Funny Money, Patreon Style

Written by Natalie Luhrs

I'm a lifelong geek with a passion for books and social justice.
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December 7, 2017

Edited 2017-12-08I have more thoughts about this whole situation here, in light of the additional information provided by Patreon late Thursday afternoon.

Edited 2017-12-12: Please refer to Start-Up Suicide, Patreon Style for my current thinking on this subject.

Recently, Patreon sent an email out to all their creators announcing a change in their fee structure. This change was framed as a positive for creators and one which would net them more income and more predictable income.

I know this is going to read like the world’s worst word problem, but bear with me–there will be a data table, I promise.

The current fee structure is essentially this:

  1. Once a month, Patreon charges each patron the full amount of all their pledges via PayPal or Stripe.
  2. Patreon pays the processing and transaction fees on each pledge.
  3. Patreon then takes the processing and transaction fees assessed on the pledge amount and distributes it evenly across all the patron’s creators.
  4. This distributed amount is then deducted from the pledge amount.
  5. Patreon assesses a 5% fee on the pledge amount and deducts that.
  6. Patreon then sends the pledges–less distributed processing and transaction fees and Patreon fee–to creator accounts.
  7. Creators can then choose to withdraw funds, with an additional processing and transaction fee which is capped at $0.25 per transfer for Stripe or for PayPal, $0.25 or 1% of total transferred amount capped at $20 (I assume whichever is larger is what PayPal gets).

Admittedly, this led to variable income for creators, due to the distribution of the processing fees. So this is a problem that needed to be solved.

The solution, however, seems to be one which is designed to put significantly more cash into Patreon’s pockets as well as the creators’.

The new fee structure looks like this (about halfway down):

  1. When you pledge, Patreon adds their processing and transaction fees (2.9% + $0.35) to each individual pledge, presumably before you are ever charged.
  2. Once a month, Patreon charges each patron the full amount of all their pledges–including processing and transaction fees–via PayPal or Stripe.
  3. Patreon pays the processing and transaction fees on each pledge. Since they have a single transaction per patron, they only pay the fee on the total amount–a flat 2.9% and $0.35.
  4. Patreon assesses a 5% fee on the pledge amount and deducts it.
  5. Patreon then sends the amount pledged–less their fee and less all processing and transaction fees–to creator accounts.
  6. Patreon keeps the difference between the processing and transaction fees assessed by the payment processors and those paid by patrons.
  7. Creators can then choose to withdraw funds, with an additional processing and transaction fee which is capped at $0.25 per transfer for Stripe or for PayPal, $0.25 or 1% of total transferred amount capped at $20 (I assume whichever is larger is what PayPal gets).

Personally, I have a limited Patreon budget. A lot of people I know have a limited Patreon budget. And what everyone I know who has a limited budget does is that they have many pledges at low amounts–usually in the $1-2 range. The new fee structure disincentives this strategy of supporting as many creators as possible and, I would argue, is intended to destroy the viability of the sub-$5 per month tiers.

So I ran some numbers. My patron here wants to support 20 people at one of three pledge levels, either $1, $3, or $5 per month for a total of $20, $60, or $100. I know there are people who pledge a mix of amounts but that requires significantly more robust system than Excel or someone who knows a hell of a lot more about data modeling than I do.

I also assumed a 50/50 split between Stripe and PayPal on the percentage (I actually rounded down to 2.9% from 3.45%; I assume that the new number was weighted proportionately between the two processors) and added the two transaction fees together. I didn’t feel like running each scenario for each processor.

I’m going to call this Good Enough For Discussion Purposes. If you feel like I should have done more work to satisfy your data needs, you can contact me for my hourly rate and we can talk.

And I promised a data table, so here is the data table. (And as always, here are my calculations.)

Edited 2017-12-07: Based on input from Mark, I corrected the error he located and validated the other formulas and made some additional corrections. I also decided to go ahead and add a column based on a single pledge to a single creator–this is the only scenario which doesn’t net Patreon additional funds and it’s telling that they used the per-post payment model as their example. Both tables are available in the above linked file.

On the left is the current fee structure. On the right, the new fee structure. The difference is glaringly obvious.

I have made the assumption that Patreon will continue to charge patrons for their total pledge amounts across all creators–otherwise people are going to get hit with a lot of very similar looking transactions which may very well trip fraud detection algorithms and put holds on peoples credit cards or PayPal accounts. That’s not good and it’s really sub-optimal in a lot of other ways, too.

