Some problems have simple answers. Others may require a bit more thought and planning. And, some problems, it seems, can only be solved by causing more problems. Unfortunately, the latter is where Patreon felt it was earlier this week when it announced its new fee structure, which was met by near universal dismay from patrons and creators alike.
The crowdfunding website is making a change to how it handles its processing fees by essentially moving those costs from the creators to the patrons who support them. This is a unique solution that Patreon says will provide greater stability and increased revenue to the creators who use its platform. Currently, when a patron pledges an amount of money, Patreon takes the money from that pledge at the beginning of the month, takes out a 5% fee for itself, and then passes along the third-party vendor’s processing fee for the transaction to the creator. According to the blog post released on 12/7 by Patreon, this transaction fee is anywhere from 2-10% of the pledge, meaning the creator would receive what’s left over after the fees, approximately 85-93% of the original pledge. The new system would work similarly, however, instead of the creator worrying about the fluctuating processing fee every month, the new processing fee of 2.9% of the pledge plus an additional $0.35 would be charged to the patron, while Patreon would still only take 5% of the pledge.
According to Patreon, this will provide further stability for creators, as they will no longer have to deal with the constantly fluctuating processing fee, and it will provide more revenue to creators as they will only be losing out on the 5% fee Patreon charges for using its service. For example, if someone pledges $5.00 to a creator, with the new processing fee model, the patron would be charged $5.50, where the $0.50 would cover the processing fee, Patreon would take out its 5% ($0.25), and the creator would take home $4.75. On the current fee structure, a pledge of $5.00 charges the patron $5.00 and the creator receives $4.25 - $4.65 after all of the fees are charged. It would seem Patreon’s system is very creator-friendly, which has always been the focus for the company.
Patreon has also stated, it would like to move to a subscription model where the primary pledge date is used as the billing date as opposed to the beginning of the month. By moving to this new model, the processing fees would increase quite a bit as each pledge is run individually instead of in bulk at the beginning of the month. In response, the company determined it would pass the fee on to the patrons so its creators would continue to see stable revenue. The wrinkle in the plan is the processing fee is charged for each individual pledge. Meaning, if a patron pledged $5.00 to 5 creators, in the current system, the patron would be charged $25.00; in the new system, the same patron would be charged $27.50 (($5.00 * 2.9% + $0.35) * 5). That’s an extra half-a-pledge being charged in fees, meaning to stay within a budget of $25.00, the patron would end up having to either lower a pledge to a creator or drop them all together.
While the new processing system is promising higher revenue and stability to creators, almost every creator, large and small, have come out and stated they would prefer to eat this fee themselves instead of passing it along to their patrons. Unfortunately, Patreon has responded that this is not possible, and as of now, they plan to move forward on December 18###sup/sup###. And the big reason why they want to move forward is to try and fix one huge internal problem:
The company’s low net promoter score (NPS).
NPS is a fairly new statistic used by businesses to determine if their customers would be willing to promote them favorably to others. It’s essentially a way to measure how positive word-of-mouth advertising is about a company, and many businesses have started to really lean on this score to determine a company’s overall health with its customers. NPS is on a scale of -100 to 100, and Patreon has an NPS of -20 with creators who have mentioned fees in the past year. It goes to -50 on a 30-day scale. That’s pretty abysmal. Patreon believes by moving these fees away from creators to patrons, it can successfully raise its NPS, as one of its biggest issues between it and its creators is no longer there.
But it is.
No matter where the fee is moved, it still has to be paid, and if patrons can’t afford it, they will have to make the tough decision to not support the creators whose work they enjoy. For those patrons who support only one creator, this isn’t as much of a problem, but this greatly affects patrons who support numerous creators, especially at lower amounts. A $1.00 pledge in the new fee processing model would be charged $1.38. If a patron is supporting 10 creators at a $1.00 level, instead of being charged $10.00, that patron would be looking at a bill of $13.80. That’s a steep markup, and according to many on Twitter, this has led to patrons pulling pledges.
In my opinion, this new fee processing system will lead to new, much larger issues for the company and will not solve Patreon’s NPS issues. Most creators have a strong base of $1.00 pledges that can add up, and for smaller creators, these small pledges are vital, as it’s much easier to find 50 people to each pay a dollar every month versus finding one person who will pay $50.00 each month. But, in an effort to lower fees, patrons will have to either lower their current pledges or lower the number of creators they support. It also means far less $1.00 pledges from patrons, as the processing fee being charged on each one is such a detriment. For smaller creators, this makes it much harder to reach out and find patrons willing to give them a shot with very little financial risk to the patron. Unfortunately, now these smaller creators find themselves competing for literal dollars and cents versus larger, more established creators.
Sadly, that may quietly be Patreon’s overall goal. Earlier this year, in an interview with Brian Balfour, Tal Raviv, a Growth and Platform Manager for Patreon, stated, “We’d rather have our GMV (gross merchandise volume) be made up of fewer, but truly life-changed creators rather than a lot of creators making a few dollars.” From a business standpoint, the larger, more successful creators are making a nice profit for both the creators and for Patreon, while smaller creators who just make a few bucks a month here and there may actually be costing the company money when it comes to the cost of hosting, accounting for fees, support costs, etc. If Patreon is able to shed some of the low-end weight, that would theoretically help streamline the company who just received quite a bit of venture capital in the past couple of years. If this is the goal of Patreon, to lose many smaller creators, while having patrons focus their support on a smaller number of creators, then this new processing fee should have the desired effect.
Moreover, in my opinion, how Patreon has chosen to present and defend this decision has been atrocious. According to the company, it polled and surveyed its creators about this change over the last year, however the overall message from creators has been confusion and curiosity as to whom Patreon actually spoke to about these changes. It seems most creators were blindsided by this change to their business models as they received a message from Patreon only a day before the changes were announced to the public. Some of these creators warned their patrons ahead of time, and in those warnings, many stated they were not thrilled with this change and would share more information as it became available. The company essentially just told every creator on its platform it was making a change that could drastically affect the creators’ patrons/customers and gave them little-to-no support on how to handle the possible financial backlash. This is not how you fix a low net promoter score.
After the announcement, as the uproar was reaching a fevered pitch, Patreon had an opportunity to look humble and try to open the door to further discussion with both creators and patrons. Instead, it doubled down in an update to its original blog post further detailing the business aspects of why it was making the change. The message came off as cold, deaf, and almost insulting; it was as if the company was trying to say, “You obviously don’t understand what we’re saying; look at these graphs. Look at how this will help us. You’re just not paying attention.” Patreon squandered a huge chance to step forward and show that the company still cares about the voices and well-being of all of its creators and their patrons; it could have started an actual dialogue. Instead, it chose to focus on the company and its problems, a marked change from the Patreon of old.
And maybe that’s what this is. Maybe this is Patreon growing up and maturing into a normal, corporate business. Even though creators could see higher revenue with the new processing fee system, the handling of this situation has felt so anti-creator focused. Even Jack Conte, the founder and CEO of Patreon, has stated, “We absolutely fucked up that rollout.” It feels as if this is the moment Patreon went from focusing on creators as individuals with dreams and goals and started focusing on bottom lines and streamlining costs. This does open the door to new, similar options like Kickstarter’s Drip, and I wouldn’t be surprised to see a large player like PayPal jump into the mix in the near future as Patreon begins to shed the humanity it once seemed to have. And maybe, for Patreon, that’s a problem it’ll have to own.