Stephen

“For major-label deals, producers get “points.” “Points” are simply defined as percentage points of the artist’s royalty. So, if an artist gets 18 (percentage) points for a major record deal and the producer gets 3, those 3 get subtracted from the artist’s points. If you divide 3 by 15, the producer is getting about 20% of what the artist gets. The label is still keeping 82%. Producers typically receive anywhere from 3–7 points. The average for up-and-coming producers is usually 3 points; recognizable names typically get 4–5 points and anything over 5 points is typically for superstar producers. Producers get their up-front fee (an advance—after signing the contract), and then their points kick in after the recording costs are recouped. But, unlike how major-label deals are typically structured for artists, once the recording costs are recouped, the producer gets paid from “record one.” Meaning, from the first sale/stream. You can negotiate the backend percentage based on the up-front fee. More money up front, lower percentage on the backend. And vice versa. So, maybe the producer wants $3,000 up front for a “buy out”—meaning no backend percentage and no ownership rights in the recording. But maybe the artist only has $1,500 up front to pay. In this instance, you might kick in 15% backend. Or maybe the artist only has $500 to pay up front, so then the backend could be 25%. If the artist has no money up front to pay, then it’s typically a 50/50 split of royalties—and usually co-ownership of the recording. But if you are the artist, and the producer is going to get ownership of the recording, then the producer should sign something saying that you can administer the track on your own: Since you, the artist, are going to be the one promoting the track and making all of the decisions, you don’t want the producer to be able to hold anything up. Where the percentage numbers come from for indie deals (15–25%) is based on the major-label point system. Since most producers get 3–7 points and most artists’ deals are 12–20 percentage points of sales/streams, you divide the producer point by artist point. So, if you’re working with a “3-point producer,” you can divide 3 by 15 (typical artist points less the producer points) and get 20%. But these are obviously loose calculations because the artist royalty rate fluctuates based on the deal. I’m using these numbers for easy math.”
― Ari Herstand, How To Make It in the New Music Business: Practical Tips on Building a Loyal Following and Making a Living as a Musician