I was on a recent panel in Memphis, TN, for The Recording Academy called “Grammy GPS: A Roadmap for Today’s Music Business.” The topic of my panel was Direct-to-Fan (DTF) commerce. In preparation, I pored over data (anecdotal and empirical) from the last 3+ years of working with Artists, Labels and Managers, including recent data from our online DTF product Reverb Store that launched in January of this year.
The first thing that dawned on me was how much DTF commerce is already taking place, offline, in the form of the ubiquitous merch table at virtually every concert on the planet. The Artist Revenue Survey we conducted in 2008 revealed that more than 50% of our Artists total revenue came from playing live shows and selling merch and music at those shows.
It seems logical that we should consider the principals behind the merch table (offline DTF) if we’re going to be properly equipped to maximize DTF online. Core to that is understanding why fans buy products.
The following illustration is an attempt to visualize four types of fans that buy for different reasons. Any given Artist may have fans in any or all of the buckets, depending on where they are at in their career. You’ll notice that I added a ‘value’ arrow that increases as you go up the illustration. This value arrow is based on a combination of the price each type of fan is willing to pay multiplied by the number of potential fans in each group. Your biggest supporters are willing to pay more than some of the other groups, but there will likely be fewer of them, especially as your tour farther from home:
Let’s unpack this illustration a bit more by looking at each type of fan in detail. First up is the Supporter: 
Supporters are people like your friends and family. These are the people who know you and who come to your show to support you - they want you to succeed, and will wear your shirt or don your bumper sticker to help you.
When Supporters buy your merch, they view it as a donation to your cause. If you have a lot of fans in this category, consider removing the prices from your merchandise and let them pay whatever they want for it. Displaying prices may actually limit the amount of the ‘tip’ that these fans will leave for you. Stock your merch table with a variety of simple, low cost items — the cheapest t-shirts, hats, CDs, stickers, and buttons that you can buy. Remember, these ‘patrons’ are likely going to give you a $20 bill no matter what you give them in exchange, so maximize your margins here. By providing a variety of items, they can buy different pieces at each sequential show ($20 over and over again). Print your band name in one color (saves cost), and print it big and bold. These are the folks that want to advertise your band to the world to help you. Let them.
While they are huge supporters, forcing them to an online store may lose a big portion of them. They came out to support you, so make it easy for them to donate to the cause by having the merch items on site. There are lots of folks who can supply you with merch to sell, from local shops to online wholesalers. ReverbNation can make your products for your merch table as well, but so can other companies.
Next up is the Local Entertainment Seeker 
Once you get past playing at coffee shops to your cousins and start playing out at larger venues, you’ll start getting this group of fans. These are people who just happen upon your show because of the date/time/place combination. Maybe they’re celebrating a birthday or spring break at the bar you just happen to be playing at, or they’re local music fans who to go that venue every Friday — no matter who’s playing — because it’s their favorite spot.
These fans are going to buy your merch because it’s a commemoration of a great night they had — a souvenir. At this level, merch should be event-specific (if possible) so that people will want to buy it so they can remember the experience — even if that experience, such as a birthday, has little to do with your band.
“Spring Break 2010 at Bubba’s with Scotty and the Reverbs”
This one takes a bit of planning ahead, because these fans most likely won’t go online to buy your merch either. They want something right at that moment, so you need to get them before they walk out of the building. Consider making a special t-shirt or sticker just for that event. The Reverb Store was designed with this use in mind. Use it to create event-specific merch and buy it in low quantities for each show (it costs nothing to create an event-specific item). Follow up with an e-mail to the fans that live in the area where you played (our FanReach email system lets you target emails to specific geographies). If that is not do-able, consider making special stickers or even having a ‘Spring Break Deal’ on your merch that makes it fee special to them.
General Public 
The next group is the General Public. These are people that go to your shows specifically because they saw you were playing locally and wanted to see you. They want to shop your entire catalog. Maximizing the DTF to these fans requires a real shopping experience at the merch table. Lots of product, packaged well, credit cards accepted. These folks may consider shopping online for your stuff, so make sure you give them your Reverb Store URL (or whoever your e-commerce provider is) printed on a sticker, receipt, or thank you note.
True Fans 
The final group is True Fans. These are the ones who mark their calendars when you come to town. They are already in the Supporters category, but instead of coming to see you to help bolster your identity as a band, they believe that affiliation with your band helps define their OWN identity. They will buy whatever you put out, and they are willing to pay to get it. This is where you release really special, super limited-edition merch, such as box sets or lifetime passes to shows, signed by members of the band.
This kind of merch is the kind of super-exclusive stuff that you only want to sell online, with maybe a couple of copies at the merch table. This stuff should be as special as possible — hand numbered, signed — and priced as high as you’re willing to go. The examples that you bring to the merch table are about making them aware that they can buy even more.
Once you have enough of this type of fan (the true fan) you are in a good position to make a viable career out of your music product.
In summary, selling directly to your fans is the oldest form of merchandising for Artists. Learn why your fans are buying from you, and make it easy for them to realize their goals. You will make a lot more money in the process.
This post was originally posted to the ReverbNation blog (with some modifications) on April 22, 2010 by Jed Carlson, Co-Founder and COO of ReverbNation.com. While this post contains some links that promote ReverbNation products, the concepts can be used with any DTF provider and may be useful to any Artist as a strategy.