A record label must decide from the start where its audience lies; the majority of independent labels pigeonhole themselves in a small area of a genre in order to build a fan base. By sticking with a certain genre of music, a record label owner can build contacts with certain record store owners, DJ's and journalists. Market research can help you decide if you have an audience to aim at. To be a successful label you need to have enough artists to keep the music coming and enough people to buy the records for the label to stay afloat. For market research a label owner can talk to promoters, studio owners and journalists to discover more about the popularity of a genre and information about competitors in the marketplace.
The main thing to remember about a record label is that it is a business. Market research will help with creating a business plan for potential investors; enough money is needed to record, press and market tracks yourself before any sales are made and money can be made back. If a label is trying to sell their records themselves, a record store will have to be found that will take your products on a sale or return basis. This means you won't make any money back until your records have sold in the record store. Finding a distributor is the key to selling large numbers of records. The more records you press the cheaper the charge per pressing, the problem here is that you may be left with a surplus of unsold records. Realism in the numbers you need will pay off in the future. Working with a distributor a label sends the records to the distributor's office or warehouse where they are distributed to record stores. There is no upfront payment from a distributor, usually a 60-day payment period is in place, meaning that the record store and distributor have 60 days to make payments on records sold. Contracts are very important, as any financial backer will want a contract to safeguard not only himself but the record label. Individual artists contracts should also contain every matter agreed with the label to avoid later confusion.