The Most Expensive Part of a Music Contract Isn't a Number
Every music contract contains a few key provisions that can have a big impact on your career. In this series, we break down one concept at a time, in simple terms, so you can understand why it matters.
When dealing with music contracts, artists usually focus on the percentage. I’ve lost count of the number of artists who bring contracts to me and all of their attention is on that one thing.
"My manager wants 20%."
"The label is offering a 12% royalty."
"The producer wants 5 points."
Those numbers seem like the most important thing in the agreement. But after more than 27 years reviewing music industry deals, I've learned that the percentage is only part of the equation.
Sometimes the most expensive word in the entire contract is just five letters long.
Gross.
Twenty Percent of What?
Imagine you're negotiating a management agreement. Your manager will receive a 20% commission. That doesn't sound unreasonable. In fact, it's a fairly common percentage.
But before you decide whether 20% is a good deal, ask yourself this:
Twenty percent of what?
The truth is, it doesn't matter what kind of music contract you're signing. The concept is the same. If you're signing a record deal, you may be promised a royalty percentage. But is that percentage calculated on the retail price, the wholesale price, or some other definition of revenue? What deductions are made before your royalty is calculated?
If you're negotiating a sync license for a cover song you've recorded, you'll pay a percentage to the music publisher. But is that percentage based on all revenue generated by the project, or just the part of revenue you’re getting?
If you're signing a management agreement, does your manager earn a commission on your gross income, or only after certain expenses have been deducted?
In every case, the percentage tells only part of the story. The real question is what number that percentage is applied to.
That single question can affect your bottom line by tens—or even hundreds—of thousands of dollars over the course of your career.
A Simple Example
Let's say over the course of a year your music career generates:
$50,000 from live performances
$20,000 from merchandise
$10,000 from sponsorships
Total income: $80,000
Sounds like a good year. On the other hand, making money isn't the same as keeping money.
During that same year, you also spend:
$20,000 on touring expenses
$5,000 on marketing
$7,000 paying musicians and crew
Those expenses total $32,000. That means there is $48,000 left after the bills.
Now here's where one word changes everything.
Gross vs. Net
If, for instance, your manager's commission is based on gross income, the commission is calculated before those expenses come out.
Twenty percent of $80,000 is $16,000.
But if the commission were calculated after allowable expenses, twenty percent of $48,000 would be $9,600.
That's a difference of $6,400.
Nothing about the commission percentage changed.
Only the word used to calculate it.
Over the life of a successful career, those differences can add up to tens or even hundreds of thousands of dollars.
It Gets Even More Complicated
A lot of industry agreements are based on gross income (except, of course, when they are paying you!). But not every agreement defines "gross income" the same way.
Some agreements include virtually every dollar connected to your career. Others say they are paid on gross, but they exclude certain income streams or allow specific deductions before commissions are calculated.
It’s not that a single approach is right or wrong. The important point is understanding what you are agreeing to.
Questions Every Artist Should Ask
Before signing any agreement, ask:
What income counts toward the the percentage?
Are any expenses deducted before percentage is calculated?
If the agreement doesn't clearly answer those questions, don't assume anything.
Ask. And if it isn’t in the agreement, don’t sign until it is.
The Percentage Isn't the Whole Story
I’ve spent hours negotiating a commission from 20% down to 15%. I’m not saying that negotiation isn’t important, because it absolutely is. But if the commission is calculated on a much larger pool of income, a lower percentage may still cost more than a higher percentage calculated on a smaller one.
That's why experienced professionals don't just negotiate percentages.
They negotiate definitions.
The Key Takeaway
If you’re looking at any kind of contract that obligates you to pay, or receive, a percentage, remember the percentage is only part of the equation. Don’t forget to ask the question that really matters:
A percent of what?
That answer may have a bigger impact on your career than the percentage itself.
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