How to Start a Record Label

Benefits of Starting a Record Label

Starting a record label comes with a deep playlist of perks. Here are some of the benefits of starting this kind of business: 

• Control: As the owner and operator of a music label, you’re in complete control of every decision. From the type of music you want to promote to the marketing plan that gets your music out to fans, every choice is yours. 
• Create and share original music: Few people are true creators, but a record label is all about working with artists to create new music and experiences that touch people’s hearts.
• Multiple revenue streams: As a label, you’ll make money in a variety of ways. You’ll get a cut from streaming, physical album sales, licensing, and sometimes even live performances.

Nurturing, promoting, and distributing music can be a real moneymaker, but it does take experience. Many people who start a record label have a music background and experience in the industry. They also know what it takes to develop amazing artists and build audiences.

Starting a record label takes strategic planning. To be successful, an owner needs connections, influence, and money. The best way to develop a new record label is with a solid business plan as a foundation.

How to Start a Record Label Checklist

Step 1: Create your record label business plan

A business plan explains how a company will run, and how it will make money. The plan usually includes various sections that explore the record label’s goals, marketing, and finances.

More specifically, a record label business plan should include: 

• Executive summary: An overview of the entire business plan.
• Company overview: A complete rundown of your company, including the label’s mission and values.
• Description of product or services: Explain what kind of music will be represented.
• Marketing plan: Cover how you plan to reach and retain fans.
• SMART goals: Set specific, measurable, attainable, relevant, and time-based (SMART) goals.
• Management team overview: Explain how you’ll work with artists and venues.
• Financial plan: A description of how the label will make money, be it from royalties, 360 deals, or merchandise.

When you’re ready to go, use this resource to start writing a business plan.

Step 2: Choose your record label’s business structure

The next decision you’ll make as a business owner is how to structure the company. There are different kinds of structures, but most record label owners choose a sole proprietorship or limited liability company (LLC), while some choose a corporation.

The main difference between an LLC and a sole proprietorship is that an LLC gives liability protection. That means if the record label ends up in debt, your personal assets are protected. A sole proprietorship doesn’t provide that, and a lawsuit against your label is essentially the same as a lawsuit against you personally.

Another difference is that a sole proprietorship is free to set up, but there’s a cost to apply for LLC status. The filing fee varies by state and ranges from $50 to $500+. Tax breaks are different too, so it’s a good idea to speak with an accountant to learn the specifics about business taxes and structuring. 

When you’re ready to establish LLC status, you can work through the steps created by your state government or use a business formation company. We can handle the formation process and more for you.

Step 3: Determine your business costs

Before you get your record label started, get a handle on your startup costs. Starting a small label based out of your home could be as cheap as a few hundred dollars. Add in a website, marketing budget, staff, and recording equipment and you could shell out hundreds of thousands.

Here’s a good list of costs to consider: 

• Recording equipment: You’ll either need your own recording equipment, or you’ll need to rent time at a sound studio. That can cost hundreds of dollars per hour. Some musicians already have their own gear, but if you start from scratch, expect to spend up to $15,000 to equip a basic professional studio.
• Manufacturing costs: Will you distribute music on CDs or vinyl? If so, expect to pay about $1 per CD and $5 per vinyl recording. To avoid these costs, some indie labels today stick with digital distribution. 
• Networking: Being in the music industry requires connections, so build a networking budget for conferences and outings that can help you gain a foothold. Plan at least $500 a year.
• Promotions: To reach fans, you need a promotional budget. This varies drastically by label, but on the low end, figure on at least $5,000.
• Contracts: You’ll need legal contracts for artists to sign. Expect to pay upwards of $500 a year in legal fees. 

How do you fund your startup costs?

If you can’t cover your own startup costs, you’re probably wondering where to get the money for your record label. To help, here’s a list of choices to consider: 

• Government assistance: Some government programs help new business owners. Grants.gov is a good place to start.
• Credit cards: It’s possible to get business credit cards to finance some or all of your startup costs. However, beware of cards with high interest rates, and create a plan to pay the money back. 
• Loans: There are many small business loan opportunities with reasonable interest rates. Loans can take some time to research, but your local bank may be able to help.
• Ask friends and family: They want you to succeed and may be happy to help. But factor in potential damage to the relationship if things go sour. In many cases, family and friends won’t charge interest and give more lenient payback terms than a bank.

Analyze your business’ production costs and find the break-even point with our free break-even analysis calculator.

Step 4: Create a unique name for your record label

Ready to name your business? Maybe you’ve had a name in mind for years or maybe you’re still working on one. Either way, before you can officially set up a record label, it needs a name. 

Most states require you to check a business name’s availability (usually through the Secretary of State’s website) to make sure no other business has the name already.

Get a matching domain name

It’s also a good idea to research a matching domain name so your record label’s website will mimic the company name. These days, you are going to need an online presence to promote your music and host clips and teasers.

You can develop this domain into an online downloadable eCommerce music store that could well be the very backbone of your marketing machine — think merchandise with your logo and label name, in addition to selling the music your label produces. In other words, there are more potential revenue streams than just the music.

Get your domain today so you can secure your online name before someone else beats you to it — find my record label domain name now!

Step 5: Register your business and open financial accounts

Now it’s time to work through a few administrative tasks to set up your record label. 

• Register your business with the state: To start an LLC, search for LLC formation documents in your state, fill them out, and pay the filing fee. Or, you can use ZenBusiness — we’ll form your LLC for free (just pay your state’s required fee).
• Get an EIN: Most businesses need an Employer Identification Number issued by the IRS, which helps you hire employees, open bank accounts, and more.
• Open business bank accounts: It’s always advisable to keep your personal and business finances separate. Open a business checking and savings account and pay yourself by transferring money from these business accounts to your personal accounts.

Step 6: Purchase equipment for your record label business

Ready to outfit your studio? Here’s a sampling of what you’ll need to get started: 

Step 7: Market your record label company

To reach fans, you’ll need a sound marketing plan. You may not have a large budget when you start, but there are several do-it-yourself marketing steps that work with little to no money. Work through this list to get started: 

• Set up a Google Business Profile: Google Business Profiles are free to set up and help fans find you in searches. They also let you share pictures and list details like company hours and location. 
• Join local directories: In the old days, you’d add your phone number to the phone book. Today, add your record label’s name and phone number to a few online directories like Yellow Pages and CitySearch.
• Get social: Get your social media presence started right away on Facebook, Instagram, Twitter, LinkedIn, and elsewhere. Follow industry leaders, trade associations, and artists to start developing a following in the industry on music-specific platforms like SoundCloud and Bandcamp.

What kind of label are you starting?

Another thing to consider as you learn how to set up a record label is what kind of label to start. Most entrepreneurs don’t have the budget to start a major label, but there are many different niches you could fill with a smaller indie label.

Choosing a genre or going broad?

As a smaller label, think about what kind of music you’d like to promote. Usually, a small record label sticks to a single genre like rap, rock, pop, or country. Or, some small record labels are regionally focused and work with a wide variety of artists in their geographical area.

Starting a record label is an exciting and challenging business idea.

Startup costs can be on the high side and the business is competitive. But if you have the experience, connections, and ambition, the music industry has the potential to deliver high rewards.