How to Start a Record Label
Foundational Guide
Feb 1, 2026
A record label is a business that funds, releases, and markets recorded music in exchange for a share of the revenue it generates. That is the entire model. Everything else, the A&R, the branding, the artist development, the playlists, the press, is in service of making that economic exchange work for both the label and the artist.
Starting a label is not the same as releasing your own music under a name. If you are an artist putting out your own songs, you do not need a label. You need a distributor. The infrastructure for self-releasing is covered in Music Distribution Guide and Music Business Essentials for Artists. A label becomes a meaningful entity when you are investing your capital, time, and infrastructure into other artists' careers and sharing the risk and reward of those investments.
This guide covers what it takes to build and run a functioning label, from legal structure through deal economics, distribution, A&R, operations, and the financial realities that determine whether a label survives.
Before You Start: Is a Label the Right Structure?
Not every music business needs to be a label. Before you invest in formation and infrastructure, be clear about what you are actually trying to do.
You want to release your own music. You do not need a label. Use a distributor, own your masters, and keep 100% of your revenue. Adding a label layer to your own releases adds cost and complexity with no benefit.
You want to release music for a small group of artists you believe in. This is where a label starts to make sense. You are providing distribution, marketing, and potentially funding in exchange for a share of the revenue. The label structure formalizes this arrangement.
You want to build a roster, fund recordings, and market music as a business. This is a label. You are making bets on artists, investing capital into their projects, and building an organization that can execute across A&R, marketing, distribution, and finance. This requires infrastructure, funding, and a clear understanding of the economics.
You are a manager who wants an imprint for your roster. Common and viable, but be clear about the conflicts. As a manager, you represent the artist's interests. As a label, you own part of their work. These interests can align, but the power dynamic needs to be transparent and the terms need to be fair. Many managers run imprints successfully, but the artist should always have independent legal representation when signing to their manager's label.
Legal Setup
A label is a business entity. The setup is similar to any music business, with a few additional considerations.
Entity Formation
Form an LLC or corporation in your state. An LLC is sufficient for most independent labels. A corporation may be appropriate if you plan to raise outside investment. See Music Business Essentials for Artists for a detailed walkthrough of entity types.
The label LLC is separate from any artist LLC. If you are an artist who is also starting a label, create a separate entity for the label. Your personal music income flows through your artist entity. Label income flows through the label entity. Mixing these creates accounting nightmares and liability exposure.
EIN, bank account, and accounting. The label needs its own EIN, its own business bank account, and its own accounting system. Every dollar of advance, recording cost, marketing spend, and royalty payment runs through the label's books. If you cannot track these numbers cleanly, you cannot run a label.
Business Registration
Register the label name as a DBA (Doing Business As) or trademark if you want to protect it. Check that the name is not already in use by another label, as trademark conflicts in the music industry create real legal problems. Search the USPTO database and do a general web search before committing to a name.
Contracts
You need an entertainment attorney. Not a general business lawyer. An entertainment attorney who works with labels and artists in the music industry. They will draft or review your standard deal templates, advise on deal structures, and help you avoid the terms that expose you to liability.
At minimum, you need template agreements for:
Artist recording agreements (the deal between the label and the artist)
Producer agreements (terms for producers working on label releases)
Work-for-hire agreements (for session players, engineers, and other contributors)
Distribution agreements (terms with your distributor)
Sync licensing agreements (for licensing your catalog to TV, film, and advertising)
Do not use templates downloaded from the internet without attorney review. Deal terms in the music industry are highly specific and a poorly drafted agreement can cost you far more than the legal fees to do it right.
Deal Structures
The deal you offer artists is the foundation of your label's economics and reputation. The following structures are explained from the label's perspective. For how artists should evaluate these same deals from their side, see Record Deals Explained. There are several common structures, each with different risk profiles and economics.
