How to Price CDs Online When Shipping & Fees Cut Into Profits

By Chris Huff of Disc Makers

As we all know all too well, times are tough for independent musicians.

The loss of traditional structures for music discovery and distribution means that indie artists now have to wear multiple hats — some with conflicting agendas. The modern musician with any ambition has to not only be a player and performer, but also a producer, record label exec, PR person, and retail sales manager.

For those who feel challenged by wearing the businessperson’s hat, here’s some advice about pricing your CDs that can apply across the board to other products and merch as well.

Introduction to pricing CDs online

Pricing anything is part art and part science. The public’s willingness to buy something depends on many factors, some quantifiable and others not so much. Average market price — what everyone else is charging for the same product — matters, as do customer awareness of your brand and economic conditions in your area as a whole. As an artist/business owner, it’s important for you to be aware how to balance these factors with your costs in order to make a solid profit on each unit sold.

Understanding your total costs

When you understand your total costs, you will have a firm grasp on what you need to charge for your CDs.

Product acquisition cost

The product acquisition cost is the sum of all the costs incurred in making your CDs: recording, mixing, and mastering. Did you have travel expenses and/or hire musicians? Include these.

Packaging and materials

This line item includes the pressing of your CDs, album art design, artwork printing, packaging, the discs, and every associated cost down to the shrink-wrap and bar code.

Shipping methods and postage options

In evaluating shipping costs, USPS will be the basic shipping service for those in the U.S. If you are shipping out over 50 CDs at a time, you might want to consider getting a bulk mail permit, as the rates you’ll pay per unit will be far cheaper. If you want to offer express shipping options to your customers, make sure that your own labor costs are included.

Marketplace and payment processing fees

If you’re going to sell CDs online through a third-party portal like Amazon, Facebook Marketplace, Etsy, or Bandcamp, they will charge seller fees. Additionally, in-person swipe services like Square also charge fees as does PayPal. You’ll need to include these fees in your total costs.

Hidden and indirect Costs

Your time is valuable. “Time is money,” as Benjamin Franklin said! Make sure you’re including every adjacent and indirect cost in your pricing analysis. Food ordered at the recording studio? Gas and car costs to the post office? Be as thorough as you can possibly be and include even the seemingly most insignificant cost that might possibly be incurred while producing and selling your products.

Researching market prices for CDs

Prices in big-box stores will generally remain consistent, but in our sphere of independent music, pricing can vary wildly. These ideas below will help give some perspective.

Checking sold listings instead of asking prices

This can be helpful for knowing what things are actually being sold for as opposed to the asking price. Sites like Discogs and eBay can give you this information.

Using price tracking tools and databases

A relatively new phenomenon, price tracking tools can give you a broad overview of what different websites or storefronts are charging for the same product in real-time. There’s CamelCamelCamel which tracks Amazon only, Paypal’s Honey, Capital One Shopping, and a number of others. Again, this is just information to give you a broad overview of real-time pricing; your own pricing should be specific to your needs and costs.

Adjusting for competition and demand

Pricing can be a bit counter intuitive. Obviously, Taylor Swift and Bruce Springsteen could charge more for their CDs than indie, street-level artists. But often they don’t, as they know they will sell more units if they keep prices reasonable. In the same way that boutique and handcrafted items can be sold for more than mass-marketed ones, you might be able to charge slightly more for your music than a major artist as it’s coming from an independent seller. The market for music is competitive, but there is only one you. People generally understand that small businesses can’t keep prices as low as larger businesses. It might take some experimentation to find a balance between getting your costs covered, pricing CDs reasonably, and charging what you’re worth.

Calculating a profitable selling price

The point of art is to express emotions and inspire reactions, but the point of business is to make a profit. Your CD selling price must include a profit margin, which is the proper term for the financial space between recouping your costs and the price of the product.

Basic profit margin formula for CDs

The basic formula for profit margin is your total costs divided by how many units you’re going to make, plus a percentage markup. So, if it has cost you $10,000 to make your record and you have pressed 2000 units, each unit cost you $5 to make. You will then need to decide what people would be willing to pay for your CD and add a percentage onto that in order to make a profit. In the example above, if you find that selling your CDs for $10 apiece is a price your customers will pay, then you can add a 50% markup to the break-even price.

