UPDATED With Patreon’s Explanation: Why People Are Alienated By Patreon’s New Fees – We Did the Math

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Text link to The Beat's Patreon accountSeems like it’s a season of change in Crowdfunding.  Last week, we talked with Spike about Drip, Kickstarter’s answer to Patreon and now Patreon’s announced a change in their billing structure.

Announced yesterday to creators and today to patrons (backers), this is how Patreon phrases it on their FAQ page:

“With this update, creators will now take home exactly 95% of every pledge with no additional fees.

In the past, a creator’s income on Patreon varied because of processing fees every month. They could lose anywhere from 7-15% of their earnings to these fees. This means creators actually took home a lower percentage of pledges than their patrons may have realized.

A new service fee of 2.9% + $0.35 will be paid by patrons for each individual pledge starting on December 18th. This restructuring allows creators to take home a greater portion of their earnings, which is core to our mission of getting creators paid.”

Previously, the processing fee came out of the pledge before the creators got their portion.

Suffice it to say, creators are not happy.  Livid might be a more accurate term.

A few reactions from the comics-related Patreon folks on Twitter:

It’s odd to see Patreon announcing the fee would be accessed for EVERY pledge.  Sure, you might run the card as per-post priced pledge drop, but you’d think it would be more efficient for everyone if people who support multiple creators with a monthly pledge only have their card charged once for the total pledge.  I don’t know about you, but if I had to pay a transaction-based service fee for every pledge and I only had one charge on my credit card statement, I’d be calling foul.  That’s how Patreon has framed the conversation.

But you know what?  Let’s do the math on this.  The general idea with price hikes is you’ll probably lose a few customers, but end up with more revenue.  Let’s see how that would work using Patreon’s numbers.

It’s the $1 pledges where the most shocking change by percentage happens.  2.9% + $0.35 would mean a $0.38 transaction fee on that $1 pledge.  So the actual price for a patron/backer would be $1.38.

This is also where we hit some incongruity between math and the description.  At a $1 pledge level that’s a 38% bump.  In their statement to creators, Patreon says creators lose 7-15% of the pledge amount to fees.  I’m also seen it cited a few times that creators retain 80-88% of the pledge amount, which is consistent if you add in Patreon’s 5% share of the pie.

Does that 15% figure not include $1 transactions or did the transaction fee used to be lower?  I can tell you personally that I’ve been assessed a 6% and 3.3% processing fee on my personal Patreon creator account on different months, which suggest that I was getting a piece of a single credit card transaction, which makes the eyebrow arch a little higher.

Let’s run the math both ways, and I’ll be rounding the half cents in Patreon’s favor.

Let’s use Patreon’s numbers first.

If you figure a $1 post is the low end of Patreon’s stated numbers, then the creator should be getting $0.80 off a $1 post.  In the format, that same post would net a creator $.95 cents, so a net gain of $0.15.  That’s about a 19% bump.  Which is to say you’d need to keep 5 1/3 patrons for every one that leaves to break even.  Lose 20% of your backers over this, you take a loss.  Lose 18%, you uptick ever so slightly.

Now if you figure those transaction numbers are constant, then the creator would have been eating that $0.38 fee and only getting $0.62.  In which case, a bump to $0.95 would be an extra $0.33.  If you lost 1/3 of your backers, you’d be slightly up.

If the average patron at Patreon backs $12 worth, theoretically that would be a $0.70 processing fee, for a net $11.30, less 5% for Patreon gives the creators a pool of $10.73 to split up for 89.4% of the pledge.  Which is roughly consistent with the 89% and 91.67% payouts I had as actual percentages for October and November on my personal Patreon account.  So let’s split the difference and call it 90%.  In which case you’re only gaining a nickel on a $1 pledge and you can only lose 5% to break even with the new system.

Actual percentages have been a little fluid from creator to creator, so I’m thinking breakeven is probably a loss of around 15% of the backers, if I were to put a “rule of thumb” on this.

What about $5 pledges?

Using Patreon’s example, a $5 pledge would soon carry a $0.50 transaction fee.  So yes, this would be a legit 10% falling in the middle of Patreon’s example and 15% over all when adding Patreon’s fee.  This means you were getting 85% of the pledge and would be gaining 10% of your revenue, so you’d need to keep 90% of the audience at this pledge level to break even.

If you were getting closer to a 10% payout, as in the “average patron” example and my actual numbers, you’d get a 5% and need to retain 5% of the audience.

So how much of a gain would this really be for creators?  Each creator should check what their month-to-month payouts have been.  There’s a percentage under the dollar total in the “your share” column.  You can also see what the processing fee was each month in the “Processing Fees” column.  https://www.patreon.com/dashboard/earnings to check.

When you do the math, it sure looks like Patreon wasn’t charging transaction fees on all the individual transactions previously, which raises the question why they’re wanting to do that now.  It also isn’t clear how many people would really be seeing a full 15% revenue boost, though that’s going to vary from creator to create.

And it absolutely raises a question of whether there are going to be more individual transactions for the patrons/backers and where those fees are really going.

It sure seems like there’s less actual gain here and more potential losses than you’d initially think reading the announcement when figured on the whole.  And all the creators protesting at the top of their lungs on social media probably isn’t the sort of thing to dissuade backers from pulling up stakes.

How’s this going to end?

First, we need to see if Patreon actually goes through with this.  They seem to be alienating both creators and backers with this.

If it does go through with this, then it’s strictly a matter of math.  Does the percentage leaving in a huff exceed the functional increase in revenue.

Time will tell.

UPDATE:

Patreon has posted their official explanation for why these changes are made.  The short version is they deliberately got rid of the payment aggregations because some creators wanted new backers to have their first month’s fee processed immediately.  Rather than just explaining to creators that they’re going to lose a higher percentage for not aggregating the charges at the end of the month, they killed the entire process.  No consideration (that we see anyway) of pro-rating the pledge (relative to a one-off transaction cost).  No option for creators to opt-in for end of month aggregated processing.  Lack of communication and a complete mis-reading of the landscape caused a self-inflicted wound.

 

Want to learn more about how comics publishing and digital comics work?  Try Todd’s book, Economics of Digital Comics

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  2. I visited the Patreon offices when it was in a repurposed apartment prior to their A-Round. It sure looks from the outside like there’s been an attitude change there and I couldn’t be more disappointed.

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