Tuesday, May 31, 2011

Let's Get Physical: The Real Price of CDs

For me, like many, if not most recording artists, my main source of income is selling my recordings. A lot of people look at a CD and question the price associated with it. They figure that since a blank CD-R they can buy at their local office supply store costs just pennies, so should an audio CD with an artist's music on it.

On it's face this thought is misguided. It is not the CD you are paying for, it is the music that is on it. So the cost of the CD does not reflect the price of an empty disc, but the months or years that go into the production of the music on the disc.

How can a price be put on that? The short answer is it can't. For me as a DIY artist I look at how much money I need to live on and what my competitors are charging. Then I make adjustments. Either to my price or my expenses.

So what goes into the price of a CD? Just like the cost of running a restaurant goes into the price of a meal, so the price of running a label, making recordings, paying the artist, studio time, touring costs, administrative costs, manufacturing and shipping costs, and more, go into the price of a disc. While there might be a lot of waste in the big labels, if you are a DIY artist you have to watch your money closely. There's not enough to be cavalier about it. For example my label (me) does not throw big "launch" parties when I release a new album. I also can't make a lot of giveaways to promote the recordings either.

The bottom line is trying to make a living. And I'm not talking about getting rich. Far from it. So just what is meant by "making a living" in the U.S today?

The minimum wage in the U.S is $7.25 per hour. That amount, based on a 40 hour work week, means the monthly minimum wage is $1,160. For me it generally takes two years, or 730 days, to create and produce a CD. If I sell someone a CD directly at a concert for $15.00 then after we take out the cost of manufacturing the disc it means that for those 730 days the sale of that disc contributes $0.01869 to my income for each day during that time period.

A better way to look at this is that after removing the cost of manufacturing I need to sell 85 CDs a month, directly to a buyer, at $15 each, to make the $1,160 monthly minimum wage.

85 CDs might not seem like that high an amount, but if you've ever sold something, like say Girl Scout cookies, imagine having to sell 85 boxes a month, every month, just to make the minimum wage of $1,160 a month.

BTW, my rent controlled apartment costs a little more than $1,300.00 a month, so I need to sell 96 CDs a month at $15 just to pay my rent.

I know this may be hard to believe, and even harder to admit, but I don't sell 96 CDs a month directly to buyers. Not even close. Average monthly sales from my website, since 2007 run about 37 units. Those CDs are sold for $14.99. If you're on my Emailing List and take advantage of the discount offered to you as part of that the price drops to $13.49. My charge for shipping 1 CD is $4.00, but most people take advantage of my free shipping. When you take out the cost of manufacturing the CD, the cost of free shipping, and the cost of processing the transaction via Paypal my income on a Member's price CDs is $9.60. On regular priced CDs with free shipping the income is $11.10.

Obviously I do make some money off of charging for S&H, but most people order 2 CDs to take advantage of the free shipping. I offer free shipping because I'm in competition with amazon.com for sales of my recordings and since they offer free shipping I have to as well.

Based on a regular priced CD purchased from my website with free shipping I need to sell 119 CDs a month to pay my rent.
Based on Member's priced CD purchased from my website with free shipping I need to sell 137 CDs a month to pay my rent. Just my rent. If I want to eat I need to sell more CDs. To power lights and other electronic gear I need to sell even more. To cover the cost of manufacturing more CDs to sell when I run out of stock I need to sell a lot more.

This is just sales from my website. For live performances I used to sell my recordings priced at 1 for $15 and each addition recording for $10. (e.g. two for $25.00, three for $35.00) After the 2008 crash, and the rise of iTunes, I started lowering my prices. Sometimes going as low as 1 for $15 - 2 or more for $10 each. Since this price has fluctuated I don't have a way to pin down hard data, but over all the gross on a live sale was close to that of one off my website at the old price structure. At the lower price I'm experimenting with lately, I'm making less. Especially when you factor in the costs of getting to gigs, some of which are far away.

For this whole post I keep talking about removing the cost of manufacturing from the price. Let's quickly look at the costs of manufacturing the CDs to sell. To save some money I order 2,000 discs, print and packaging of any one of my recordings at a time. This costs me just over $2,400. In direct sales I need to sell 162 copies at $15 each to pay off the cost of the manufacturing. If I'm selling to a distributor then I have to sell 337 to 405 units to pay off the cost of manufacturing, depending on the agreement I have with them.

If I'm manufacturing a new recording then about 500 units will be given away as promo copies to radio stations, retail outlets, periodicals for review, etc. So for the first pressing of a title I have to sell much more to make up for those promotional copies.

To wind this up, my expenses, both personal and business related, but not counting CD manufacturing, are about $2,000 to $2,500 per month. This means I need to sell between 180 to 200 CDs a month to pay the bills. We've seen that I don't sell that many CDs directly on my own. So the next way to sell recordings is through a distributor. In the next post we'll talk about how distributors can sell a lot more CDs than an artist can, but the trade-off is that the artist makes a lot less money per CD. And, as you many have already guessed, pirated copies of CDs makes it that much harder for a recording artist to pay their rent, buy food, and pay the bills.

(H/T to Faza at The Cynical Musician for the info on the minimum wage, and more.)

Next up, we'll look at the other options recording artists have to sell their music (CDs) and how that play/pays out...

© The Musical Disconnect (TMD)

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