I’m my previous blog post titled What Indie Artists Need to Know About Physical Distribution I covered at a basic level how physical distribution in the music business works and some of the key elements of a distribution agreement including co-marketing budgets, return reserves, etc.
Indie musicians will inevitably get all kinds of conflicting advice when it comes to potentially pursuing a physical distribution deal. It would be, for example, very common to hear an independent radio promoter tell an artist “WUTK and WDVX probably won’t add your song into rotation if your CD isn’t available for sale at retailers in Knoxville like the Disc Exchange”. “You’ll need a national distribution deal before a lot of radio stations will consider adding your songs”. This type of argument may have some merit but don’t be fooled into believing that if you have a physical distribution deal that touring, radio, press, etc. will all magically fall into place.
In my mind the most important factor when considering a physical distribution deal is whether or not the artist will make money at it. Considering the upfront costs of pursuing physical distribution like manufacturing costs, shipping costs, co-marketing costs, etc. an artist should only enter into a physical distro deal is when it will be profitable.
So, how exactly will an artist know if they can turn a net profit through physical distribution before entering into a distro deal? By using an Excel based breakeven analysis worksheet of course!
During my MBA Cost Accounting course I created an Excel based breakeven analysis model for determining how many units of physical product an indie artist would have to sell via retail in order to cover all the costs associated entering into a physical distribution deal.
Here is a link to download the distribution breakeven analysis Excel worksheet at DropBox.com. Please download your own copy (via File – “Save As”) before making any changes to the worksheet!
Instructions:
Step 1. Enter the fixed and variable cost dollar amounts in the yellow shaded area.
Step 2. Enter the various deduction percentages in the yellow shaded area.
Step 3. Enter the net dollar amount you will be paid on a per unit basis.
Step 4. Find Gross Margin section in “column I” of the worksheet and look for a positive dollar amount. Once you’ve located a positive dollar amount (cell I30 in our example) move over the corresponding row in column A to see how many units it will take to turn a net profit.
Once you know the number of unit sales it will take to breakeven you’ll have to make a judgement call as to whether it is reasonably possible to sell that number of units at retail. Excel can’t help make that call.
I do have another version of this worksheet that contains a macro that automatically calculates the number of units needed for breakeven once all the inputs are entered. Just contact me at the email address listed in the About Us section of the website if you want me to email you a copy of the macro enable worksheet.
If anyone have questions about the breakeven analysis worksheet please feel free to post them in the comments section of this blog and I’ll do my best to get back to you soon.