But the thing is this: Patreon only needs to pay the transaction fee on the total pledge amount, but based on their explanation of the new fee structure they’ll be hitting each individual pledge with the $0.35 transaction fee. So the processor fee will remain constant at 2.9% but the transaction fee will vary per patron based on the number of creators they are supporting. The more creators you support, the larger your transaction fees will be and the more money Patreon will make.

And that’s not even talking about the interest they are making on the funds sitting in people’s Patreon accounts that have yet to be withdrawn or that accrues between the time patrons are charged and funds hit those Patreon accounts.

As I said before, this seems calculated to reduce the number of people pledging at sub-$5/month tiers. This has the added bonus of putting more cash right into Patreon’s bank accounts. Which will certainly make the investors happy, as this improves Patreon’s cash flow and improves the chances for a successful IPO.

And the other thing it does? It tells all of Patreon’s users–creators and patrons alike–exactly who is calling the shots and what the real priorities are. And they’ve chosen to do it in a disgustingly predatory fashion.

There is a way they could have done this that would have worked: charge patrons the actual processing and transaction fees. Would I be willing to pay $0.93 more per month so that more of my pledged amount would go to the creators and so they would be able to predict their monthly income? I sure am! Am I willing to pay $7.58 more per month so the people I support can can get the same amount of additional money each month and so Patreon can pocket an additional $7.60? Fuck no.

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36 Comments

  1. Paul Weimer

    Thanks for doing this, Natalie

  2. Mark

    Great work illustrating the problem. Hope you don’t mind a possible correction:

    Patreon should be shown as taking 5% of the total pledge under the current system but your result is 0.25%. I think the cause is that in B/C/D24 you’re comparing the per-pledge to their total amount.

    Over in the new/right section, the % to Patreon is correct, but line 23 above it is described as “Patreon Income per Pledge” but you are calculating Patreon income per total patron payment instead. (On the left side you are correctly calculating per pledge but that leads to the % to Patron being wrong – maybe the best fix is to do it per-total-payment on both sides and correct the wording?)

    Down in your “additional funds to…” section I think something might be off as well due to differences in whether you’re comparing totals or per-pledge, but I’ve run out of eyeballs.

    • Natalie Luhrs

      I’ll take a look at this when I get to work—it was late when I was putting the finishing touches on the data and the % to Patreon was one of the last measurements I came up with. I am always happy for extra eyeballs to check my work. 😀

  3. GiantPanda

    Some more numbers: What would happen if patrons keep their Patreon spending constant?

    Your three example patrons have to drop 6 (i.e. 30%), 3 (15%) and 2 (10%) of their pledges to stay within their budget. The effect on a creator’s income depends on how many patrons of each type they have now und would lose then.

    E.g. take an “average” creator who has currently 20 pledges of each type and gets dropped by 6 / 3 / 2 of them.
    Current amount received: 20*0.90 + 20*2.75 + 20*4.59 = $164.80
    After fee adjustment and dropping of pledges: 14 * 0.95 + 17 * 2.85 + 18 * 4.75 = $147.25.

    • Natalie Luhrs

      Precisely, GiantPanda. That’s the calculation that many patrons are making right now. Who do they drop?

  4. Mark

    I don’t want to drop any creators – I support them for a reason, after all! – but that just sends a message to Patreon that they can get away with this. And of course many people may look at what they’re squeezing out of their budget and have to make hard choices. I’m now thinking that I’ll try to find out how many creators have alternative ways to fund them that doesn’t go through Patreon, and start doing my best to deny Patreon a slice from me.

    Kickstarter are starting a similar new service called drip (https://d.rip/) that’s at invite-only. I wonder if they’re in a position where they can rapidly expand….

  5. Christina Vasilevski

    One additional comment I’d like to make is that this change also really screws patrons from outside of the US.

    I’m Canadian, and I support a variety of creators for about $19/month. But since all Patreon pledges are based in US dollars, that means that I pay around $25 CAD/month due to the currency exchange. So I pay a premium of over 25% just to ensure that creators get my support. With this change, the effect of the currency exchange will get even more punitive.

    • Natalie Luhrs

      Agreed. And that’s not taking VAT into account, which is another 20% on top of that. International creators and patrons are extra-fucked.

  6. Ron Bishop

    I support several artists with small donations. Most for some time. This issue has made me realize I’m donating $12 – $240 a year to various artists. This could be turned into an annual or quarterly donation directly to the artist.
    So now I’m contacting the artist and looking at just supporting the artist directly and bypassing Patreon entirely. So the artist will get 100% of my support.

    Seems like a logical progression.

