Why We Wrote This Guide
In the age of digital streaming, maintaining a substantial inflow of cash can be difficult for artists at all levels. Today, more than ever, artists are relying on touring and merchandise revenue to support their careers and art. Selling merchandise online and at live concerts has proven to be one of the most effective and accessible ways to increase revenue and market one’s work. For example, The Grateful Dead brings in close to $70 million annually from merchandise sales. Of course, not everyone has the clout and breadth of the Grateful Dead, but those insane stats go to show that merch can be extremely profitable for artists at all levels. Just like all other facets of the music industry, selling merchandise requires careful financial planning, proper licensing, and more. In this guide, you will learn about the different types of merchandise sales and the basics of merchandise creation and economics.
Who Is This Guide For
- Music Artists who are looking to create and sell merchandise both online and at live concerts
- Personal/Business Managers handling an artists finances and seeking to increase revenue from merchandise sales
- Any other “team” member involved in the creation or management of an artist’s merchandise
- Creating Merch
- Merchandise Licenses and Rights
- How do Artists Make Money Selling Merchandise?
- Tour Merchandising
- Retail Merchandising
- Direct to Consumer Merchandising
- How to Sell More Merch
Selling Merchandise can be as simple as setting up a stand at the back of a bar and selling stickers and t-shirts. But, as you or your band begins to play at larger venues and amass a sizable fan base, a simple t-shirt stand won’t get the job done. To make sure your merchandise is as profitable as it can be you will need to sell your apparel and other items in a variety of ways with other parties involved. The three main ways artists sell merchandise are at live shows on tour, through retailers, and directly to consumers. Each of these merchandise mediums has different nuances, economics, and relationships and we will break down the basics for each kind later. But, before we get too specific, it is important to understand the basics of merch production, economics, and licenses.
Before you need to worry about merchandising companies, hall fees, and retailers, you need to create your merch. There is a lot of freedom involved in merchandise creation. What art, words, and items you choose to create are completely up to you. But, some nuances can impact your merch sales’ profitability. An artist’s name or logo is typically the go-to when creating merch, but there are a variety of other routes you can take. Artists often use tour names, album art, and lyrics to portray on their merch. With that said, an artist’s logo is usually the most popular. So, creating an interesting and aesthetic logo for yourself or your band is extremely important for profitable merch sales. Logos on merch will also act as an invaluable marketing tool.
Now that you have decided what to put on your merchandise, what kind should you sell? Generally, t-shirts are the most consumed form of merchandise and are a reliable choice for those new to the merch game. However, several other forms of merch boast more favorable profit margins. Stickers, patches, magnets, guitar picks, and hats are very cheap to manufacture and sell at high volumes with substantial markups. So, when choosing what forms of merch to produce be sure to look into alternatives to the classic graphic t-shirt.
Who you choose to manufacture your merch depends on your location, what you’re looking to sell, the volume of your merchandise, and your budget. If your band is playing at large venues and has a substantial fan base, your merch manufacturer will most likely be a retailer or merchandising company. We will cover their roles and relationships later in this guide. But, for newer and independent artists looking to handle their merch creation and production on their own, we have provided a list of popular merchandising companies here:
Merchandise Licenses and Rights
There are a number of rights and licenses associated with designing, producing, and distributing merchandise so it is important to have an understanding of what your merchandise company has the rights to do once you’ve begun working with them. When you sign a deal with a merchandising company you must sign over the rights to use your name and likeness so that they can create and distribute merchandise.
As you gain popularity and the demand for your merchandise increases your merchandising company may also want to negotiate sublicense agreements into your deal so that they can work with other companies to take care of niche merchandise elements. By giving your merchandise company the ability to give sublicenses you allow them to give another company rights to use an approved photo, likeness, or logo to produce and distribute merchandise. The secondary company will then pay your merchandise company based on the sales and then the merchandise company will pay you a percentage of those proceeds depending on an agreed percentage you decide on in your deal. Typically, a merchandising company will keep 15% to 25% on sales of sublicensed material. In exchange for this percentage, they do things like sign the license agreement and make sure the quality and design is sufficient enough to be affiliated with you and your brand.
