The future of music

How to Start a Record Label

December 29, 2023
how to start a record label

Do you have a dream of having your own record label?

We have good news – nowadays, starting that kind of business is not as difficult as you might think.

The music industry has changed a lot in the last two decades, and record labels operate in a different way now. 

So in today’s post, we’ll tell you how to start a record label and provide you with useful tips on how to simplify the whole process.

Without further ado, let’s look at the best ways to start a record label!

How to Start a Record Label

Founding a record label is not as elusive as it used to be.

In fact, starting an independent record label comes with many advantages. 

And more than one-third of music industry revenue comes from indie labels. 

However, if you want to succeed in this field, you need to approach the whole process in the right way. 

1. Choose a business structure 

One of the first things you should do when starting your own record label company is to decide on a business structure.

In other words, if you want to do this right, you’ll have to form a legal business.

As a legal entity, you’ll be able to manage taxes, create a business bank account, and operate in a safer and more efficient way.

people in a meeting

There are several business structures you can go for: 

  • Limited liability company (LLC) – If you’re starting a record label with partners, you’ll need a partnership or LLC operating agreement 
  • Sole proprietorship – If you’re starting a record label by yourself, you won’t have to pay to apply for an LLC status, but you’ll be personally responsible for the company

Forming a legal business with partners costs money, but it does come with liability protection.

And if you start a sole proprietorship and something goes wrong, a lawsuit against your label is basically a lawsuit against you personally.

Both options have their advantages and disadvantages, so you should think about them carefully and opt for a structure that aligns with your goals and interests. 

Regardless of what you opt for, you should conduct thorough research and learn more about business taxes and structuring. 

2. Pick a name for the label

The next thing you should do is pick a good name for your record label.

And while brainstorming ideas, make sure the name is available – you can visit pages like EHost.com or your state’s database of corporations and LLCs.

If you’re sure the name fits your company and values and no other business has the name already, this is it.

You can also search for a matching domain name for your record label’s website since it would be wise to secure your online name while it’s still available. 

3. Register your business 

Once you have the business structure, a general idea behind your business, and your record label’s name ready, you can take the next administrative step. 

Depending on your location and business structure, you have to find a suitable way to register your business.

For instance, you can search for LLC formation documents in your state.

And you should get an ISRC “stem” from the National ISRC agency in your country.

You can find out how to register a record label in your country online, or you seek advice from someone in the industry.

Either way, completing these few administrative tasks is essential in setting up your own record label company.

4. Determine business costs 

Once you register your business, you need to open business bank accounts. 

By the way, it would be wise to think about your business costs before starting anything, especially if you’re not sure how to handle your startup costs. 

If you want to start a record label, you need to make sure you can cover the startup costs.

So, make a list of all the potential costs such as recording equipment, manufacturing costs, promotions, and contracts.

woman calculating and using laptop

Generally, starting a record label company can cost anywhere from $200 to $50,000 – the cost varies from country to country and from state to state. 

However, starting a small record label company can be quite affordable. 

And if you’re on a budget, you can cut down the costs by renting the equipment, using digital platforms to master your music, and so on. 

Also, find out more about government programs that support new business owners and other opportunities that might help you get things started. 

5. Decide on a vision 

At the beginning of this journey, you also need to decide on a vision and think about your brand aesthetic.

At this point, you should also define your goals and determine what kind of music you want to release. 

When it comes to specific business goals, try to stick to SMART goals – Specific, Measurable, Attainable, Relevant, and Time-based goals.

Your vision should also define where you’re at as well as where you see yourself in the future. 

And although you want to turn this into a profitable venture, you should always make your music a priority.

Focus on the quality of your music and don’t forget about your personal values and your initial motivation to start this business. 

Furthermore, if you want to stand out from the crowd, you need to develop an appealing brand aesthetic.

Generally, branding a record label includes creating a logo, building an attractive website, and choosing a tone for your overall design, cover art, and merchandise.

Your brand aesthetics should align with your business goals, the type of music you want to release, and the kinds of artists you want to sign. 

This is a very important part of the process that will determine your next steps. 

6. Define artist deals and contracts 

Based on your goals and vision, you need to decide how you’ll work with artists and venues.

This is one of the essential parts of the record label business plan. 

The good news is, independent record labels usually have flexible deals.

Nevertheless, you need to be clear with the artists about how things work, especially regarding the terms, length, and percentages of how you’ll split profits.

All of this will allow you to create guidelines for signing new artists. 

When creating the guidelines, you should think about the following questions: 

  • Will your label cover the recording costs?
  • Will the artists get the payment in advance?
  • How will earnings be split?
  • What does the deal cover (one album or several)?
2 woman, contract paper, notebook,ballpen

Generally, record labels can keep a cut anywhere from 50-90% of an artist’s earnings.

But if you’re just starting out, you can start half and half on direct profits.

The most important thing is to be clear and fair.

You can also get in touch with similar record labels and ask about their revenue split, or you can contact a music lawyer to get all the necessary information and make sure you’re doing everything right.

7. Find a distributor 

Distribution isn’t reserved for major labels only anymore – with a variety of digital distribution services available to everyone, you can release your music in an easy and affordable way.