  7. Jason Freeman

    Thank you for doing this. I had done a similar breakdown (using my Dec. 1 bill rather than hypothetical payment structures), and I have a question. It seems you are assuming in your data that the Service Fee Patreon will be charging is equal to the Service Fees that Stripe and PayPal will be charging them, but nothing I have read indicates that the fees Patreon will be paying are changing. I assume you did more research than the 5 or so minutes I spent on their FAQs page, so do you have information I don’t? If so, can you provide a source?

    I apologize if this sounds sarcastic, but I’m tired and can’t think of a better way to phrase it.

    • Natalie Luhrs

      Hey Jason! If you scroll about halfway down this page you can see the talking points they provided to creators. Specifically:

      Starting December 18th, Patreon will apply a new service fee of 2.9% + $0.35 to each of your individual pledges. This service fee helps keep Patreon up and running and standardizes my processing fees to 5%.

  8. Cathy

    I know I’m reconsidering my support. I’m certainly not going to add more creators. I’m inclined to keep the authors and artists I’m supporting, because it is a relatively small number and costs per month are fixed (assuming there isn’t any more monkeying with fees by patreon). I’m not happy about paying more, but I at least know exactly how much more for those pledges and it doesn’t break the bank. Where I’m reluctantly considering dropping pledges is my podcast support. I do not support many podcasts, but podcasts are typically supported on a per podcast basis not a per month basis and only one of the podcasts I support has a strict twice a month schedule. The others produce anywhere from one to four podcasts a month, which makes it hard to calculate how much more per year I’m going to be paying (and it was already a little concerning to me with the most prolific one). Going forward for online magazines and podcasts, I may be looking for a website based tip jar or a straight up direct pay subscription service rather than patreon.

  9. Colin Maclaughlin

    I support a number of people, podcasters and youtubers, on a per-creation rather than per-month basis. So I pay $1 per episode for a podcast with about six episodes in a month. The creator is paid once, my credit card is charged once, but will I be paying the $0.35 + 2.9% fee six times over? That’s awful.

    • Natalie Luhrs

      If you take them at face value, yes. On the FAQ explaining the change, they use the example of someone with a $5 pledge per item and they make it clear you would pay the fee for each item even though they only run your payment once.

  10. Peter MacDonald

    Thanks for running the numbers!
    A small nitpick, I think your second final row ‘additional funds to creator’ misses the point by a bit, it should likely be ‘additional funds to creators’.

    If your trying to illustrate ‘where the money is going’, it’s helpful to include all the money in that final field. Imagine how distorted that field would look if you increased the number of creators from 20 to 40, 100, or even 1000. If you are measuring the profit patreon is making over all of the pledges, you should be measuring the profit the creators are making over all of the pledges as well.

    • Natalie Luhrs

      Excellent point. But this was a lot of work as it is and I’m not able to rework the numbers again, especially since Google Sheets doesn’t play well with cut and paste from Excel.

  11. j-beda

    Nice work.

    Maybe if things don’t get fixed I’ll roll some dice and just support one creator each month with a single large contribution, but I just cancelled all of my pledges (and then clicked the creator’s “follow” button so I won’t loose track of them) after making a post on the creator’s page saying the following:

    I just got a note from Patreon.com about the new fee changes. I’m so sorry that you are going to get hurt by this. I have sent a note to Patreon.com that I won’t be able to justify paying so much for all of my large number of $1 pledges, where they will tack on a 37.9% charge for each pledge, so I’m going to cancel all of my pledges right after posting this note.

    Maybe in the future I will pick one creator to give them all of my money rather than spread it around in small amounts like I currently do, but if I don’t cancel things, Patreon won’t see that I am seriously pissed.

    Here is some coverage of the announcement – https://www.engadget.com/2017/12/07/patreon-shifting-processing-fees-creators-to-supporters/ and https://techcrunch.com/2017/12/07/patreons-new-service-fee-spurs-concern-that-creators-will-lose-patrons/ and https://www.pretty-terrible.com/funny-money-patreon-style/

    I will use the following line as my reason for cancelling my pledge:

    The changed fee structure makes many small donations too expensive, so I am cancelling everything. Patreon.com’s greed and/or stupidity has pissed me off.

  12. Margaret Trauth

    It gets even better when you add in creators who are on the “per-thing” payment schedule.

    If I draw ten pages of comics a month, then someone backing me is charged ten times whatever they pledged*. And these fees are applied *ten times* – it’s treated as 10 pages * (pledge+fees), not (10 pages*pledge)+fees.

    The page on the changes was initially ambiguous on this, but has been updated to explicitly say that yes, this is how per-thing pledges will work now.