Include shipping in your pricing model

Don’t forget to include shipping costs in your total costs when calculating your pricing model! Assume in the example above they are included.

How to handle marketplace and payment fees in calculations

It can be extremely complex if you’re selling CDs in different online storefronts to try to adjust the price for each retail outlet. One easy practice when dealing with multiple fee structures is to choose the highest one and just adjust the price to include that. So, in the above example, if you have a base break-even price of $5, take your highest fee structure, and apply it to create the new price. If Amazon fees add up to $2/unit, make your new base value $7 and use that number when calculating price for every online storefront. That way, all the fees are included in your pricing strategy all the time and you will be clear about your profit margins.

Setting a minimum acceptable profit per disc

It’s good business strategy to always be making some profit off your discs. Selling at a loss is only acceptable at the beginning if your main goal is to get CDs in people’s hands. Only you can decide when it’s acceptable to lower your profit margins. Selling at a loss is not a good idea indefinitely because then you won’t recoup your costs and will have to find other sources of revenue to make more CDs.

Deciding between buyer pays shipping vs. free shipping

It is a truism among e-commerce experts that the shipping solution needs to be handled carefully, as most shopping cart abandonments happen due to dissatisfaction with shipping costs. Give careful thought to how you handle shipping.

Pros and cons of buyer-paid shipping

The main pro of the buyer paying shipping is that your shipping costs are covered; it’s all on the customer. The con, of course, is that in this day and age of Amazon Prime, customers prefer and expect free shipping on most products. You may lose potential sales if your clients feel that the shipping costs are too high.

Pros and cons of free shipping with higher item price

If you include shipping in the price, it becomes an invisible or hidden charge that can be both good and bad. Good in that it feels like free shipping to the customer, bad in that it can raise the price per unit to an undesirable point. Like other shipping cost decisions, proceed carefully and evaluate thoroughly.

When to offer flat rate shipping

Independent sellers offer flat rate shipping for a variety of reasons — the main one being that it’s easier to process. Instead of calculating new shipping fees for every order, you just add the charge and, as they say in Jersey, bada-boom bada-bing. Many Etsy sellers do this for simplicity’s sake. You might also want to offer a flat or reduced shipping rate if a customer buys multiple products. This is a tried-and-true strategy; “spend $50 and shipping is free!” Make sure that the flat rate you charge covers your costs completely. Most consumers understand that small online businesses are more constrained by what they can afford to charge than large online businesses and won’t begrudge slight additional shipping costs.

How shipping strategy affects search placement and conversions

Keywords like “Guaranteed Delivery” and “Free Shipping” do boost your online store in search engine results. The most important components of your shipping strategy are honesty and expediency. If it takes you 3–5 business days to ship, tell that up front. Speed matters, but trust matters more. Don’t surprise your customers after payment with unexpected info. Ship as fast as possible and with no hidden information and you’ll retain more customers.

Managing fees on major marketplaces

Selling on the major marketplaces is beneficial to getting your CDs out there. It’s best to sell where your customers are most likely to visit. Most people use Amazon, Bandcamp is becoming standard for most independent artists, and it’s not out of the question these days for indie artists to have an Etsy shop. These sites do charge fees, though. It might be more cost effective starting out if you can consign your CDs to an already existing storefront on some sites as opposed to starting your own. Spinney Media offers a subscription-like package where they will distribute to Amazon, Wal-Mart, and other retail outlets for you, saving you possibly hundreds in fees.

Fee structures on Amazon, Bandcamp, eBay, and others

Amazon has two different fee structures for sellers. They offer a $.99 per product flat fee which includes some support, or they offer a $40/month subscription service which offers global selling and a variety of enhancements to help you maximize your sales. Amazon will fulfill your orders through their warehouses as well for an extra cost. Bandcamp takes a 10% cut of your physical product sales (not including shipping and tax) and there are payment processing fees which vary from 4% to 6%.