Another thing to look out for as an artist looking to sign a merch deal with a merchandising company is hall fees. Hall fees are what venues charge you for allowing you to sell products from their vicinity. The fees are typically a percentage cut from merchandise profit and they are paid directly to the venue hall from the merchandising company. It is a good idea to discuss the details of hall fees with your merchandising company since they will often put a cap on how much they are willing to pay for hall fees. This could mean that anything over the capped percentage they agree on could be taken out of your portion of merch sale profit. For example, if your merchandising company decides to put a cap of 20% on hall fees and venue is charging 30% on all merch sales, the remaining 10% over their set cap will be taken out of your portion of the profits.
How do Artists Make Money Selling Merchandise?
How you make money selling merchandise will actually depend on a few different factors like where and how you’re selling your merchandise and if you’re choosing to work through a merchandising company.
As a new small artist you will likely be taking care of your merchandising by yourself which means that you will be responsible for production costs, designing the merchandise, distributing the merchandise, and collecting the profit. In this case, you make ALL the money earned through sales of your merchandise. This may be attainable for smaller artists and their teams but as you grow in popularity maintaining these aspects of merchandise production and distribution can get really difficult--this is when it would be a good idea to sign a deal with a merchandising company. Although it’s bittersweet to have to split profits with a separate entity, a merchandising company can help you maximize profits from merch sales and expedite the entire process without you having to worry too much about the specifics.
Live shows are amazing opportunities for an artist or band to sell merchandise. Merch sold at live shows provides your fans the opportunity to combine their music experience with tangible, lasting material items. Oftentimes merch sales will act as a substantial portion of a tour’s income behind actual ticket sales. Selling merch at live shows can be as simple as a foldable table with some t-shirts for smaller acts, but as you begin to play at larger venues with more fans selling your merch becomes a bit more complicated. The first step in understanding the process and economics involved in tour merchandising is learning the role of Tour Merchandisers.
You guessed it! A tour merchandiser licenses the right to use “your name and likeness” on the merchandise they produce and sell. After working with you or your designer, a Tour Merchandiser will handle the production, transportation, and sale of your merch at your live shows. In return for their service, the Tour Merchandiser will take a percentage of your merch sales’ revenue. The percentage you receive is labeled as Tour Merchandiser Royalty. These royalties are usually based on sharing the net profits of the merch sales. The basic formula is Net Profits= Gross sales - Costs, then the artists or band typically receives 75-80% of the Net Profit. The costs incurred by a Tour Merchandiser involve manufacturing, credit card fees, freight, sales tax, Value Added Tax, Hall fees. Hall Fees are the money owed to the venue employees who are responsible for selling your merch at stands. Instead of you or the merchandiser hiring employees to work your merch stands, the venue will typically provide personnel in return for a percentage of the merch profits. You or your touring manager are responsible for debating the hall fee with the venue and they will typically fall around 25-30% of gross monies collected from merch sales. To sum up, the main economics involved in tour merchandising are net profit splits with your Merchiser and hall fees paid to the venue of your live concert. But, what if you don’t have the money to pay for the initial production of your merch in the first place? Tour Merchandisers have a solution for that: Merch Advances.
Mech advances are somewhat similar to those given to artists by record labels, but they have some very important differences. In a nutshell, a Merchandiser will provide you with funds to design and produce merch before a tour. These advances are typically used by artists and bands in the “start-up” costs involved in touring. How you utilize the advance is up to you, but your merch must, at the least, match the advance as merch advances are more often than not “returnable” or “recoupable.” This is the first and most notable difference between a record advance and a merch advance. In other words, the money provided by the merchandiser will have to be paid back in full no matter what, and some merchandisers will even charge interest on your advance. Advances from merch companies are usually paid in a few different chunks throughout a tour and are contingent upon a few factors:
- You have to begin your tour within a specific amount of time as laid out in the contract. Usually, the time is pretty short - three months or so from the date of signing is common.
- You have to agree to pay a certain number of shows with a certain number of paying concertgoers per show.
The second point “a certain number of paying concertgoers per show,” is called the performance minimum. The Performance Minimum is important to merchandisers because the companies need to be sure the amount of merch produced and available will turn a profit. Merchandisers compute the performance minimum based on how much they project each concert-goer will spend on merch at your show. If your concerts aren’t reaching their minimums or if you do not begin your tour within the agreed timeframe, the merchandiser can cancel your deal and recall your advance. So overall, the basic economics of tour merchandising involves advances from a merchandiser, profit splits with your merchandiser, and hall fees paid to the venues you perform in.
