like for an indie band that has recorded an album with all original music (no royalty payments need to be made), and plans to have 5,000 CD’s produced and packaged:
Production and Recording Costs: $10,000
Manufacturing & Packaging: $4,000
Marketing Budget: $2,500
Total: $16,500
Costs per CD: $3.30
Using a Mark-Up Percentage:
Desired profit: 50%
Required Sale Price: $4.95
Many indie-artists simply charge what the market will bear, or what other artists like them might be charging. So let’s say the average indie album goes for $8. If the artist above charges $8 they could stand to earn $4.70 on each cd, which equates to a mark-up of about 242%.
Today, the distribution model of music has changed. According to the International Federation of the Phonographic Industry (IFPI) 35% of music sales came from digital channels in 2013 and that number is only rising. This means you should be looking into digital distribution, if you haven’t already. If you would like to learn more about how to do just that read this article by Budi Voogt on Hypebot. In it, you will come to the realization that in the digital marketplace you have very little say in how much you can charge for your album, and if you do, don’t anticipate the huge mark-ups you would see with physical discs.
The changes in the way consumers purchase music have altered how your music sales can fit into your overall business strategy. In the past, with such high margins, selling physical music was how you made money. When selling your music online, this is not the case. Depending on who your aggregator is and a host of other factors the average musician (without a label) makes about 60¢ per track on iTunes, and around 12¢ per 100 streams on most of the major streaming services according to sources such as Hypebot and Rolling Stone.
I know as artists we hate thinking about the “business” side of our careers, but it is important for you to keep in mind that as more and more consumers move towards digital channels of music consumption you will earn less and less from this aspect of your career. To continue a path of success you will need to capitalize on other aspects of your livelihood such as concert tickets and merchandise. As you move into this strategy you may find yourself using your music as a “loss-leader” to generate buzz and upsell your fans to other profitable products.
There are numerous choices in how you value and price your music. It all depends on your musical and business goals, the strength of your partners (be it a label, distributer, or parent), and how you measure success as a musician. Here are some pricing strategies to consider.
The “Full-Blown Sales” Approach: This is where you focus solely on generating revenue from your music. You attempt to sell both your physical and digital tunes for the highest amount the market can bear.
The “Tiered” Approach: Trent Reznor was a master of this, and even dubbed the term “Connect with Fans = Reason to Buy” (CwF=RtB). He gave away select tracks for free on his website, then offers different album packages. You can purchase his digital album for $12; the digital album plus a physical album for $20; the digital album plus a vinyl record for $28; and at times limited edition autographed packages for upwards of $200.
The “What-Do You Think It’s Worth” Approach: Radiohead got credit for this idea when they released their seventh studio album In Rainbows and allowed fans to download it from their site and pay whatever they wanted for the album. The feat generated lots of buzz and sales, some estimate around $10 million. Just remember they already have an established name and were “first-movers” in regards to this business strategy. And, o yeah, they turned off the promotion after about three months.
The “Pay Up-Front and Help us Out” Approach: If you haven’t produced the album yet, you can always hit up a site like Kickstarter and ask fans to donate to the cause. Just remember to offer them a copy of the album as a reward to help boost sales. Just ask Amanda Palmer how this worked out.
The “Complete Loss Leader” Approach: This is when you don’t charge for your music and give it away to build your brand, generate buzz, and up-sell your customers. You may want to give music away to fans who help promote a show in their area, “Like” your Facebook page, buy concert tickets, etc. From a business standpoint, remember it is best to give away digital tracks and albums as opposed to physical units as your overhead costs are virtually nil. Your aggregator can help you set-up a download code that you can give out online or print onto business cards for under $30 to give out at shows and events.
These are just a few of the better-known examples and you don’t need to do one exclusively. You could combine all of them to increase your distribution channels and the spread of your brand. You might launch a Kickstarter campaign during recording, then offer the first 100 the album for free online, the next 100 to pay what they want for it, while also offering bundled sets that include a t-shirt, signed poster, or the bass players underwear; and finally continue to sell physical discs the band can sign after shows. You are only limited by your imagination and your budget.
On a closing note. One of the best pieces of advice I got early on was to keep track of your album sales and give-a-ways. You can use a notebook, Excel, or other computer program and record each album you sold and for how much. Also record how many you gave away and how much you would have received had you sold them. I received this piece of advice from a major label A&R manager who informed me that this shows the label how many records you can move on a limited budget. So for example if you sold 5,000 albums on a $17,000 budget they could ascertain that a $100,000 budget could move 340,000 albums. It also demonstrates that you take your career seriously and are willing to put in the extra work to make it happen, thus you are less of a risk and a better investment. For those not seeking a “deal”, keeping track of your sales and give-a-ways is great for tax returns and may help you secure a loan to expand your personal distribution efforts.