Are you really making a profit from your recordings on streaming?
Let's walk through the simple—but rarely seen—income statement of your streaming royalties.
This is not accounting/financial advice!
I'll use DistroKid today because it's common and it allows us to work with real numbers. Contact me if you want to try it with another digital distributor.
There are only two real costs in distributing your recordings here.
First there's the cost of the service. Let's call it 35 USD to use DistroKid this year.
Then there's payment fees. For DistroKid via PayPal, it's currently 2% + 1 USD.
If you're a simple solo operator, you can add up the costs now—that's it. You'll need to make 35 + 1 = 36 USD this year, and you keep 98 cents of every dollar (2% fee).
So your break-even point is to make about 37 dollars USD this year in royalties through your DistroKid.
But your real figure might be higher than that. Do you share the royalties? If so, divide that break-even point by your percentage share. Will you convert the currency to your local one? That'll add to the fee, maybe pushing it up to 5%.
My own break-even point, this year, is:
$82.65. I'm going to pass it soon.
After that, every new dollar is pure profit (minus the % payment fee).
I'll stop there. It makes no sense to go further—no sense to put the whole cost of making the music against your streaming profitability.
That's because there are many more ways you can earn from these same recordings than just your DistroKid account.
Note the true profit coming out of your digital distributor, and work that figure into the rest of your mix.
My opinions after reflecting on this:
- Most new artists are best off starting on a fee-only digital distributor like OneRPM, where they don't charge you anything up-front (only %).
- The biggest cost for all established folks is the revenue share (it's like a 20-50% fee depending on who else you're cutting in). In fact, this is categorically what defines you to be an established artist in the streaming era. It's when you're giving out margin to your collaborators.
- Don't take streaming too seriously until you clear (and can stay above) your annual break-even. Get cash flows from other things.
I hope you find it as oddly fun as I do!