Retail merchandising is basically exactly what the name implies, merchandise sold in retail storefronts like Hot Topic, Urban Outfitters, Target, etc. and it can be a significant way for artists to earn money. Retail sale success is not promised to every artist considering you typically have to have a pretty large following for stores to consider giving your merchandise any floor space in their storefronts but once you’ve reached the level that this is attainable it can become a very lucrative endeavor for you. You may be wondering how you get your products on shelves and the answer is retail merchandising companies. Much like tour merchandising companies, retail merchandising companies will help you prepare and distribute your merchandise. Unlike touring deals though, you earn money based on a royalty percentage of the wholesale price instead of a share of profits. For example, if you have a 30% royalty and you sell T-shirts for $10 from a storefront you will receive $3 for every shirt sold from that storefront.
Direct to Consumer (D2C) Merchandising
Direct to Consumer (D2C) or e-commerce sales refer to selling merchandise through an official web store or links on your social media. D2C merchandising used to primarily consist of typical merch products like T-shirts, mugs, hats, etc. but it has expanded in recent years to include things like tickets, VIP experiences, and fan clubs.
As a relatively small artist it can be pretty easy to maintain your D2C sales with a small hired team to process orders and ship goods but as your popularity increases it can be difficult to handle the influx of orders website traffic. This is when it may be a good idea to bring on a merchandising company to help you handle the greater volume of orders. They’ll also be able to do things like designing and marketing products for D2C merchandising. They can also do things like analyze fan data to design merchandise that appeals directly to your audience.
When you license your D2C rights to a merchandiser the U.S. royalty rates on average are in the range of 25% to 35% which is higher than the rates for retail merchandising. It is also important to note that the D2C royalty rate is applied to the retail price instead of the wholesale price like retail royalty rates. This means it is applied to the selling price which is higher than the wholesale rate so it is likely that you will see more money per unit making D2C sales.
How to Sell More Merch
In order to profit from merchandise production in the first place you will need a substantial following, an accessible aesthetic (appealing logo or art), and the necessary financial support. These aspects of merchandise economics are addressed earlier in the guide. Assuming you have merchandise made, and are actively selling it, this section provides some suggestions on how to maximize your profit from your merchandise.
Again, merch stands at live concerts are one of the most profitable methods of selling your merchandise. To maximize your merch sales, you may have to do a little more than just put on an awesome concert, although that is certainly the first and most important step. Additionally, the most direct way to promote your merchandise is simply mentioning that it's available for purchase after your set. This part of selling your merch can be tricky, because you don’t want to come across as a salesman or desperate for business. The first aspect of an effective, but subtle sales pitch is the timing of the pitch. Mentioning your merchandise too soon will give time for your audience to forget and mentioning it too often may annoy them. A majority of experienced artists recommend casually mentioning your merch before your last song or before an encore. This allows your audience to combine the idea of your merch with the climax of your performance. Also, the idea of your merch is fresh in their minds as they leave the venue. Paired with the timing of your “sales pitch” is the importance of your delivery. Oftentimes a quick “take a look at our shirts and hats in the back” will suffice. However, mentioning your merch in tandem with the story behind a song or any sort of personal anecdote will certainly resonate with your audience and encourage them to purchase your merch. Finding the balance between a thorough sales pitch and genuine anecdote can be challenging but has the potential to be extremely profitable. An effective sales pitch is the best way to sell more merch but there are certainly a variety of other methods. Below is a list of suggested marketing tactics that can help promote and boost your merch sales at your live shows:
- Holding up a CD or Vinyl on stage
- Wearing your merch (shirt or hat)
- Giving away free merch before, during, or after a show
- Signing autographs at your merch stand
- Ensuring your stad has a variety of payment methods (cash, card, venmo, cashapp, etc…)
Another way to promote your merchandise is releasing it in tandem with a new music release. If you are certain your next single, EP, or LP will receive substantial attention, streams, and radio play, you will want to drop your merch after the release of your work. Fans want to find ways to further engage themselves with your work in-between your release and tour, and merch is the best way to do so. A “post-drop” merch release will continue the hype surrounding your work and will act as a source of funding for your next tour. If you're a newer artist looking to release music in the near future, a “pre-drop” merch collection will simultaneously promote your up-coming work and guarantee some cash in-flow in case your music performs poorly.
Author: Will Donohue
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