    * or less, you can set a maximum amount of $ you’re willing to pay me on a prolific month, but we’ll keep it simple here

  13. DotE

    Hi,
    in the second table, it looks to me like you’ve forgotten the processing and transaction fees. You add them to the amount the patron has to pay, but don’t deduct them in the next step. That pushes of course the numbers even higher in favor of what Patreon gets, as the amount the creator gets is fixed.
    By the way, you could actually completely drop the 2.9% from that table, because A*.029+B*.029+C*.029 = (A+B+C)*.029, which means the same amount that is payed by the creator pledge by pledge is then deducted by the processor. Only the additional .35$ base flat rate makes the difference – the creator pays (number of pledges – 1)* .35$ more to Patreon – and only to Patreon, on top of the 5% per pledge. No need for a big table to calculate the outcome of that, actually.
    I guess what they aim at is really to rather support few pledges of a bit higher amount then many pledges of very low amount. This reduces the efforts they have to put into accounting. Of course one could hope that in the average, also the creators will maybe have less supporters, but get more money from each, resulting in an unchanging, stable income. But I’m pretty sure that some creators will fall through the grid with this system.
    I’ll stay true to all my pledges, but then, firstly I have already followed the rule of rather making few high pledges than many low ones, and secondly I can well afford it. It surely doesn’t look that good for people who just have a few bucks to spare, and now have to decide who of their favorites they have to drop so they can go on supporting the others. I am not happy with Patreon not so much because they want to cut off the 1$ pledge level, but mainly because of the dishonest way in which they do this.

    • Natalie Luhrs

      No, I haven’t made an error. I only show the processing fees once on the left table because the change here is when they’re applied: before Patreon makes a withdrawal from the account or after. I could disambiguate the calculations a bit better, but if you go to the dataset you can see my math.

  14. Dexter L

    Thanks for the analysis. I knew they were making a cash grab with this change, but I was shocked to see them earning 200% – 700% more per patron.

    Until they revert or fix this stupid design, I plan on pausing every single one of my patreon donations. Of course, instead of letting my supported creators suffer, I plan to just find and use each of the creator’s “Donate” button to make the donation in January. That way, the creator will still end up getting a donation.

    Yes that donation button is notoriously small-payment unfriendly, but if I’m going to pay $1.35 anyway, I’d rather it go to paypal than a company that’s abandoned its roots in a fit of greed.

    This is the best way I can send a message. If Patreon still refuses to fix this, I’m going to push my creators to find a crowdfunding site with better payment terms.

  15. Carson

    This new structure causes me to make two assumptions:

    1. Patreon’s merchant/transaction fees are dwarfed by their Support costs
    2. Low-value pledges do not generate significantly fewer support cases than high-value pledges

    i.e. Patrons are as likely to contact Patreon Support about an issue with a $1/month pledge as they are with a $100/month pledge.

    Can’t see any other logical reason for putting a massive flat fee on small pledges, in what can only be a deliberate attempt to stop people from pledging at those levels.

  16. Russell Uresti

    I ran the number on my own pledges, and here’s the results…

    Number of $1 pledges:
    7 monthly
    + 25 (maximum) per creation

    Number of $2 pledges:
    2 monthly

    Number of $5 pledges:
    4 per month
    + 1 (maximum) per creation

    Current Monthly Charges

    (1*7) + (2*2) + (5*4)
    Minimum: $31 (if none of the “per creation” members create anything)

    (1*(25+7)) + (2*2) + (5*(4+1))
    Maximum: $61 (if all of the “per creation” members meet monthly cap)

    Monthly Charges With Changes

    (1.379*7) + (2.408*2) + (5.495*4)
    Minimum: $36.449 (if none of the “per creation” members create anything)
    Increase: $5.449 (+17.5%)

    (1.379*(25+7)) + (2.408*2) + (5.495*(4+1))
    Maximum: $76.419 (if all of the “per creation” members meet monthly cap)
    Increase: $15.419 (+25.3%)

    Real World Example: November 2017

    $48 pledge
    13 per month totaling $31
    13 creations totaling $17

    Turns into…
    13 per month totaling $36.449
    13 creations totaling $22.043
    $58.492 total pledges ($10.492 increase or +21.86%)

  17. EvilKiru

    Remember back in the late 70s or early 80s when gas stations tried to variously offer a 3% discount for paying cash or a 3% additional charge for using a credit card? The credit card companies squashed that pretty quickly, because they forbid, by force of contract charging any portion of any processing fees to the customer. How does Patreon expect to get away with such an obvious contract violation?

    • Natalie Luhrs

      Heck, some gas stations still do that—it’s framed as a discount if you pay cash or use their card. I saw an Exxon station doing it a few years ago.

