patreon-business-model

Patreon Business Model In A Nutshell

Patreon is a membership platform that enables creators to earn an income by providing membership options to their fans and supporters. Patreon makes money by charging a fee when creators earn money, based on three levels (Lite – 5% fee, Pro – 8% fee, and Premium – 12 % fee). 

Origin story

Patreon is a North American creator membership platform. It was co-founded in 2013 by Sam Yam and musician Jack Conte – who was seeking to make a living from his YouTube videos. Conte believed that content creators on YouTube with large audiences were not being paid enough for their work.

In response, the Patreon platform was created to allow subscribers to financially support creatives on an ongoing basis. The platform hosts a range of creatives, including musicians, photographers, writers, podcasters, and artists. On Patreon, those who subscribe to the work of a creative are called patrons.

In exchange for their financial support, patrons gain access to a variety of special privileges. This includes early access to exclusive content or events and direct or personalized interaction with the creator.

During the first 18 months of operation, Patreon signed up 125,000 customers sending a combined total of approximately $1 million every month to content creators. Recent estimates suggest the company is now valued at $1.2 billion.

Patreon mission, vision and value proposition

As the Patreon team highlighted:

Our mission at Patreon is simple: we want to fund the creative class. We eat, sleep, and breathe that mission every day. We want to get as many creators paid as possible, so they can enjoy sustainable income, retain creative control of their work, and keep a direct connection to their audience.

To understand the value model behind Patreon, the company highlighted what it means to foster a creator digital economy:

The Internet over the last 30 years has turned art into ‘content’ to run ads against, and trained us to think it should all be free. This model drives ad revenue in the billions of dollars, with only a tiny fraction of it shared with the creators. We don’t think this is fair. We respect the value of creators’ work. We believe they should be rewarded fairly for making the world a livelier, more beautiful, more interesting place. We’re building a platform that allows creators to engage in a direct, value-for-value exchange with the people that love their work the most. We help them price their memberships fairly so they can build a sustainable business that delights their biggest fans and supports their creative ambitions.

The key stakeholders of the platform are creators and patrons (creators’ supporters). Thus its value propositions are for:

  • Creators: Develop a recurring income stream, by connecting with your audience. Creators on the platform comprise podcasters, video creators, musicians, visual artists, writers, and educators.
  • Patrons: Gain access to exclusive materials, perks, and membership options from their favorite creators.

Patreon technological model

Patreon enjoys a solid tech platform for engagement, subscription and support recommendations for its creators. In short, the tech platform is skewed toward enabling creators to connect with their audience and find easily ideas on how to monetize their content thus structure their revenue model vis subscriptions.

For instance, in the patent “Generation of engagement and support recommendations for content creators” Patreon suggests “systems and methods are provided for generating engagement recommendations suggesting ways that one or more creators of content may maximize subscribership and/or subscription-based revenue, as well as support recommendations suggesting ways that the one or more creators of content may realize successful support of their content creation.”

Workflow of the Patreon engagement and support recommendation system, as explained in its patent.

In another patent, related to “generation of subscription recommendations for content creators” Patreon explains, “a system and method is provided for generating subscription recommendations suggesting ways that one or more creators of content may increase subscribership and/or prominence of the one or more creators.”

Workflow of the Patreon subscription recommendation system, as explained in its patent. This part of the platform has the aim to help creators find more ways to monetize their content through subscriptions, in line with Patreon business model.

Patreon revenue model

The Patreon business model is comparatively simple – it only makes money when its creators make money.

The first component of the model is based on the fee the company charges creators.

When signing up for the platform, creators have a choice of three plans:

  1. Lite – where Patreon charges the creative a 5% fee. Note that the fee is based on how much revenue each creator generates in a given month.
  2. Pro – where Patreon charges the creative an 8% fee.
  3. Premium – where Patreon charges a 12% fee. The Premium plan allows creators to include additional monetization methods, including (but not limited to) the ability to sell branded merchandise. These so-called “value services” are offered on the proviso that Patreon takes a much higher commission when compared to its other services.

Patron fees

It’s important to note that there are over 3 million patrons on Patreon. Each can sign up for a support plan of which the features and exact price are determined by the creator.

When a patron elects to financially support the work of an artist, Patreon gives 90% of the amount pledged to the creative. The remaining 10% is taken as a cut, with 5% constituting a platform fee and 5% in processing fees.

Payment processing fees

In addition to charging the creative a subscription fee, Patreon also collects a payment processing fee for accepting patron contributions on their behalf.

For any payment under $3, the company charges a 5% fee plus 10 cents. For any payment exceeding $3, it charges 2.9% plus 30 cents.

Key takeaways:

  • Patreon is an online monthly membership platform for creatives. It was co-founded by musician Jack Conte who believed that YouTube artists were not being paid commensurate with their talent or output.
  • The Patreon business model is quite simple. The company only makes money when its creators make money. To offer their services, creators can sign up for one of three, tiered plans. Each plan attracts a fee based on the total revenue generated.
  • Patreon also charges patrons every time they choose to financially support a creative, with 10% of each pledge taken as a cut. Patreon also takes a payment processing fee as compensation for facilitating payments on the behalf of the creative.

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