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Royalties are your share of the money from the sale of recordings. There are three main ways a royalty might be calculated under a recording agreement. We'll look at each in turn.

Net Profits

This is the method that's almost always used by small record companies.

The way it works is that the label recovers its costs from the initial sales and, once it's done that, you and the company split the rest of the money that the record makes. For a small company, it's usually a straight 50/50 split.

The important thing is to agree in advance what an expense actually is.

For example, recording studio time, advertising space and the cost of printing record sleeves are all pretty reasonable for the label to charge for. Taxi fares and meals might be a bit more dubious.

Published Price to Dealer

The Published Price to Dealer (PPD) is basically the highest amount for which the record changes hands before it's sold to the punters.

That usually means the price at which a shop buys it from the label or their distributor.

A label will publish its dealer price when it presses the records. Under a scheme like this, you will get a percentage of the PPD for each record sold.

Typically a major label will pay 15-19% of PPD to an artist signing their first deal, again depending on your track record and your lawyer's skill.

Retail Price

This is a similar thing but a lot less common.

With this kind of deal, your royalty is a percentage of the price that the record actually sells for in the shops.

Again, there isn't really one price so asking your lawyer "what will we get per disk we sell?" is unlikely to get you a simple or straight answer.

All you can say for certain is that the royalty rate for retail is lower than that for PPD. That's because the retail price is higher as it includes the shop-keepers' mark-up.

Whether you win or lose by using PPD or retail price is up to your lawyer.