01Tour Merchandise Royalties
Of course, the royalty you'll be paid by the tour merchandise for selling goods featuring your name, likeness, album names, logos, artwork and so on is one of the most important points of any merch deal. There are two ways tour merch royalties can be calculated: percentage and splits.
With percentage deals, the musician simply gets a pre-determined percentage of gross sales of their goods. Gross sales usually mean sales minus any taxes and credit card fees paid by the merch manufacturers. In the U.S., musicians tend to get royalties in the 30% to 35% range, though it can vary, as do foreign royalties (which are usually a bit less than the U.S. rate). If you receive a percentage of your royalties, you can sometimes work a provision into the contract that your royalty rate increases as you reach certain sales thresholds.
Profit splits are usually based on net sales, so the merch company deducts all of their expenses from the sales income and then splits what is left with the musician at a pre-determined rate—often 85/15 (in the musician's favor), though again, these rates can vary. Profit splits are common in foreign royalty deals as well as deals for stadium shows and festivals. Additionally, concert bills or programs are nearly always sold on a split, even if the rest of your merch is sold under a percentage deal.
Note that if you opt to have any merch that requires the merch company to bring in an outside designer (like a jacket specially designed by a well-known name in fashion), your royalty rate will be lower on these items than the rest of the merch. Why? Because the merch company has to bear the cost of the outside designer, and the lower royalty rate is their way of recouping the costs.
02Tour Merchandise Advances
Yes, like a record deal, you do get an advance on a tour merchandising deal. But before you get excited, you should know that the terms are much worse than record deal advances. Why? Because tour merch advances are usually recoupable by the merch company—meaning you could be on the hook to pay back the advance.
There are a number of circumstances that can put you in the unfortunate position of repaying your merch advance, but most of them are tied to you not touring within the time frame specified in your contract or not playing to audiences of the sizes expected when your deal was signed (we'll get to performance minimums later, which is closely tied to this). If you decide you want out of the contract, you will have to pay back your advance with interest.
Advances vary in size depending on your bargaining power, the length of your tour, as well as the size of the venues and your fanbase.
Most tour merch advances are paid over the course of your tour, to help you meet your costs and to stop payment if you are failing to meet the terms set out in your contract. You'll get a lump at the start and the end with one or two payments in the middle.
Your contract should state the amount of your advance and the terms of the advance clearly.
The term of your deal is the length of your deal. For tour merch, you are usually tied down for one album cycle or until your advance has been repaid, whichever is longer. Technically speaking, that means if you repay your advance but never release another album, you're under contract with a tour merch company forever.
A good lawyer can help you negotiate exit strategies from the contract, but make sure you are very clear about where the finish line is, or you'll be stuck with a merch deal for a very long time to come.
Once you get off the bar circuit, you'll find that many venues charge a percentage of profits for letting you sell your merch in their place. These are called hall fees. Agents negotiate hall fees with the venue when they book your tour, but tour merchandising companies usually put a cap on the hall fees they are willing to pay (often around 30% or so). If your agent negotiates a hall fee that is more than the cap your merch company set, they take the difference out of your royalties.
Basically, the performance minimum is the number of people that must attend each show to make you compliant with your tour merch deal.
Why does the tour merch company get to tell you how many people need to be at your shows? Because the number of people through the door determines how much merch they can sell; more people, more merch sales.
Tour merch deals usually measure performance minimums in how much they expect to sell "per head," or what the average spend at the merch stand will be for each person through the door.
Merch companies don't count every attendee at a show as counting towards your performance minimum. For instance, no one on your guest list counts. They also count people differently at different venues. Stadium shows are counted most harshly. Even though more people go to stadium shows, they tend to spend less, since they may attract casual fans who aren't interested in buying anything. Some merch companies try not to count stadium shows towards your deal at all, though a better compromise can usually be reached during the negotiation stage.
Remember that falling below your performance minimum can trigger repayment of your advance, so be sure the numbers are realistic before you sign a deal.
Your deal should specify if, how, and when you will get to approve the merch the company/designer is producing for your shows. Even up-and-coming artists with little touring history can get full creative control in merch deals.
You can't have a deal with two tour manufacturers at the same time. Where exclusivity gets tricky is when you have a separate deal for retail merch and/or your label is planning some kind of merchandise promotion at your show.
It is common for merch deals to exclude you from selling any merch within 48 hours of the show within two miles of your venue. You need to make sure that this clause leaves retail stores out of the equation since you can't control where a record store selling merch is located in relation to the venue.
Record label promotions, such as a concert shirt giveaway by the local radio station set up by the label, should also be allowed in your contract. However, the tour merch company can—and will—limit the amount of merch you or your label can give away for free before a show.
What happens if you don't sell everything the tour company produces during your tour? The merch company will try to sell it off. You have the right to limit where they can sell the merch and how much. Your contract should provide you an opportunity to buy the leftover goods at cost plus a small markup (but be sure the contract doesn't state that you must to buy it).
If you don't want it, the merch company usually reserves the right to try to sell your goods (often to a retail store) for up to six months after your tour ends. However, they can't sell your goods at a cut price. They can't purposely manufacture more than you reasonably could have expected to sell on tour just so they have some leftover after the shows end, nor can they make new goods after the shows end. Further, their sell-off of your merch should be on a non-exclusive basis, as long as the other terms of your deal have been met, so you are free to make new merch deals.
Learn About Tour Merchandise Deals
It may not surprise you to know that tour merchandise (like concert t-shirts and stickers), or "merch," is a significant source of income for many musicians. But what may shock you if you're from an indie background is how complex tour merchandise deals can become.
Instead of having a friend sell your t-shirts at the merch table in the back of a club, major tours involve large music merchandising companies that license your band's name and likeness and produce and sell your stuff, paying you a royalty. Merch deals can be like record label deals, but there are some important differences.
Here's a look at the major points in tour merchandise deals.