You just need to find a digital distribution service that meets your needs.

A good distributor will help you release your music on all large streaming platforms such as Spotify, Apple Music, Deezer, and so on.

Artists will sign with your label because they want to get their music heard and grow their audience.

That said, you need to find a good way to release new music. 

And you need to find an effective way to promote it.

In this day and age, distributing and promoting music is relatively easy, but if you want to do it properly, you need to put the work in.

See also: Best Music Distribution Services

8. Market your record label company

If you want to run a successful independent record label, you need to develop a good marketing plan.

Now, there are many good marketing strategies you can utilize without breaking the bank.

For instance, you can set up a Google Business Profile that will help people find you in searches.

And you can build a strong online presence – develop a powerful social media strategy (for Instagram, Facebook, LinkedIn, and Twitter) and encourage artists to be active on platforms like SoundCloud and Bandcamp.

Plan your content carefully, and keep nurturing your brand aesthetic.

Also, don’t forget to network – music is a networking-oriented business, and making connections and building relationships within the industry is important. 

You can also reach out to content creators and playlists curators as they are very influential when it comes to music promotion.

All in all, you need to find a good way to reach and retain fans, and you need to be persistent. 

It will get easier as you gain more experience and your budget grows.

But at the beginning, you’ll need to find innovative and effective ways to promote your music, market your company, and build a good reputation.

9. Collect your royalties 

When you establish a business and start signing artists, you’ll also start to see some sales and streams. 

Depending on your distributor and the contracts you made with artists, you’ll start to earn an income.

And one of the ways you’ll earn an income is by collecting all of your royalties. 

Glass with coins and plant

Music royalties refer to the payments generated from the usage of songs.

These payments are made to rights holders (songwriters and artists) and intermediaries like record labels, publishers, and music producers.

Generally, music royalties can be divided into two categories:

  • Master recording royalties – payment made to recording artists, labels, and producers whenever the song is streamed, downloaded, or bought physically
  • Neighboring rights royalties – royalties generated from public performance or broadcasting – this includes radio, TV, digital services, cinemas, public places, and cable music channels

So if you’re wondering how record labels turn a profit, this is your answer – they make money when their music is purchased or licensed for use. 

If you own publishing rights, you can receive money from:

  • Mechanical royalties – royalties earned through physical sales, digital streaming, and downloads
  • Performing royalties – the fees music users pay when music is performed publicly
  • Sync licensing fees – generated when music is used in movies, TV shows, commercials, video games, etc. 

But in order to collect your musicians’ royalties, you need to license the publishing rights of your artists. 

And that’s why you should register with the relevant royalty collection societies.

Royalty collections societies license and manage copyrighted works on behalf of copyright owners.

Besides collecting your royalties, you can also handle merchandise for your artists. 

Should You Start a Record Label?

As a record label owner, you need to be familiar with copyright laws, music royalties, contracts, and other relevant terms and processes. 

There’s a lot to learn if you’ve never done this before, but if you’re motivated and passionate, you’re already on the right track.

Either way, money shouldn’t be your only reason to get into founding a record label.

The thing is, building a good reputation and making serious money with music takes time.

You’ll need to invest a lot of time and effort into creating a good business plan, marketing your record label, and finding artists you want to work with. 

And you should be ready for a lot of competition. 

That said, you really need to be passionate about music and finding new material if you want to succeed in this field.

If all of this seems exciting to you, then you should go ahead and do it.

Benefits of Starting a Record Label

Although it’s exciting and interesting, getting into this kind of business might seem a bit intimidating for newcomers.

Nevertheless, starting an independent record label comes with numerous benefits.

First of all, as a record label owner, you’ll have complete freedom over your business and the type of music you release.

You will work with talented musicians and artists, and you will get the chance to discover new artists and offer them a collaboration that will benefit you both. 

As an operator of a small label, you’ll have complete financial and creative freedom. 

working table with laptops

Moreover, there are many digital marketing and promotion tools that can help you reach and retain fans. 

Distributing and promoting music has never been easier, and you should take advantage of all the opportunities you have at your disposal.

And as a record label, you’ll have multiple streams of revenue, including streaming, physical sales, licensing, and so on.

How you’re going to run your record label is entirely up to you.

Plus, if you stay motivated and persistent, you’ll have the chance to shape the direction of the music industry, and that’s quite exciting.

How to Start a Record Label – Final Thoughts 

Starting a record label can be challenging, but if you’re passionate about discovering and curating new artists, it’s definitely achievable.

So when learning how to start a record label, you need to make sure you’re doing this for the right reasons.

If you’re sure of it, you can start by choosing your business structure, developing a business plan, deciding on a vision, and registering your business.

You should also define artists’ deals, find a distributor, and market your record label. 

It’s a challenging process for sure, but if you approach it in the right way, it will also be a very rewarding one. 

You may also like: How to Get Signed to a Record Label

Will Fenton

Will, the founder of MIDDER, is a multifaceted individual with a deep passion for music and personal finance. As a self-proclaimed music and personal finance geek, he has a keen eye for futuristic technologies, especially those that empower creators and the public.

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