Though it’s not traditional for independent musicians, it is possible to sell your CDs on eBay. They charge a 13.25–15% value fee of the final sale price including shipping and tax plus a small per-order fee. You get 250 free listings per month with a $.35 charge per listing thereafter. Etsy is also not your traditional storefront for an independent musician, but people do use it that way. They have a number of fees: $.20 per listing, 6.5% transaction free on total sale price, and a payment processing fee (3% + $.25). Generally, this adds up to 20-25% of the total sale.

Payment processor fees, currency conversion fees, and store subscriptions

In any platform where you’re selling your CDs, make sure to find out if you’ll be expected to cover these additional costs. Currency conversion fees will kick in if you have global sales in different currencies. When you look at a platform like Etsy with its pile of fees, a monthly subscription like Amazon’s starts to make more sense as much is included in the subscription fee that you would be paying for a la carte on other sites or selling directly. Spinney Media also charges by subscription and will store up to 1200 units for you for only $29.99/month. This is a great one-stop-shop option for beginning artists especially. You can get a free six-month Spinney Media subscription with every CD and vinyl order from Disc Makers.

Packaging strategies that protect the profit and the CD

There are three basic options for CD mailer packaging: corrugated cardboard, regular cardboard/fiberboard, and bubble wrap mailers. The corrugated ones are the strongest and most durable, while the bubble wrap mailers are the cheapest but also might be all you need. Note that funds spent on durable packaging mean less resending of packages later should CDs get damaged in the mail. Investing in the best pays off here!

Optimizing shipping to reduce costs

If you have enough volume to justify getting a bulk mail permit, it will save you money in the long run — possibly as much as $2 per package. At first you’ll have to pass along shipping costs to the customer, but as time goes on, you’ll be able to offer more reduced/free shipping deals depending on what is ordered. For someone starting out, one or two trips to the post office a week is sufficient to keep your costs down. Make sure to inform customers how your shipping policy works.

Stamps.com is also an option to save money on shipping. You pay a subscription rate of $20.99 a month and can print postage at home, receiving a discount on USPS shipping rates.

Common pricing mistakes to avoid

Pricing does have some general principles, but by and large you will have to experiment to see what customers will respond to. Here are some common pitfalls to avoid from the get-go, though.

Ignoring total cost and only looking at sale price

The main mistake artists usually make is not being thorough enough in evaluating their costs and charging enough to make even a bare minimum profit. Just charging “what you think people might pay” doesn’t account for your own process and needs.

Underestimating shipping and packaging weight

This is also a common mistake, as many artists won’t take the time to closely examine USPS shipping rates to make sure they have charged the customer enough to cover the shipping. Get a tiny scale to weigh your packages and research shipping costs thoroughly!

Copying competitors without checking their costs

Like the old adage goes, “Don’t judge your insides by someone else’s outsides.” Don’t just parrot your competitors’ pricing without finding out what their costs are. Independent artists are usually open to discussing their costs because they are always looking for places to save money; it’s good to help out your compatriots this way. If you can help someone else save money, chances are they might assist you the next time.

Overpricing slow-moving CDs

Often artists will offer their back catalog for a bundled price with their newest CD; this is a great way to get rid of inventory that has been sitting around and it encourages the purchase of new projects. If you have a pile of your old CDs sitting around the house, lowering the price or bundling them is a great way to get them out into the world.

Ready to order CDs?

Now that you know the ins and outs of CD pricing, let’s put your album on CD! From jackets and jewel cases to eco walletsyou will target and digipaks, your friends at Disc Makers are here to provide top-quality CDs for your next release.

Chris Huff has been a professional singer, multi-instrumentalist, songwriter, and producer for over 25 years. He has worked as a sideman with Peter Yarrow (Peter, Paul, and Mary), Echo and the Bunnymen, Chuck Hammer (David Bowie, Lou Reed), and Tom Kitt (Broadway composer of Next To Normal). Chris also wrote liner notes for David Bowie’s Live And Well CD.

How to Price CDs Online When Shipping & Fees Cut Into Profits