In recording a band's demo, the first important step comes in the form of pre-production. Pre-production allows you, the would be engineer/producer, to hear what the songs sound like with the band playing it in a live situation. One may opt to record this pre-production session for future reference, but the main factor for going through such a session is to get a feel for how the band sounds and plays in the confines of the studio. If the band is giving you production credit or allowing you to modify the songs, pre-prod is also the time to iron out some wrinkles in the songwriting and arrangement, potentially turning a run of the mill track into a must-hear event. Lyrics can be written down during pre-production, as well as the keys and chords of the songs.
What usually follows is the recording of the actual material, either with the band playing together live (the preferable option if space/gear permits, in my opinion), or track by track with the drums going in first, then guitars, keys, other instruments, and finally vocals. I personally feel that recording the band live has an advantage in the sense that as the engineer/producer, one can impart the feel of the band's stage performance on tape, which is a huge plus if the band is very dynamic onstage and has a powerful live show.
Mixing comes next in line, wherein one achieves a favorable balance of each instrument in the mix. Processing that serve to heighten the program material such as EQ and compression are added at this stage as well. Once the mix is done, you can give the finished copy to the band for their perusal, or you can send it over to a mastering house for a more polished and professional result.
The secret to making an effective demo isn't necessarily to capture on tape the band's most perfect take, but to capture their most powerful, energetic and convincing performance.
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