Tom reveals the truth about how Patreon pledges stack up to other forms of listener support.
Featuring Tom Merritt.
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Episode Script
What’s the best way to support your show that lets you keep the most money…
Doesn’t Patreon keep like a huge cut of what people pledge…?
Why would you let Patreon take your money…?
Are you confused?
Don’t be.
Let’s help you Know a Little more about Patreon pledges
At Daily Tech News Show we quite often get questions about Patreon support for our show. The most common questions are, What’s the best way to contribute to you that lets you keep the most money and How much does Patreon keep from what I give you and why?
My answer to the first is always that Patreon is the best way not because we keep the most money but because of what we get for the money it does keep.
Patreon has provided myself and many others a way to get direct support from people who want to see more of what you do.
It was started in May 2013 by musician and entrepreneur Jack Conte and developer Sam Yam with the idea of getting patrons, like patrons of the arts, to support artists, like musicians, like Jack. It was centered around YouTube creations, like Conte’s music videos after he made a really cool video that got millions of views and he made a small amount of money off of it. So patreon was started to help creators directly connect to fans for support.
In December 2013 Brian Brushwood, myself and a bunch of other podcasters sort of hijacked it to help us make podcasts. And it has over the years become a haven for artists of all kinds.
Lots of folks like the idea of value for value that Patreon makes possible. Value for value is a phrase used by Adam Curry to describe the direct support he cultivated for his podcasts like No Agenda.
The idea was that if you get value out of the show, you give value back by voluntarily supporting it. The amount of your support should be based on what you can afford and how much you value the show.
Curry did it directly with things like PayPal and even mail-in checks. Patreon came along and let folks like myself do it without having to manage all that. On the one hand it made it simpler. On the other hand int meant you kept less of the money.
Now right up front let me say that from where I sit, as a person who derives a lot of his income through Patreon, I think the cut they take is worth it. I know there’s also a whole lot of political stuff related to Patreon and I have thoughts on that too but for this episode let’s focus on just the economics. Aside from politics, some folks see Patreon taking a cut as greed or selfishness. I view it as a fee for services. The cost-benefit analysis for me is that the time I save not having to manage the collection and tracking of the pledges is much more valuable than the amount Patreon takes. Because Patreon handles all that, I can spend that time doing things that I enjoy, that make me revenue AND that I do not loathe. Those values combine to make it worth it.
But still, folks want to know how pledges work and how much we creators on the platform keep.
That has changed over the years. Patreon used to charge 5% plus whatever the transaction fees were on the payments. Now they have a system fo three different percentages and a standardized transaction fee.
We’ll get to the platform fee second. Let’s start with the transaction fees.
This is the one most widely misunderstood part of any business. From the outside, folks look at payments and think. “How hard is that? I could set up a PayPal and take payments right now for nothing right? Why is this so hard for Patreon?
Because transaction fees. Even PayPal takes a cut of payments if you’re conducting a business. So even if you “just use PayPal,” If you do it at the scale of Patreon, PayPal takes a cut. That cut varies by type of transaction but for most online commercial US transactions, it is 2.9 percent of the payment plus 30 cents per transaction. If you were to take credit cards outside of PayPal, you’d pay similar fees. This is the cost of taking money online (and side note, one of the reasons Cryptocurrency continues to be popular since it would reduce a lot of these fees).
The reasons for the fees existing at all are complex and beyond the scope of this episode. But remember that when you send money to someone through PayPal or buy something with a debit card there is a complex chain of banks and clearing houses and transaction processors that each take a small cut. That process includes making sure the money goes to the right place, that the actual physical money is actually transferred to the proper banks at some point, that it is re-processed if declined and of course a lot of money goes to fighting fraud. So these fees are paid for the process of transferring money and all the protections that go with it.
Patreon used to try to be perfectly transparent about these fees charging you only exactly what the banks charged them. And that was a nightmare.
Because Patreon doesn’t just take PayPal. If you want as many people to support creators as possible you need to to take payment in as many ways as possible because not everybody wants to use PayPal. That means multiple credit and debit card systems, PayPal, Payoneer and more. Patreon also now lets users pay in their native currency and that means currency conversion fees as well.
In the old days you’d never know exactly what your transaction fees would be in any given month because every Patron transaction might incur a slightly different fee. Plus Patreon tries to bring down the cost by doing one transaction per Patron across multiple Patreon creators, and then dividing the processing fee up amongst all the creators.
