Does it make sense to pay fees? (Pros & Cons) - (podcast ep003)

Summary

Paying fees as 2 sides: the good and the negative.

On the positve side, we have:

• Low investment;
• Good someone working alone;
• Network effects.

On the negative side, we have:

• Fees tax the success of creators;
• No limit on the cost;
• No moat on the side of the platform;
• Lack of control for the creator;
• You have to follow the platform rules (even if they aren't clear)
• Your 'brand' will be associated with the platform

Podcast transcript

Membership fees are two sides of the same coin, and it's a hot topic of  discussion where creators debate if they should pay for the fees or not, and I want to share my opinion.

Hi, my name is Tiago and welcome to episode three of the Stack Junction podcast. Today I want to discuss the topic of membership fees.

So first, let's establish what fees I am referring to.

I am referring to fees on platforms where someone pays the creator, uh, a certain amount. For example, $10 and the platform takes a percentage. For example, if it's 10%, the fee for those $10 will be $1 for each subscriber. So these are the fees I want to talk about.

The most common examples of apps with these fees is Substack used mostly by creators. Patreon used mostly by video creators and YouTubers and Gumroad used mostly for digital downloads.

So these are the most popular platforms with membership fees, and they will be the main ones where someone will think about, should I use them or not?

But my opinion will be about the good and the bad side of the fees.

It will be a general opinion, not only related to these three platforms.

So good reason number one to use a platform with these fees, most times the platform would be free or cheap to start an account. So you don't have an upfront investment where you have to pay a monthly fee.

So you only pay if you earn money. And this is very good because if you are a creator starting out, and you are on a very, very limited budget, paying 10 or $20 per month for setting up a membership *site is very hard. I know, and it makes sense for a creator in this stage to use something like Substack or Patreon where they pay 8%, 10% because the revenue will be very small and the amount of fees you will pay will be very, very small to the effort you have to put in.

So it makes sense for creators starting out because it'll be very cheap.

Good reason to use membership fees number two is it'll be great for a creator working alone. So when you use a platform that you pay these kind of fees, you are mostly giving the fees in exchange for outsourcing all the technical stuff like doing the maintenance, security updates and all that kind of stuff that is not funny. Especially if you don't know how to code setting up a platform and that kind of stuff.

So it makes sense because you pay a small percentage. Small... it can be small in the sense you think 10% is small. But you don't have to worry with any technical stuff. So it makes sense for someone working alone, even if you make a lot of money, you pay the percentage and you have more time freedom. That's one example and good reason to pay for membership fees.

Number three is the network effect for a platform that usually charges. Membership fees. They have some kind of internal discoverability. This means that if you use Substack, for example, they have a section where users can go and find you without you doing anything.

Like if you are on the fiction category, you can be listed there. That's, that's just an example. So you can benefit from people finding you without you putting in effort. So the platform promotes you to earn and you earn the money. So that's a very good reason as well to use a platform like this and pay for the fees.

Now I want to discuss the problems these kind of platforms create by charging membership fees.

So the first problem about the platform that charges fees is that the fees will be taxing the success of the creator. So, you think of it like this, if you make a hundred dollars per month. You have the service and if you make $1 million per month, you will have basically the same service.

So imagine Substack, Patreon, Gumroad, other platforms. You'll be basically getting the same software, same customer support, and you'll be paying a vastly different amount of money. Depending on how much money you earn. Some think, this is okay, some think this is not okay. So for me, this is a problem created by these kind of platforms because you get the same amount of the same service for very different amount in fees. So this is the first problem.
And the second is kind of related to the first, is that there is no limit on the price you pay. For example, if you have, 5,000 subscribers paying you $5 per month, it'll be around $500 per month in fees.

