Patreon recently announced a new fee structure starting later this month. The gist is that rather than take the fees out of the pledge behind the scenes from the supporter, the fees will be tacked on as a line item to the supporter’s bill. There are several reasons why this is a bad idea (which I will get to later). But I think the root cause of this is that Patreon may not be thinking about their ecosystem in the right way.
A naïve view is that the content creators are creating a product which they then sell to buyers, and Patreon is just the platform to connect them. But I think the model is more like that of a nonprofit and their donors. The majority of the creators release their content for free regardless of patron support. If I choose to stop giving, I can still get access to the content elsewhere. Sure there are exclusive deals for patrons, like behind-the-scenes content, early access, an other auxiliary benefits. But it's really stuff for the super-fan. A casual fan will just want access to the popular, mainstream stuff, and that is always going to be available to non-patrons.
So for the sake of argument, let’s use the nonprofit/donor model for Patreon. How would the new fee structure look through this lens?
First, they are adding unnecessary complexity for patrons. As nonprofits know all too well, you have to keep the barriers to contribution as low as possible. Previously the decision process was, “Do I want to support this person, and if so at what whole dollar amount?” Now you tack onto that the added cognitive load of, “Oh, there's a service fee. Is that reasonable? What if I increase my pledge? Or decrease it? Or reduce the number of pledges I make? That certainly is a messy looking number, $1.38…” Suddenly you’ve added additional variables that the potential donor needs to factor into their thinking. And additional thinking only leads to more people saying, “Forget it. This is too complex.”
Additionally, no nonprofit I know of tacks on mandatory processing fees for donations. Some have moved to having a checkbox to help offset operating expenses. But that is a far cry from forcing it upon donors. Yes, it takes money to run these operations and that has to come from somewhere. But exposing your complex business processes to your potential donors is definitely not the way to win them over. Even my nonprofit always sold goods for whole dollar amounts and backed out the sales tax later. Reduced friction increases sales. Read any article about the Apple design team and all the work they did behind the scenes to make their products simple and just work naturally.
Next, they are raising the minimum donation amount. Currently $1 is really about 85¢ with 15¢ in fees. But from the donor perspective, it's still $1 out of pocket. With the new system, The minimum is still $1, but the fees are now separate line items tacked on: 35¢ flat fee plus 2.9%. So now the minimum is $1.38.
Even worse, they are now charging the 35¢ fee on each and every pledge you make. So if you are pledging $1 to 10 creators each month, you now pay $13.80 monthly. They say they are going to process each transaction separately, so they aren’t making money on the fees. But either they aren’t being truthful, or they aren’t being efficient. Either way it doesn’t reflect well on the company. It would be trivial to just charge the credit card once for $10 with a 64¢ service fee. A 6.4% service fee would be reasonable. 38% is not. That’s even worse than TicketMaster, and that is saying a lot.
One final note. They say in the blog post about this change that “one of the top negative comments [from our creators] is that fees are too high.” First of all, Patreon didn’t actually reduce the fee amount; they just just moved the problem from creators over to patrons (who I’d bet are a lot more sensitive to fees than creators).
But more to the point, there are always going to be tradeoffs in a business model, so something is always going to be one of the top complaints. Maybe you lower fees by cutting staff, and now the complaints are around buggy service and slow customer support. I am reminded of something I read in a business management book (Good to Great maybe?) about how the top 2 customer complaints at SouthWest Airlines were no assigned seating and no meals. And to management, these remaining #1 and #2 were the best metic that they were achieving their business goals because it meant they were turning planes around more quickly, which meant they could keep prices down and on-time departures up, which were the #1 and #2 reasons customers chose them.
I personally have cancelled all of my Patreon pledges. I will find alternative ways to support the content creators I love.