Think about that for a second. Let’s say you have two patrons each giving you five dollars through PayPal. The first patron supports no other patrons. Only you. That means the processing fee from PayPal is 44 cents. But the second patron supports 10 different creators. Patreon makes one transaction for all the support meaning the fee is only charged once and split up among the creators. The PayPal fee for that second patron for you is only 17 cents. Same $5 pledge but you keep a different amount of it.
Now imagine multiple Patrons coming and going each month, all using different types of payments with different fees and supporting different numbers of creators each month and the processing fee might vary widely from month to month.
So Patreon simplified it. They looked at what the average cost was and came up with a standard rate of 2.9% plus 30 cents for pledges more than $3 and 5% plus 10 cents of pledges less than $3. (Keep in mind there are also different rates for other currencies, Value Added tax collection and non-US PayPal and stuff too)
Patreon calculated the standard rate to reflect what it sees across its thousands of creators every month. This means it will be taking in processing fees that should just about match what it pays out in processing fees. But instead of each Patreon creator having different amounts each month, they’ll all be able to know what to expect based on how much they’re taking in.
If you have a fairly stable patron community like Daily Tech news Show it wouldn’t change much. But if you have a Patreon that sees the membership fluctuate a lot from month to month it really helps with planning.
Side note: Patreon allowed what it calls “founding creators” to stay on the old plan where the processing fees reflect exactly what’s taken, and Daily Tech News Show still does that. And it’s just about exactly what we’d pay if we switched to the new standardized rate.
To me that means it works. DTNS is somewhat representative of the whole of Patreon where the fluctuations cancel out. A stable amount that doesn’t change radically from month to month. So if their calculations are right, a representative example like us SHOULD be almost the same as the standard rate. Other kinds of patrons who have members flood in when they do something exciting or popular and then flood back out again now experience the kind of stability DTNS luckily has naturally.
So there’s one part of what Patreon takes and why, and why what it takes what it entirely goes to banks, not Patreon.
Now let’s get to the platform fee. This is the amount Patreon gets to keep for itself. Remember the processing fee stuff we were just talking about goes to the payment processors. Patreon also needs to charge you something to run itself as a company.
It has employees that help you when you have a problem with the Patreon site. Engineers developing that site and the mechanisms that make it super simple for you to pledge without having to see the insane worldwide financial back end going on underneath. It lets us post shows and have them show up in an RSS feed for you. And it lets us talk to folks at Patreon and make feature requests and figure out issues on our end as well. AND they fight fraud. BOY do they fight fraud. Beyond the fraud the banks fight for them Patreon has to fight spammers who set up Patreon creator accounts to milk out money and folks who fake accounts as supporters with other schemes to milk out money. It’s a never ending fight and you should give a little prayer of thanks to the fraud fighters at Patreon and every other site that manages money because they. work. hard.
Patreon also has other cool features like automatically making and shipping merchandise that we can give as rewards, handle tracking patron pledge statuses for rewards we ship ourselves and of course offer all kinds of tracking and analytics so we can see how we’re doing financially.
That’s what you pay the amount that isn’t transaction fees for. Patreon used to offer one percentage for everyone but that was holding them back in rolling out new features (like he merch.
So in 2019 they created three new tiers for creators to choose. For 5 percent they’d get the creator page and the basic tools. For 8% they’d get special tools to offer promos (like we do with the holiday cards), workshops, more app integrations and priority customer support. For 12 percent you get all that plus the merchandise for member, a dedicated customer support rep and something called Team accounts that lets you have multiple people accessing one Patreon. Like Sarah and Roger have their own logins.
Again, Patreon grandfathered in older creators to these new plans so we pay 8% for the top tier not 12 percent. Which was nice of Patreon to do.
So in the end that is how much Patreon “takes” from pledges. All told from month to month we keep about 86 percent of what the community gives us to do the show.
By comparison, YouTube takes 45 percent.
Twitch takes 50% of subscriptions and different amounts for other things like 95% of game sales.
PayPal takes about 2.9% plus 30 cents per donation, BUT gives us no way to track users or deliver them gifts unless we build it and operate it ourselves.
So that’s why when folks ask what the best way to support is we say Patreon. That may be a different calculation for other creators but for us it’s a great value for what we pay.
And most of all. Now, I hope you Know A little More about Patreon Pledges.
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