I've taught this many times (at Loyola University, University of New Orleans, Ben Franklin High School, SXSW, Cutting Edge Music Business Conference, and more), but decided that tonight I would put it down on "paper".
Our "typical" CD Production Costs:
$15,000.00 Musician Fees (does not include our artist)
$ 4,000.00 Producer
$ 1,500.00 Photography
$ 1,000.00 Graphic Design
$ 500.00 Liner Notes
Profit Advance to Artist
$ $$,$$$.00 In addition, we pay a profit advance to the artist on our label. If a project makes a profit we split the profits with the artist, but the artist keeps the profit advance regardless.
PR and Advertising Costs
$ 7,500.00 Press, TV, & Web Publicist
$ 3,000.00 Radio Publicist
$10,000.00 Advertising (print, web, radio)
$ 7,000.00 Buying shelf space at retailers (both brick and mortar & online)
$ 6,000.00 Mailing promotional copies of CDs to press, tv, web and radio
So, before we sell the first CD we "typically" have committed to spend $65,500.00, plus we have advanced the artist profit that we may or may not make.
Here is the breakdown of a $15.98 CD at retail:
$15.98 Consumer pays store
$10.30 Store pays distributor (Store covers its overhead with about $5.68/ CD margin)
$ 8.00 Distributor pays us (Distributor covers its overhead with about $2.30/ CD margin)
Of the $8.00 per CD that we receive we spend approximately:
$1.25 for manufacturing
$1.00 for mechanical licenses (payments to songwriters & publishers)
That leaves us with approximately $5.45 per CD of what is called gross margin. We generally receive this money 90-120 days after the CD is sold.
That means that our break even is $65,500 in costs divided by $5.45 per CD gross margin = 12,018 CDs.
That's where you come in.