The Patreon Business Model – How Does Patreon Make Money?

Executive Summary:

Patreon is a membership platform that allows creators to be paid by their fans on a subscription basis. Supporters are referred to as patrons.

Patreon makes money via variable as well as a payment processing fees. The fees are paid by creators and dependent upon the plan chosen.

Founded in 2013 and headquartered in San Francisco, California, Patreon has risen to become one of the leading platforms in the crowdfunding space. It has raised over $413 million in funding and is currently valued at $4 billion.

How Patreon Works

Patreon is a crowdfunding platform that allows creators to be paid by fans and other supporters on a membership-basis. These supporters are referred to as patrons.

Patreon works together with a variety of content creators, including podcasters, YouTubers, nonprofits, musicians, local businesses, and more.

In exchange for becoming a patron, fans will receive a variety of perks such as:

  • Early or exclusive access to content
  • Shoutouts to supporters
  • Exclusive access to events
  • Directly engaging with creators

On top of that, Patreon provides a breadth of educational tools (so-called kits) to maximize fan engagement and sign-ups.

Furthermore, Patreon can be integrated with a variety of tools such as Discord, Mailchimp, or Wix, which enables creators to plug their existing business tools into the platform.

Patreon can be accessed via the company’s website as well as its mobile phone applications (available on Android and iOS).

A Short History Of Patreon

Patreon, headquartered in San Francisco, California, was founded in 2013 by Jack Conte (CEO) and Sam Yam (CTO).

Both founders underwent their education at Stanford (where they were roommates and ultimately became friends), yet their paths prior to launching Patreon couldn’t have been more different.

Yam, on the one hand, continued his Stanford studies, pursuing a Master’s in Computer Science (Marc Andreessen actually wrote his recommendation letter).

He eventually took a leave of absence and became one of the first developers at the social-mapping startup Loopt. In 2012, Loopt was acquired by Green Dot for a combined $43 million, but Yam had already moved on.

Three years prior, in 2009, he cofounded AdWhirl, a platform for mobile developers that allowed them to serve ads and distribute their apps via different channels.

At its peak, AdWhirl processed over 3 billion ads per month. Just a year after launch, in 2010, AdWhirl was acquired by AdMob (for an undisclosed amount), which Google then purchased a few months later.

The exit netted Yam a nice financial cushion, which he used to dabble in different ideas. For a few months, he worked out of the Dogpatch Labs incubator where he was sitting alongside Kevin Systrom and Mike Krieger who, at the time, were working on the first version of Instagram.

Yam eventually settled on an idea he was excited about: an online marketplace for freelance photographers named OurSpot. But as fortune would have it, that startup was never released to the public.

Instead, Yam decided to partner up with Conte on an idea he brought to him a few weeks prior. But let’s first rewind the tape a little.

While Yam went on the traditional engineering and entrepreneurship route, Conte’s claim to fame has been a little different.

After wrapping up his Music studies at Stanford, he went on to work as a full-time musician. In 2008, he started a band with his then-girlfriend (and now wife) Nataly Dawn called Pomplamoose.

The duo quickly made a name for themselves, amassing a solid 6 digit following on various platforms such as Spotify. They even received offers from various major labels but decided to remain independent.

Unfortunately, life as an independent artist isn’t as glamorous as it always sounds. A few years into their music careers, the pair grew increasingly frustrated with the small amounts of ad revenue they were generating from their music videos.

That frustration reached its all-time peak when Conte launched a music video named ‘Pedals’, which cost him $10,000 to make (and maxing out his credit cards at the same time) only to receive a few hundred bucks in return.

The lack of earnings was ultimately what led him to start working on the concept for Patreon. He reached out to his old roommate Yam knowing that he would need some technical prowess to build his idea.

Patreon launched to the public in June 2013. That same month, mainly due to Yam’s connections in the Valley, the team was able to raise a $700,000 seed round (valuing Patreon at $5.5 million).

