Funny Money, Patreon Style

Funny Money, Patreon Style

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.