The information included here is general in nature and is not intended as a substitute for legal advice. Your own circumstances and deal might be different.
When you're playing live, your tour merch sales are a big part of your bottom line. Solid merch sales can mean the difference between making some cash and going into debt on your tour.
From the outside, merch looks pretty simple. Items with the band name, likeness, logo, etc, are designed and sold to fans. Easy, right? Well, not so much. Merch can get pretty complicated pretty fast, and the bigger your fanbase, the more complex things can become.
For indie bands just starting out, merch often IS as simple as it looks. Someone sets up a merch table at the venue - often manned by band members themselves or their manager - and collects money from fans that shell out for the goods. The band usually just keeps all the money or in some cases pays the venue a cut, and that's all she wrote. As you start touring, if you have a bit of money around, you may hire a dedicated merch person to handle all of the set-p, selling and accounting of merch for the entire tour. Still, the band or label probably designed and paid for all the merch and keep the proceeds, less any venue charge and expenses (i.e., you owe the manufacturer for the shirts).
That's all well and good - until your reach keeps on growing, your shows keep getting bigger and tour merchandising company starts sniffing around. When you hit the big leagues, a tour merchandising company will want to take your merch job off your plate. Deals with tour merchandising companies are so different from record deals. In a nutshell, the company licenses the right to use your name and likeness on the merch they produce. They then work with you and a designer to come up with items to sell on the road. They then produce those items, handle the sale of the items, and pay you a percentage of the proceeds.
Most artists receive a percentage of the sale of their merch - around 30% or so is pretty common, at least in the US, though the rate can fluctuate depending on your star power. This percentage is commonly taken from gross sales of your merch - that is sales less taxes and credit card fees. However, there is another factor that can influence your take on merch sales - hall fees.
Hall fees are fees charged by a venue for selling your merch there. These fees are usually a percentage cut of your merch take and are paid to the hall by the merch company. Though the merch company pays out the hall fees, the percentage the venue gets is up to you and your agent. When your agent books your shows, they negotiate the hall fees.
Because you are in charge of negotiating the fee the merch company pays, and because artist takes on merch have increased in recent years, merch companies have begun putting caps on hall fees into their contracts. Anything over the cap comes out of the artist's take. For instance, if the cap in your tour merchandising contract is 30%, and your agent can't get a better rate than 40% as a hall fee, the difference between the cap and the actual fee (in this case, 10%) comes out of your cut the merch sales.
But wait - where do venues get off charging so much for selling merch under their roof? Well, in many cases, your merch company doesn't actually physically sell your merch. Instead, they just deliver your merch to the venue, and the venue staff sets up the merch stand and does all of the selling. The hall fee is the charge for this service. Hall fees also include the cost of patrolling your show for bootleggers in many cases, but usually that is a very small piece of the pie.
Note that tour merchandising deals can vary. In some cases, rather than getting a percentage of gross, musicians get a larger percentage of a net shared between all parties involved.
Speaking of the deal, what does a tour merchandising deal look like? Besides detailing the percentages of we already discussed, tour merchandising deals have a few different parts. One of the biggest part of such a deal is the advance. Tour merchandisers frequently pay advances just like record labels. Unlike record deals, merch advances are often recoupable/returnable and sometimes are even recoupable with interest. Advances from merch companies are usually paid in a few different chunks over the course of a tour and are contingent upon a few factors:
- You have to begin your tour within a specific amount of time as laid out in the contract. Usually the time is pretty short - three months or so from the date of signing is common.
- You have to agree to pay a certain number of shows with a certain number of paying concertgoers per show.
That last point - the "certain number of concert goers" is key. This number is known as your performance minimum. The merch company expects you to play for at least that number of people at each so. Why? So they are enough people around interesting in buying your merch. This performance minimum is based on the amount of money they think each person will spend at your show - for instance, the total take at a show breaks down to $1 spent on merch for every person at your gig. If you don't meet these minimums, the tour merch company can cancel your deal and recall your advance.
Your advance can also be withdrawn if you don't hit the road in a timely fashion or if you become unable to fulfill your touring obligations because of sickness, injury, etc.
As a musician, one of the most important things you can negotiate in your tour merch deal is the term. Learn more about the specifics of tour merch deals, terms and performance minimums here.