  18. Kenneth

    In their expanded blog post, it looks like Patreon is planning to move to charging patrons when they first pledge and on each anniversary. Which explains the $.35 per pledge but makes even less sense. If they’re not going to bundle all my pledges into a single credit card transaction, there is *certainly* no benefit to me in using Patreon. I’ll just ask for an email address and paypal the creators directly.

    • Natalie Luhrs

      Kenneth, yeah. There is absolutely no benefit to using Patreon to pay creators. Their value-add for patrons was the payment aggregation.

  19. Kat

    Meanwhile, banks are looking into lowering or removing internet money transfer fees, at least here in Canada (Simplii just got rid of theirs with the name change).

    Like a lot of Internet businesses, Patreon is a middle processing level. Their value add has now been shown to be tenuous.

  20. Aaditya

    Oh geat.
    Just when I was thinking to add patreon, they made this devastating change.
    I am a small publisher with a news type blog and I know people won’t support me with bigger donations until I create exclusive and massive content.
    I was hoping small donations might help, but if it’s costing my readers too much, how can I ask them to support me.

  21. Crissa

    Things not in your calculations:

    Patreon is based in California. Processing/Shipping fees that exceed cost are taxable under sales tax.

    Processing fees to pass credit card costs were made explicitly legal in 2013. Credit card processors can’t require the costs be hidden anymore.

    If Patreon is being charged this rate, how were they to continue allowing these micro transactions? They would be losing money on every sub-40 cent transaction. No wonder they locked the bottom pledge to a dollar.

    How is Patreon supposed to buck the demands of their credit card processor?

    • Natalie Luhrs

      They were aggregating the total charges to patrons and then disbursing them to creators. Late yesterday, they made a statement saying they were de-aggregating, which had not been previously disclosed.

      I was not able take that into account on these calculations as I do not possess the ability to either time travel or read people’s minds.

      Shifting this cost from the person selling the service (creators) and on to buyers (patrons) to compensate for their shoddily designed internal system is bad business. Because the value of Patreon to many people was the aggregation and disbursal of micro transactions.

  22. Justin

    @Margaret Trauth

    “It gets even better when you add in creators who are on the “per-thing” payment schedule.
    If I draw ten pages of comics a month, then someone backing me is charged ten times whatever they pledged*. And these fees are applied *ten times* – it’s treated as 10 pages * (pledge+fees), not (10 pages*pledge)+fees.

    The page on the changes was initially ambiguous on this, but has been updated to explicitly say that yes, this is how per-thing pledges will work now.”

    If you read the blog post, they either changed it, or explained how it’ll work more clearly:
    “Per creation – You, as a creator, can charge your patrons for multiple creations per month. These are bundled together and billed on the first day of the following month. (So, all creations made in November are added up together and charged in one bundle on December 1.)”

    Based on the way they wrote it, I’d assume it would be 10 times the donation, with a single fee (instead of ten separate transactions with fees each time)?

    If this is correct, you could argue that creators who do multiple things per month, and use that system to collect donations, would be the best off with this change, as there would only be one transaction fee every month, for multiple donations from the same person?
    The people who it’d likely hurt the most would be people who get a lot of $1 donations, once per month.

  23. Vicki

    Several of my creators had alerted me to the problem.
    I already responded to Patreon. They don’t make that easy. So I put it on this page:
    https://patreon.zendesk.com/hc/en-us/requests/new

    Your new fee structure discourages small pledges. My creators are not happy.
    I SEE YOU are charging fees on each pledge that are more than Patreon pays. In addition to the Patreon fee. We all know you batch process our pledges and only pay once fee to the banks. I had a landlord who did that with electricity because he was evil and greedy. Don’t be evil.

  24. Jason

    They specifically said they are charging patrons on a per-donation basis, so as far as I can tell they are not making any money on the transaction fee charged for each donation, which just covers Patron’s fee to Stripe with a tiny margin of 5 cents.

    I wrote about my hypothesis as to the real reason for this change on Medium, which I believe has nothing to do with making money off the transaction fee: https://medium.com/@jhyu/the-real-reason-behind-patreons-controversial-fee-structure-change-c6de57f155f5

    • Natalie Luhrs

      They said that 18 hours after I posted this, dude.

  25. Rick Wheeler

    Can we all take a moment to appreciate that for those rare Patrons that can pledge for more than $5 a month to a single campaign, it’s more cost-effective to pop physical cash into an envelope, buy a stamp, and send their pledges in via SNAIL MAIL?
    Naturally, this only applies to Patrons and Creators that both live in the U.S.

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