Traditional Record Deal
The label funds the recording (advance plus production costs), owns the master recordings, and pays the artist a royalty on revenue generated by those recordings. The label recoups its investment (advance plus costs) from the artist's royalty share before the artist receives any royalty payments.
Typical terms: The label owns the masters for a defined term (7-15 years, sometimes longer, sometimes permanently). The artist receives 15-25% of net revenue (after distribution and other costs). The label takes 75-85%. Advances range from a few thousand dollars for an indie debut to millions for a major label deal.
The economics from the label's side: You are investing capital upfront with no guarantee of return. If a release does not recoup, you absorb the loss. If it does recoup, the label keeps the majority of revenue. The model works over a portfolio: a few successful releases fund the losses on the ones that do not recoup.
Profit Split Deal (Net Profit Deal)
The label funds the recording, and after costs are recouped, the remaining profit is split between the label and artist. Common splits are 50/50 or 60/40 (label/artist).
Why it is increasingly common: Artists are more informed about deal economics than they were 20 years ago. A profit split deal is more attractive to artists because the upside is shared more equitably. For indie labels, it is often easier to sign artists to a fair profit split than to a traditional deal with low royalty rates.
The tradeoff: The label keeps less of the upside on successful releases. This means the label needs a higher hit rate or lower operating costs to stay financially viable.
License Deal
The artist funds and completes the recording independently. The label licenses the finished master for a defined term (typically 3-7 years), handles distribution and marketing, and splits revenue with the artist. At the end of the term, all rights revert to the artist.
Why artists like it: They keep ownership. The label is a marketing and distribution partner for a defined period, not a permanent rights holder.
Why labels like it: Lower upfront investment (no recording costs). The risk shifts to the artist on the production side, and the label's risk is limited to marketing and distribution spend.
Distribution Deal
The label provides distribution infrastructure only (sometimes with light marketing support). The artist retains full ownership and pays the label a distribution fee (typically 10-25% of revenue). This is essentially the label acting as a distributor with a brand and some added services.
This is the lowest-risk structure for both sides. The label earns a percentage with minimal investment. The artist keeps ownership and control. The downside for the artist is that they receive less support than a full record deal. The downside for the label is that the margin is thin.
Which Structure to Use
Most new independent labels start with profit split or license deals. These structures are more attractive to artists, require less capital than traditional deals, and create a reputation for fairness that helps you sign better artists over time. As the label grows and can invest more in marketing and development, the deal terms can evolve.
Whatever structure you choose, be transparent about the economics. Artists talk to each other. A label known for fair deals signs better artists than a label known for extractive terms.
Recoupment: The Math That Matters
Recoupment is the process by which the label recovers its investment before the artist receives royalty payments. Understanding this math is essential because it determines when (and whether) anyone makes money.
Example: The label advances an artist $10,000 and spends $5,000 on recording, $3,000 on marketing, and $2,000 on music video production. Total investment: $20,000.
On a 50/50 profit split deal, the label recoups $20,000 from the gross revenue before splitting profits. If the release generates $30,000 in revenue, the label recoups its $20,000 and the remaining $10,000 is split 50/50: $5,000 to the artist, $5,000 to the label. The label's total return is $25,000 on a $20,000 investment.
If the release generates $15,000, the label recoups $15,000 of its $20,000 investment and is still $5,000 in the hole. The artist receives nothing in royalties.
The reality for indie labels: Most releases at the indie level do not fully recoup. A label's financial health depends on managing costs tightly, building a catalog that generates cumulative revenue over time, and having a few releases that significantly outperform expectations.
Distribution for Labels
Labels choose distribution based on their size, catalog, and needs. The options are different from what an individual artist faces.
Aggregators (DistroKid, TuneCore, CD Baby). Viable for new labels with a small catalog. Low cost, simple to set up. The limitation is that aggregators do not provide the marketing support, playlist relationships, or advance funding that a label-tier distributor offers.