But if you use a platform with 0% in fees. If $500 is more than enough to pay for the full year, so if you think about 5,000 subscribers giving you giving the cost of a platform for the whole year, so it's 12 times the price. And if you have more subscribers, the fees keep piling up. So there is no limit on the amount you pay for a platform with fees and it's very hard to justify the prices after a certain point, which leads to the problem number three is that top earners tend to avoid, tend to leave the platforms to avoid the fees.

For example, the Browser newsletter was on Substack and they moved to Ghost to avoid paying large amounts in fees. And today they have around 100,000, 120,000 subscribers on the platform.

And if you do some basic calculations, you will see that it makes no sense to pay such a huge amount of fees on Substack when you can get a better SEO on Ghost or other platform.

For me, it doesn't make sense because it's a very, very different amount of money in fees. So you will see the platforms losing top earners to move to other platforms and avoid the fees because fees don't have a ceiling and it's ridiculous when you earn a lot of money, paying a lot of money for those fees.

At least that's, that's my opinion. And problem number four, the that fees create is that there is not a big Moat, so there's not a big reason to use a platform like this forever. And the advantage of those platforms is mostly that they are 'easy to use'. And I think the ease of use is easily overcomed when you can save money and hire someone to do the work and do a better work.

Like hiring a developer to set up a website, hiring someone to help manage content and still save money by avoiding fees.

So after a certain amount. The benefit of the ease of use for me, it's not an enough Moat to keep using the platform. And the next problem as well is that you don't have control over most things on the platforms where you pay fees, because most times these are centralized platforms and you don't have much control about customization, discoverability, if discoverability is, is baked in or it is not part of the platform. So you don't have much input on the platform and you don't have much input as well on the platform development moving forward. So if the platform is becoming stale and not developing, you cannot do much about that.

And if the platform is developing, well that's good for you because the platform keeps developing, but you will have, you will not have control over most things because, As I said, you are outsourcing the technical side to the platform in exchange of a fee. Another problem I think fees create is that you have to play by their rules.

Sometimes these platforms can have tricky rules about content moderation, and if you don't follow their rules, you can risk a ban. So that's also something to have in consideration.

If you have your own website, you will also have some rules by hosting companies, and you will also have to consider that even if you self-host.

But when on a centralized platform, you can have even more rules and you can get banned even if you give them a lot of money, for example, in fees.

So you also have to consider the rules of the platform. Another problem fees create is that you are associated with the platform, whether you like it or not, because there is some centralization.

And indirectly, there is a company that is hosting everything and you are producing content on a platform like that. And if there is some kind of controversy, you can be dragged to that controversy.

For example, another example is that some Substack writers a few years ago, started a protest because Substack was letting other creators with a very different vision of the world produce content there.

And they don't like to be associated with a platform that let those creators write and produce content there. So these kind of problems can happen and that's also something for you to consider as a creator. And if you want to move forward with a platform with fees, like a centralized platform.

So my conclusion is that these kind of fees create a win-lose relationship because I think for creators at the start, they get a lot of benefit from the platform because they pay very little money to the amount of fees it they pay. Like it'll be 10, $20, $100 in fees per month or per year.

It'll be a very little amount of money that a platform earned from those creators. And on the other side, you have the kind of creators that pay thousands and thousands and thousands of dollars in fees and get basically the same service and they can get a better platform if they choose to move to a less centralized one, for example.

So this is one example. And another example I also can think of is, some users, for example, can use Substack for free forever because they don't charge membership fees and they embed ads on the content. So they use Substack for free, get everything as someone paying fees, and they don't pay anything. So, it can lead to abuse, it's kind of an abuse, with quotation marks because someone is playing a bit around the rules to get a platform for free.

And yeah, these kind of things happen. So, in my conclusion is fees are complicated. I think it makes sense for someone starting out and help them find their way, but after a certain point, I think there's very little benefit and network effect that compensates the amount of money a creator pays for those fees.

So that's my opinion, and that's all for this episode. My name is Tiago, signing out from episode three of the Stack Junction podcast. You can follow me on YouTube and my website, TheStackJunction.com.
Thanks for watching.