How Does Substack Make Money? The Substack Business Model In A Nutshell

  • Substack is an American online publishing platform that was created by Chris Best, Hamish McKenzie, and Jairaj Seithi in 2017.
  • Substack operates under the subscription-based business model. To drive revenue, it takes 10% of the subscription fee a writer charges for access to their content.
  • Substack may also collect a larger commission from writers it lured to the platform to boost readership during the early days.

Origin story

Substack is an American online publishing platform that was created by Chris Best, Hamish McKenzie, and Jairaj Sethi in 2017. Substack provides publishing analytics and design infrastructure enabling writers to send newsletters to paying subscribers.

McKenzie and Best became friends while working at messaging app company Kik, with McKenzie working part-time in communications while writing a book and Best one of the company’s founders and also its chief technology officer.

In the middle part of 2017, the pair were looking for a new project and discovered a mutual concern for the state of the media industry. Journalists, they argued, had long been constrained in the sort of content they could produce by editors, advertisers, and page-view metrics. What’s more, consumers were bombarded with so much media content that they spent every waking second in a distracted state.

Best and McKenzie then created Substack to change writer incentives so they could get paid by their readers and not by advertisers. They hoped that if a reader paid to consume content, they would be more selective about what they consumed and thus value it more highly.

The co-founders then recruited Bill Bishop as their very first publisher in October 2017. Bishop, who authored a newsletter on everything China called Sinocism, earned six figures in revenue from his first day writing on the Substack platform. For the next five months, Substack recruited writers on an invite-only basis before opening the doors to the general public in February 2018.

Around the same time, the Substack team joined the Y Combinator accelerator program and received multiple rounds of funding as a result. The funds were used to add additional features and attract various high-profile political writers and journalists. Growth then picked up as the creator economy subscription model for which Substack was known began to gather momentum.

Substack recently surpassed 1 million subscriptions, representing more than 500,000 individuals who pay to read newsletters. The top ten writers collectively earn more than $20 million a year on the platform.

Substack revenue generation

Substack operates under the subscription-based business model. To drive revenue, the company takes a percentage of the subscription fee a writer charges for access to their content.

Writers keep 90% of their subscription fee minus a credit card fee charged by Stripe, with Substack taking the remaining 10%. 

For example, a writer who charges $10 per month will forfeit $1 per subscriber to Substack. The same commission structure also applies to writers who charge an annual subscription fee.

Substack likely takes a larger commission from higher-profile writers who were initially lured to the platform with an up-front payment.

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