How To Start Your Own Independent Record Label And Make Money

Start a record label by following these 10 steps:

You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your record label. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Check out our How to Start a Business page.

STEP 1: Plan your business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

What are the startup and ongoing costs?
Who is your target market?
How much can you charge customers?
What will you name your business?

Luckily we have done a lot of this research for you.

What are the costs involved in opening a record label?

Recording -- Zero to $15,000 or more. Producing a record at a commercial sound studio can cost hundreds of dollars an hour. If you're going this route, be sure that your talent is well rehearsed before entering the studio and that the time is efficiently used. Some label owners enter the field as audio engineers or music producers and can record talent in their own commercial or at-home studios. And yet others might only contract with artists who've already recorded their work and focus on marketing and distribution of the music, avoiding recording costs altogether.
Graphic design -- Many hundreds of dollars, on up. This includes the cost of the label's logo design and the look of your first product.

Manufacturing -- About $1.2 per unit for CDs and $5 or $6 or more for vinyl. Because of the steep cost of pressing music, many labels solely release digital music.

Entertaining, networking -- Several hundred dollars a year or more. You'll frequently attend shows and hang out with talent. This cost includes tickets, drinks, travel, and possibly more expensive recruitment costs. At the low end of this budget item the assumption is that you'll find most of your talent locally. If you're scoping out the scene nationally or even internationally, this cost obviously escalates considerably.
Promotion -- Typically, a few thousand dollars. Some labels work with publicists, music promoters, booking agents and others to increase awareness and spur record sales, radio play and ticket sales to live shows.

Legal services -- $500 to $1,000. You can find artist contract templates online, but you're better off enlisting professional guidance in writing at least your first contracts.

What are the ongoing expenses for a record label?

Your largest ongoing expenses are likely to be the costs of pressing new physical units (CDs and/or vinyl, mostly) and promoting new releases. Most of your other costs will be reflected as a percentage of sales (ie: the cut of the recording artists, composers, and distributors).

Who is the target market?

Go to bars, clubs and other performance venues where your signed bands are playing and find out who your customers are in terms of age, fashion, education level, and lifestyle. This will help you determine how to target and communicate with your audience.

How does a record label make money?

Music is sold today in a variety of ways, including through both digital and physical channels. Fans buy vinyl records, compact disks, MP3 files and streams from websites such as Spotify. In addition, labels can earn money through licensing deals involving use of the music in soundtracks in film and television, and in commercials and video games and other commercial outlets. Additional income might be generated from digital and satellite transmission, such as by Sirius Radio. And finally, some indie labels sign their talent to what's called 360 deals, in which the label takes a revenue split for booking the talent in live shows, selling t-shirts and other merchandise and generating other associated income streams.

How much can you charge customers?

Prices are pretty much determined by the market. Vinyl records generally sell for $18 0r $20, while compact disks sell for a bit less. Streaming services such as Spotify might pay a fraction of a penny per play and iTune downloads might sell for $7 or $10 for an album or a dollar for a single. Because manufacturing and packaging costs are so high for physical units, the label might only make a dollar a unit once the manufacturer, artist and music composer/publisher are paid. On the other hand, the label and its talent can snag more than half the cost of an iTune download.

How much profit can a record label make?

Consider XL Recordings, the small British indie label that discovered and released music for the likes of Adele, Radiohead, Vampire Weekend and other wildly popular national acts, selling million of units in the process. Almost 40 percent of music today is produced by indies. That's because much of it can be streamed or downloaded, which greatly reduces physical material costs. Distribution is also easier online -- at least theoretically. The downside of all of that potential is that competition is steep. Many indie labels only sell a few hundred units, and much of the business is conducted on a part-time basis.

How can you make your business more profitable?

Consider producing compilation albums as samplers of your label's artist roster. Also, explore opportunities to record music or other indie labels or consult in the distribution of their output. And finally, get the full involvement of your artists. They should perform frequently and sell records and merch at shows.

