Do you know what is one of the greatest things about landing a record deal? The advance! In basic terms, an advance is a payment by the record company to the band to cover living expenses, the cost of recording the album, and so on. An advance is in reality a prepayment of royalties that the label hopes the band will eventually recover. Simply put, the record company gives the band an advance of $100,000, and the bandmembers pay that money back with the royalties they generate when their album begins selling.
Now here is the kicker: the record company only recoups its investment from royalties that the band earns. So if a band doesn’t make enough to repay the advance, the bandmembers don’t have to pay it back. What a concept! All of life should be like this. To continue with the above example, if the band only earns $75,000 in royalties, then the members pay that amount back to the record company, which writes off the remaining $25,000.Keep I n mind that the amount paid back is not based on the number of records sold, but on what the band actually earns from those sales. If the band sells 10,000 CDs for $10 each (totaling $100,000 in sales), then the advance has not been fully recovered since the band probably only gets $1 or $2 in royalties per album sold. At that rate, the band would need to sell 50,000 to 100,000 albums before the advance is paid off.
Additionally, a band needs to know that when the record company gives them money, it is not an advance unless the members sign something that states that it is an advance. The best example of this is when a record company spends a small fortune promoting a band’s album. Is this money an advance that the band has to pay back? Not unless the band agreed in writing to pay this money back. Some record companies will classify promotional expenses as a recoupable advance, while others won’t. Just be sure that you and your bandmates know what money will have to be paid back at the end of the day. As any lawyer will tell you, make sure you have your entire agreement in writing.