The Finances Behind A Physical Distribution Deal

Despite streaming’s popularity, physical distribution remains a major part of development for artists and labels. Here we look at some of the financial details surrounding a physical distribution deal that you should keep in mind before committing.

Guest post by Randi Zimmerman of the Symphonic Blog

There’s no doubt that physical distribution is still an important part of artist and label development. In this post, we’re breaking down some important details about physical distribution deals that you should know before you dive in. Here’s the rundown…

The Finances of a Physical Distribution Deal

When it comes to your finances, you gotta be savvy. You need to assess what you need, what you don’t, and be wary of how much you’re spending and for what. — That being said, these are some common questions people ask before going into a physical distribution deal.

“What is the minimum I will be spending to get into a physical distro deal?”

• There’s no charge to get a physical distribution deal.

If you are responsible for manufacturing, you’ll have to pay to make the product and ship it to your distributor’s warehouse.

“What are the typical percentages distributors take?”

Just like in the digital world, these vary widely based on many factors like advances, marketing commitments, back catalog volume, sales potential, etc. They also change with market trends, so you’ll need to inquire about this with your potential distributors before you make any concrete deals.

“How many cuts are included in distribution deals? (For example, the record store, distributor, or anybody else?)”

Typically, the label really only has to worry about the distribution fee, and that fee comes out of the wholesale price.

• So, if it’s $10 and their fee is 25%, you get $7.50 and the distributor gets $2.50.
• The retailers cut comes out of the difference between the wholesale price and their selling price.

Note: The distributor has a SRLP (suggested retail list price) for each price point, but that’s typically only a suggestion. Realistically, the retailer can charge whatever they want.

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“How long do retailers typically offer to have the product on the shelf?”

Technically, a retailer has no obligation to even carry a title at all. Unlike DSPs, they have to pay for the product upfront, so if they don’t have a compelling reason to bring in a release, they can literally just pass on it.

• However, Vinyl is non-returnable. If a retailer buys any vinyl, they’ll have it until a customer purchases it from them.
• CDs are returnable to the distributor after a certain period of time, 90 days being the standard.

Some paid retail marketing (co-op advertising) programs do require retailers to keep products for a certain amount of time. — That means if you buy an endcap for the month of May, the retailer has to keep the title in stock for the month.

“How much should I sell my CD’s and/or Vinyl for these days?”

In truth, physical product prices vary. The primary thing you should be taking into consideration is the manufacturing cost.

• For example, a single LP in a standard jacket is going to be less expensive than purple vinyl in a gatefold jacket with foil embossing.

All in all, the most important aspect here is to make sure you’re covering your manufacturing costs. The most famous example of where this went wrong is when Factory Records lost money on every single sale of their New Order single, “Blue Monday”. The single’s original sleeve was die-cut with a silver inner sleeve. (In other words… fancy.) It ended up costing so much to produce that Factory Records lost money on every copy sold.

Don’t do that. Do your homework.

Ask yourself: What are your goals for the project? What are comparable artists selling their releases for? What’s your marketing budget? Knowing the answers to these questions will be your ultimate guide. Be smart.

(As a good rule of thumb, however, standard single CDs generally sell for between $8 and $16. Standard single LPs sell between $17 and $26.)

“What is the typical percentage or cost for returned CD’s and/or Vinyl?”

Like we mentioned earlier, vinyl is generally non-returnable. CDs, however, can be returned to the distributor, usually for the full cost. Some distributors charge the retailer a fee for returning CDs. That in mind, the label generally has to pay a return processing fee and a fee to either scrap the return (destroy it) or refurbish it. Some distributors don’t even charge these fees and just bump up their overall fee to cover the cost. It all varies depending on the deal.

In Conclusion…

These are just some of the factors to keep in mind when considering a physical distribution deal; there are many other factors to consider as well. You’ll need to assess your budget and plan accordingly. That’s where research comes in.

Don’t be hesitant to ask questions, these are your finances we’re talking about! You don’t want to dive into something that will cost you money in the long run. Hopefully, this post gave you some insight into what to consider, so you can be prepared for anything.