Independent label distributors (The Orchard, ADA, AWAL, EMPIRE, Redeye, Secretly Distribution). These are distribution companies that work specifically with labels. They offer broader platform relationships, marketing support, sync pitching, and sometimes advance funding. In exchange, they take a distribution fee (typically 15-30% of revenue). Getting a deal with one of these requires a demonstrated catalog and release plan.
Direct deals with platforms. Larger labels can negotiate direct licensing deals with Spotify, Apple Music, and other platforms. This is not relevant for new labels but becomes an option as catalog and leverage grow.
For a new label: Start with an aggregator to establish your catalog and build a release track record. As your roster and revenue grow, approach independent label distributors with a demonstrated catalog, consistent release schedule, and revenue data. The pitch to a distributor is the same as any business pitch: here is what we have done, here is our plan, here is why working with us is a good investment of your infrastructure.
A&R: Finding and Signing Artists
A&R (Artists and Repertoire) is the process of finding artists, evaluating their potential, and signing them to the label. For an indie label, A&R is often the founder's primary creative role.
Where to Find Artists
Live shows and local scenes. The most reliable way to evaluate an artist is to see them perform. Local scenes, showcases, and open mics surface artists before the internet does. Geographic focus (building a label around a city or region's sound) is a proven indie label strategy.
Online platforms. SoundCloud, Bandcamp, Spotify's algorithmic playlists, TikTok, and YouTube surface emerging artists constantly. Look for artists with strong engagement metrics relative to their size: high save rates, active comment sections, and consistent release quality.
Referrals. Other artists, managers, producers, and industry contacts refer talent. As your label builds a reputation, artists will come to you. Until then, you go to them.
Evaluating Artists
The music has to be there. No amount of marketing fixes a weak catalog. Listen to the entire body of work, not just the best single. Consistency matters more than a single standout track.
Work ethic and professionalism. A label invests in an artist's career, not just a song. An artist who misses deadlines, cannot handle feedback, or has unrealistic expectations about what the label can do will cost you more in time and energy than their music is worth.
Existing audience and trajectory. An artist with 5,000 engaged followers and a growing trajectory is a better signing than an artist with 50,000 followers and declining engagement. Growth direction matters more than current size.
Business readiness. Does the artist have their royalty registrations in place? Do they have a manager or team? Do they understand the deal they are signing? An artist who is not business-ready requires more label resources to support, which affects your cost structure.
Marketing and Operations
A label's value proposition to artists is that the label can market and promote their music more effectively than the artist can alone. If you cannot deliver on that, there is no reason for an artist to sign with you.
What the Label Provides
Release planning and coordination. The label manages the release timeline, from production schedule through distribution, marketing campaign, and post-release promotion. See How to Plan a Music Release Step by Step for the framework.
Marketing and promotion. Playlist pitching (editorial and curator outreach), social media strategy, press and blog outreach, radio promotion (if genre-appropriate), advertising, and content creation support. The scope depends on the label's budget and team.
Distribution and royalty administration. The label handles distribution, royalty accounting, and payments to the artist. This includes tracking recoupment, calculating splits, and issuing statements.
Sync licensing. Actively pitching the label's catalog to music supervisors for TV, film, and advertising placements. Sync revenue is often the highest-margin income for indie labels.
The Minimum Viable Team
A new label can operate with a very small team, sometimes one person handling everything. As the roster grows, you need to add capacity.
Roles to fill (in order of priority):
Label head / A&R (founder, usually). Signs artists, oversees releases, sets strategy.
Marketing / promotion. Manages campaigns, playlists, press, and social media.
Operations / finance. Handles accounting, royalty administration, contracts, and business management.
A&R support / project management. Coordinates releases across the roster.
Many indie labels start with 1-2 people and use freelancers or contractors for specific campaigns (publicists, social media managers, radio promoters) rather than hiring full-time staff.
Financial Planning
Most labels fail because of cash flow, not bad taste in music. Understanding the financial reality is the difference between a label that lasts and one that folds after three releases.