What will you name your business?

Choosing the right name is important and challenging. If you don't already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Record Label Name Generator

If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.

When registering a business name, we recommend researching your business name by checking:

Your state's business records
Federal and state trademark records
Social media platforms
Web domain availability.

It's very important to secure your domain name before someone else does.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your record label is sued.

Read our Guide to Form Your Own LLC

Have a Professional Service Form your LLC for You

Two such reliable services:

You can start an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.

STEP 3: Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

In order to register for taxes you will need to apply for an EIN. It's really easy and free!

You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.

Learn how to get an EIN in our What is an EIN guide or find your existing EIN using our EIN lookup guide.

Small Business Taxes

Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).

You can learn more about small business taxes in these guides:

LLC Taxes
Sole Proprietorship vs LLC
LLC vs Corporation
LLC vs S Corp
How to Start an S Corp

There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.

STEP 4: Open a business bank account & credit card

Using dedicated business banking and credit accounts is essential for personal asset protection.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.

Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.

Open a business bank account

This separates your personal assets from your company's assets, which is necessary for personal asset protection.
It also makes accounting and tax filing easier.

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Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.

Open net-30 accounts

When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term "net-30," which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.

Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.

Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.

Get a business credit card

This helps you separate personal and business expenses by putting your business' expenses all in one place.
It also builds your company's credit history, which can be useful to raise money and investment later on.

STEP 5: Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

STEP 6: Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.

State & Local Business Licensing Requirements

Certain state permits and licenses may be needed to operate a record label. Learn more about licensing requirements in your state by visiting SBA's reference to state licenses and permits .

Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.

For information about local licenses and permits:

Check with your town, city or county clerk's office
Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources .

Certificate of Occupancy

A record label is generally run out of a storefront. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.

If you plan to lease a location :

It is generally the landlord's responsibility to obtain a CO.
Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a record label.
After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.

If you plan to purchase or build a location :

You will be responsible for obtaining a valid CO from a local government authority.
Review all building codes and zoning requirements for your business' location to ensure your record label will be in compliance and able to obtain a CO.

STEP 7: Get business insurance

Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company's financial wellbeing in the event of a covered loss.

There are several types of insurance policies created for different types of businesses with different risks. If you're unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it's a great place to start for your business.

Learn more about General Liability Insurance.

Another notable insurance policy that many businesses need is Workers' Compensation Insurance. If your business will have employees, it's a good chance that your state will require you to carry Workers' Compensation Coverage.

STEP 8: Define your brand

Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.

If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.

How to promote & market a record label

Today's young music buyers (and young describes the typical consumers of new music) are very savvy to the web and to social media. Make your music and band news available on Facebook Groups, YouTube, SoundCoud, Pandora, Spotify, and other venues where fans hang out or find new tunes.

How to keep customers coming back

Try to get to the point where your label means something to an audience. Many music fans can't even identify a single label, but if yours is identifiable with a certain genre, sound, attitude and level of quality, you can get to the point where they buy your latest release not because of the unknown band or performer, but because it comes from your house.

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Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.

STEP 9: Create your business website

After defining your brand and creating your logo the next step is to create a website for your business.

While creating a website is an essential step, some may fear that it's out of their reach because they don't have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.

Here are the main reasons why you shouldn't delay building your website:

All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don't need to hire a web developer or designer to create a website that you can be proud of.

Using our website building guides, the process will be simple and painless and shouldn't take you any longer than 2-3 hours to complete.

Other popular website builders are: WordPress, WIX, Weebly, Squarespace, and Shopify.

STEP 10: Set up your business phone system

Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That's not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.

There are many services available to entrepreneurs who want to set up a business phone system. We've reviewed the top companies and rated them based on price, features, and ease of use. Check out our review of the Best Business Phone Systems 2021 to find the best phone service for your small business.

Recommended Business Phone Service: Nextiva

Nextiva is our top choice for small business phone numbers because of all the features it offers for small businesses and it's fair pricing.