Recoupment is a word heard but not totally understood.
Recoupment is an artist/label word.
The sale of a cd is an investment of the artist and label. A financial investment to the label and a career/creative investment to the artist. The label is in it to make money from record sales to get a return on its investment and further its brand.
The artist is looking to get notority from the promotion/sale of music and increase value to its artistry. I use the word promotion, because that is all a cd/tape/album is initially for an artist. Once a record sales successfully than thats when the record becomes lucrative for the artist. An artist usually makes more money off of appearances.
It is the responsibility of an artist and their management to capitilize off of the success of record sales. If your music was sold in Utah, u work on appearances in Utah, not in baltimore. U follow the trail, don't deviate. It's a one/two punch.
Recoupment expenses are studio time, manufacturing, promotion, advertising, postage, telephone and any other cost related to selling albums.
Some cost we'll describe as hard cost....manufacturing, commission, taxes and etc. These are cost that are fixed and are needed to present every unit sold.
One cd sold...Manufacturing $1.50, Commision $1.50, Taxes .60/.30, right there that could eat up $3.60 of a $10 sale or $3.30 of a $5 sale.
Other cost are soft, meaning they adjust by the amount of units sold. Cost like these are publishing, recording, promotion, advertising and others. You can call this constant division. Its an average, so to speak. More sales less of a factor. Less sales more of a factor.
Where if something cost $1,000 and you sold 1 cd its value is greater than if you sold a 1,000 cds. If Abe is paid $20 to hold a poster while records are being sold and $40 in cds are sold at $5 a piece (8 units), abe accounts for $2.50 per cd (8/$20). While if $400 in cds is sold, Abe accounts for $.25 per cd (80/$20).
So using the hard cost and Abe example combine for a $5 sale, saying 80 units were sold. That would equate to $3.55 of recoupable cost per cd sale. Gross income $400, recoupable cost $284, net profit of $116. Okay lets split that....wait...wait...wait....than you have traveling expenses...gas, toll, insurance to factor in...and were the people that sold and promoted (abe included) fed...okay that could be another $80....leaving you with $36 dollars to split amongst the artist royalty.
There are other cost that could be thrown in there but its the intent to educate not depress the reader.
You have to love this business to be in it. It takes the right set up to become profitable. This is not a fly by night industry, while it is promoted to be. Play your hand correctly. Don't play yourself out of position, thinking your owed something that your not.
I'm getting tired just typing about it. Recoupment is a tricky subject that is very vital to understand. In short any cost related to saling a cd is a recoupable expense. Record labels split the profits of cds sold not the gross. The gross is accounted for in the ability to present a product to the consumer. Just remember it takes money to make money.
One two step!
Suggestion to artist, if you want to be paid off of units sold up front, sale them and earn that commission mentioned above. Who better to sale the project than the artist. Than everybody is happy. Be there to get there.