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).
Aspect
Description
Overview
Patreon operates as a membership and subscription platform that allows creators, artists, and content producers to monetize their work by offering exclusive content to their fans, known as “patrons.” The company’s business model is built around providing a sustainable income source for creators while offering patrons access to premium content and a closer connection with their favorite creators.
Membership Tiers
Creators on Patreon can create membership tiers with various benefits and pricing levels. These tiers offer patrons different levels of access to exclusive content, merchandise, community engagement, and more. Patrons can choose the tier that aligns with their interests and budget. This tiered pricing structure diversifies creators’ revenue streams.
Content Variety
Patreon supports a wide range of content creators, including writers, artists, musicians, podcasters, video creators, and more. Creators can offer various types of content, such as behind-the-scenes updates, early access to work, exclusive videos, livestreams, and digital downloads. This diversity appeals to a broad audience of patrons.
Payment Processing
Patreon facilitates payments through a monthly subscription model, where patrons commit to regular payments to their chosen creators. The platform handles payment processing and fees, ensuring creators receive a consistent income stream. Patrons can use credit cards, PayPal, and other payment methods to support creators.
Creator Tools
Patreon provides creators with tools to manage their memberships, communicate with patrons, and track earnings. These tools simplify the process of building a community and engaging with supporters, allowing creators to focus on their content creation. Creators can also integrate Patreon with other platforms and services.
Community Building
Patreon fosters a sense of community by offering features like patron-only discussion boards, Q&A sessions, and live chats. These features enable creators to interact with patrons directly, creating a more intimate and engaging experience. Patrons can connect with creators and fellow supporters in these dedicated spaces.
Revenue Sharing
Patreon generates revenue by taking a percentage of the earnings from creators’ memberships. Creators typically receive the majority of their patrons’ contributions, with Patreon’s fees covering platform maintenance, payment processing, and support services. This revenue-sharing model aligns with creators’ interests.
Accessibility and Inclusivity
Patreon aims to be an accessible and inclusive platform, allowing creators from various backgrounds and disciplines to thrive. It provides opportunities for emerging creators and those with niche audiences to find support and build sustainable careers. The platform is available globally, making it accessible to creators and patrons worldwide.
Challenges and Competition
Patreon faces challenges related to competition from other crowdfunding and subscription platforms. Ensuring a positive user experience, addressing creator concerns, and navigating potential content-related controversies are ongoing challenges. Balancing the needs of both creators and patrons is essential for growth.
Table of Contents
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.
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:
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.
Pro – where Patreon charges the creative an 8% fee.
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.
An effective business model has to focus on two dimensions: the people dimension and the financial dimension. The people dimension will allow you to build a product or service that is 10X better than existing ones and a solid brand. The financial dimension will help you develop proper distribution channels by identifying the people that are willing to pay for your product or service and make it financially sustainable in the long run.
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
Digital and tech business models can be classified according to four levels of transformation into digitally-enabled, digitally-enhanced, tech or platform business models, and business platforms/ecosystems.
A digital business model might be defined as a model that leverages digital technologies to improve several aspects of an organization. From how the company acquires customers, to what product/service it provides. A digital business model is such when digital technology helps enhance its value proposition.
A tech business model is made of four main components: value model (value propositions, mission, vision), technological model (R&D management), distribution model (sales and marketing organizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.
A Blockchain Business Model is made of four main components: Value Model (Core Philosophy, Core Value and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.
Cloud business models are all built on top of cloud computing, a concept that took over around 2006 when former Google’s CEO Eric Schmit mentioned it. Most cloud-based business models can be classified as IaaS (Infrastructure as a Service), PaaS (Platform as a Service), or SaaS (Software as a Service). While those models are primarily monetized via subscriptions, they are monetized via pay-as-you-go revenue models and hybrid models (subscriptions + pay-as-you-go).
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.
B2B, which stands for business-to-business, is a process for selling products or services to other businesses. On the other hand, a B2C sells directly to its consumers.
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.
Direct-to-consumer (D2C) is a business model where companies sell their products directly to the consumer without the assistance of a third-party wholesaler or retailer. In this way, the company can cut through intermediaries and increase its margins. However, to be successful the direct-to-consumers company needs to build its own distribution, which in the short term can be more expensive. Yet in the long-term creates a competitive advantage.
The C2C business model describes a market environment where one customer purchases from another on a third-party platform that may also handle the transaction. Under the C2C model, both the seller and the buyer are considered consumers. Customer to customer (C2C) is, therefore, a business model where consumers buy and sell directly between themselves. Consumer-to-consumer has become a prevalent business model especially as the web helped disintermediate various industries.
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.
Businesses employing the brokerage business model make money via brokerage services. This means they are involved with the facilitation, negotiation, or arbitration of a transaction between a buyer and a seller. The brokerage business model involves a business connecting buyers with sellers to collect a commission on the resultant transaction. Therefore, acting as a middleman within a transaction.
Dropshipping is a retail business model where the dropshipper externalizes the manufacturing and logistics and focuses only on distribution and customer acquisition. Therefore, the dropshipper collects final customers’ sales orders, sending them over to third-party suppliers, who ship directly to those customers. In this way, through dropshipping, it is possible to run a business without operational costs and logistics management.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