Startup Costs
Legal and formation: $2,000-$5,000 (entity formation, trademark, initial contract templates from an entertainment attorney).
First release cycle: $5,000-$25,000 per release depending on scope (recording advance, production costs, marketing spend, music video, distribution setup). Multiply by the number of releases you plan in year one.
Operating costs: Website, accounting software, distribution fees, office/workspace (optional), software subscriptions, travel to shows and industry events.
Reserve: Keep at least 3-6 months of operating costs in reserve. Revenue from releases takes months to arrive (streaming royalties have a 2-3 month lag), and most releases do not recoup quickly.
Revenue Timeline
Streaming revenue takes 2-3 months from the date of the stream to reach your bank account. Sync placements can take 3-6 months to pay. Physical sales are faster (direct sales are immediate, retail distribution takes 60-90 days). Plan your cash flow around these timelines, not around release dates.
The Portfolio Model
A label's financial health is not determined by any single release. It is determined by the cumulative performance of the catalog over time. Some releases will lose money. Some will break even. A few will generate significant returns. The catalog's aggregate revenue is what sustains the business.
This is why cost management matters. A label that spends $50,000 on every release needs a hit to survive. A label that spends $10,000 per release and manages a roster of 5-10 artists can sustain itself on moderate, consistent catalog revenue without requiring a breakout.
Common Mistakes
Starting a label to release your own music. If you are the only artist, you are not a label. You are a self-releasing artist with an LLC. There is nothing wrong with that, but do not build label infrastructure you do not need.
Signing artists without understanding the economics. If you cannot model recoupment, project cash flow, and calculate break-even points for each release, you are not ready to invest in other artists' careers.
Offering deals without legal counsel. An improperly drafted contract exposes both you and the artist to risk. Invest in an entertainment attorney before you sign anyone.
Overspending on early releases. New labels often invest heavily in their first release hoping for a breakout. The breakout rarely comes. Start lean, learn from each release, and scale spending as your track record and revenue justify it.
Neglecting royalty accounting. Artists deserve accurate, timely royalty statements. A label that cannot account for where the money goes loses trust, loses artists, and eventually faces legal problems. Set up clean accounting from day one.
Ignoring the artist's perspective. Read Music Copyright Basics and Music Royalties Explained to understand what your artists are giving up when they sign with you. If you would not sign your own deal, it is not a fair deal.
Frequently Asked Questions
How much money do I need to start a label?
At minimum: $5,000-$10,000 for legal setup and your first release. Realistically: $20,000-$50,000 gives you enough to fund 2-3 releases, cover operating costs, and maintain a cash reserve while waiting for revenue to arrive. Starting with less is possible but limits your ability to invest in marketing, which limits your ability to generate revenue.
Do I need a distribution deal before I sign artists?
Not necessarily. You can start with an aggregator (DistroKid, TuneCore, CD Baby) and upgrade to a label-tier distributor as your catalog grows. However, having a distribution plan in place before signing artists is important because the distribution terms affect the economics of every deal you offer.
Can I run a label while working a full-time job?
Yes, and many indie label founders do exactly this in the early years. A label can operate on evenings and weekends if the roster is small (1-3 artists) and you are realistic about the pace of operations. The constraint is not time but capital: a day job funds the label until the catalog generates enough revenue to be self-sustaining.
Should my label focus on one genre?
A genre focus is the strongest positioning strategy for a new label. Labels known for a specific sound attract artists and fans who care about that sound. Genre focus also makes marketing more efficient because the audience overlaps across your roster. The most successful indie labels are associated with a specific scene, sound, or community.
What is the difference between a label and a distributor?
A distributor delivers music to platforms and collects royalties. A label does that plus funds recordings, manages marketing campaigns, develops artists' careers, and takes ownership or licensing rights in the music. A distributor is a logistics company. A label is an investment and services business.
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