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Pay what you want does work really well. I've done about 2.5K albums for
my stuff and well over a thousand for Fierce And The Dead - but you do
need to put the effort in for marketing, get blog reviews, get print
press, pay for adverts, play live, shake hands, do forums and build it up.
The key is having a decent sized mailing list - anything less than a few
thousand and you're unlikely to get many sales so give music away free
until you have an audience - swop it for email addresses. It takes years
to get to that point - if anyone needs info let me know :)
Invest in google/facebook ads, get deals and work a specific niche
audience. Ask your friends what bands you sound like and market to fans of
those bands. Get cheap deals on mag adverts - ignore the ratecard and say
what you have to spend.
Look to spend few hours a day on social media - this works but takes
ages. If you don't get any traction either you're not working the correct
niche or the music isn't of quality that people wish to share (doesn't
mean its not any good or artistically invalid).
RE CDs get 100 CDr and see how they sell - once you have sold 400 get 1000
done next time. Little steps. Fans do love digipack CDs thou - don't
bother with the ugly plastic ones. Most mags and blogs aren't bothered
about physical CDs - send CDRs like labels do - its not the 90's.
It took me around 5 years before I could do music for a living and i still
do writing as an extra income.
Hope that helps