By 2014, Patreon’s team added another $2.1 million and $15 million to the startup’s balance sheet, respectively. The funding was raised on the backbone of the more than 100,000 users that registered for Patreon’s service in the first year.

What allowed Patreon to grow the way it did was (and still is) its obsessive focus towards serving their creators. In 2017, for instance, the company launched a Salesforce-like CRM tool for creators, allowing them to assess how well they perform (and find means for improvement).

It also integrates with other tools such as Zendesk or Slack, which allows its creators to continue utilizing the tools that they run for their business.

The continuous growth put the company on the startup map – and subject to copycats. Most notably, in 2019, Facebook introduced its own fan support service. The new product was directly embedded into the content and allowed page owners to ask their followers for support.

Unfortunately, Patreon experienced some major hiccups on its road to success. In 2015, its website was hacked. Some of their user’s personal information, including registered names and email addresses, was retrieved by a group of hackers named #SuperExtremeShitpostingTeam. Their motive? None other than “doing it for the lulz”.

Two years later, in 2017, Patreon angered many of its creators as a result of a new fee structure the company’s CEO Conte announced in a blog post. The new fee structure would’ve made smaller contributions, ranging between $1 to $2, disproportionally more expensive.

As a result, patrons would’ve likely stopped their contributions, which in turn would have a severe negative impact on many creators. Being a creator-led platform, Patreon immediately dropped its proposal and promised to engage more with its creators when deciding on new product launches.

Furthermore, Patreon started to immerse itself in the world of politics due to the company’s ever-increasing influence in the creator world. Over the years, its content moderation team banned multiple accounts that were linked to hate speech propaganda and other conspiracy theories. In 2020, for instance, it banned various accounts related to the right-wing group QAnon.

Despite some of these roadblocks, Patreon’s star will, in all likeliness, continue to ascend. Today, its platform boasts over 200,000 creators, which are supported by over 6 million monthly active patrons. Patreon has paid out over $2 billion to its creators since it was founded.

Additionally, more than 300 people are now employed by the company, which operates out of 4 offices around the globe.  

How Does Patreon Make Money?

Patreon makes money via a variable fee that it charges to creators. The firm has a tiered fee structure separated into 3 distinctive plans: Lite, Pro, and Premium.

Creators pay either a 5 percent, 8 percent, or 12 percent fee on the monthly income they earn on Patreon, depending on the chosen plan. Patrons, in turn, pay a monthly subscription fee to support their favorite creators.

Each of these plans then comes with its own set of features, such as analytics reports, workshops, priority support, dedicated account managers, or unlimited third-party app integrations.

Especially the Premium tier allows creators to find additional means for monetization. For instance, they can start selling branded merchandise (an offering that resulted from Patreon’s acquisition of Kit in June 2018), with fulfillment being handled by Patreon’s backend.

Apart from the subscription fees, Patreon also collects payment processing fees every time a patron makes a contribution. For micropayments (< $3), it charges 5 percent plus $0.10. For any payments above $3, the firm charges 2.9 percent plus $0.30.

Payment processing partners include Mastercard, Visa, American Express, or PayPal. In all likeliness, the fees are charged at cost, meaning Patreon does not make a profit on them.

In recent years, a number of different platforms have adopted a similar creator-led subscription model, including the likes of Medium, Substack, or Quora.

Patreon Funding, Valuation & Revenue

According to Crunchbase, Patreon has raised a total of $413.3 million across 7 rounds of venture capital funding.

Prominent investors include New Enterprise Associates, Index Ventures, Wellington Management, Thrive Capital, and many more.

Patreon’s valuation skyrocketed to $4 billion after the company’s Series F raise in April 2021. This puts Patreon officially in the unicorn club.

For the fiscal year 2019, Patreon processed over $500 million in payments. With fees ranging anywhere from 5 to 12 percent, this would put Patreon’s annual revenue in the ballpark of $25 million $60 million.

Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.