Understanding Basic Band Finances

© 2011 Vinny Ribas

Pricing a product to put on the market correctly is a science. There are formulas to apply based on numerous factors. The retail price (what it sells for) and the wholesale price (how much the retailer pays) must be well thought out to ensure that everyone is making money. In a traditional setting:

1. The retail price must be one that the public is willing to pay after taxes are added on. If you charge too much then no one will buy. Charge too little and you risk losing money. Plus, a low price point often makes fans and venues assume your product is of lesser quality than the higher priced competition.
2. The wholesale price must be high enough that the manufacturer covers all of his costs and makes a profit on it.
3. There must be an allowance built into the pricing for shipping
4. There must be room for the ‘retail markup’.
5. Whoever is responsible for the marketing must be able to recoup those costs.
6. There must be an allowance for returns and damaged goods, seasonal slowdowns, economic turndowns etc.

As an artist, pricing your shows are no different.

1. You need to price your shows based on what the venues or people hiring you are willing to pay. Charge too much and no one will hire you (or no one will come to your shows because your ticket price is too high). Charge too little and you may very well lose money.
2. You need bring in enough money to pay all of your hard costs such as band members’ wages, equipment, coaches, your booking agent, your manager, any legal fees you have etc. and still make a profit on each show.
3. There must be enough income to cover transportation, food and lodging.
4. The venue must bring in enough income from drinks, food sales, the door etc. so they can pay you, their other expenses (liquor, wages, rent etc.), and still turn a profit on the event.
5. There must be enough income to cover marketing costs for whoever is responsible for that.
6. You need to budget your money to plan for cancelled engagements, seasonal slowdowns, economic slowdowns and anything else that can affect your steady flow of income.

You can follow this same train of thought with pricing your CDs and your merchandise. You need to know that you have to cover all of your costs, including the indirect ones. You also need to charge enough to make a profit. If a 3^rd party such as CD BABY or iTunes is selling your products, they too must be able to make a profit.

What does this all mean to you? Here are a few major takeaways from this discussion:

1. It is mandatory that you know and add up every fixed and variable expenses that you have for your gigs and for anything you sell. This is the only way you will know what the minimum is that you need to charge in order to cover all of your hard costs and overhead and still make a decent profit. Without this kind of knowledge, you may be spinning your wheels wondering why you’re working hard but can’t seem to get ahead financially.
2. You are worth as much as your fans believe you are worth! When I say fans, I am including anyone who might hire you to perform for them. You need to test them. You may be charging $10 per CD. For one show only, in a new city, try charging $12 or $15. Who knows? Your fans might think you’re worth that much! Try the same thing with your booking price. And don’t worry, you will know right away if you are asking too much. If you’re not selling as many CDs as you’d like, or getting as many gigs as you’d like, you may want to look closely at adjusting your prices. Maybe you can come down on your price but make up the difference by selling or booking yourself more! But never settle for less than your actual costs unless there is an ulterior motive, such as the ability get widespread exposure.
3. Understand that the venue has to pay it’s own costs and still make a profit. So, in most cases, it may not do you any good to beg for more money or to get mad because of the limit the venue is willing to pay. In order for a venue to be able to pay you more, they need to do one of 2 things – dramatically reduce their costs or increase their income. You probably can’t help them with reducing their costs. But you effectively can help them increase their income! You do this bringing more fans in, by selling more drinks and/or food for them, by getting their patrons to stay longer, and converting their patrons into fans so that they come back to see you perform again and again (and bring their friends).
4. If you calculate your income vs. all of your expenses, and you find that you are not making enough profit, you have the same two choices that we said a venue has – either increase your income or cut your costs, or a combination of both. Be wise in both areas. Increasing your income might mean playing more gigs, raising your price, selling more CDs and merchandise, generating multiple streams of income such as licensing your music to film or TV or pitching your songs to other artists to generate songwriting royalties. Cutting costs might include staying in less expensive hotels, traveling by van(s) instead of renting a bus, finding less expensive ways to record your CDs etc.

As you can see, the music business, like any other business, is a numbers game. If you can’t do the numbers, find someone who can help you with them. Then have them review them with you every 3-6 months to see if any adjustments can or need to be made. The end result will be a profitable, and therefore much less stressful music career!