Patreon’s new fees are surprisingly low

NelsonG · March 19, 2019

Patreon announced today that it was creating multiple pricing tiers for its membership service, with varying levels of features offered depending on price. The company will now offer a “Lite” offering that charges a 5% commission, a “Pro” offering at 8%, and a “Premium” option at 12%, with discounted rates for existing founders.

Today’s announcement is in line with the telegraphs we heard from the company in the deep dive TechCrunch conducted a few weeks ago as part of our first EC-1 package on Extra Crunch. As TechCrunch media columnist Eric Peckham discussed at the time in regards to Patreon’s fee structure and overall business model:

The problem is, it’s too friendly. [Patreon CEO Jack] Conte admits that Patreon’s current fee structure isn’t lucrative enough for it to operate profitably as a business: “It’s not enough. We’ve got to figure something else out.” This low fee rate — comparable more to a payment processor like Stripe than other platforms for creators and fans — was the main critique from VCs I talked with as well (both those who invested in the company and those who did not).

Patreon therefore needs additional revenue streams, and, unsurprisingly, it is already developing them. The company is preparing to offer additional functionality to creators in exchange for a higher cut of their revenue. Conte talks about this as a “value for value” plan …

While the new fee structure (5%/8%/12%) was expected from Patreon, the scale of the fees are surprisingly low given the messaging Peckham heard at the time. The company’s competitors charge significantly more — as much as 30% — and that leaves a large gap between the startup and the rest of the market.

That said, a huge part of Peckham’s thesis — and given the new fees, perhaps Patreon’s as well — is that membership is just a stepping stone to other services that will be far more lucrative than just a scrape on transactions. As Peckham wrote:

If membership gains mainstream traction among mid-tail creators and if Patreon (both through its Patreon platform and Memberful subsidiary) secures dominant market share as this market expands, it will be in a powerful position to offer ancillary services that could be quite lucrative. As Jack Conte told me, “Membership is Patreon’s Act 1. There’s so much more we can do to fund the creative class. You’re gonna need more than just membership. Over the next 10 years, there’s going to be a lot more that we do.”

Peckham noted financial services such as loans, as well as options like health insurance as potentially large categories of value-added services that could make the miserly revenue scrape much more bearable for the company long-term.

Given the importance of Patreon to the creative economy, be sure to read all of Peckham’s reports on the company’s founding story, product, business, investment thesis, competition, and exit options.