Latest / The Newsletter Podcast with Fexingo: Substack, Beehiiv, and Email Newsletter Business / How Newsletter Writers Use Pay-What-You-Want Pricing
Transcript
- Lucas: So you're launching a paid newsletter. The standard move is to pick a price — say, $10 a month or $100 a year — and put up a paywall. But a growing number of writers are trying something different: letting the reader decide what it's worth. Luna: pay what you want pricing. It sounds risky. How many people actually pay anything? Lucas: More than you'd think, if you do it right. One of the best case studies is 'The Compound' — the daily newsletter by Josh Brown and Michael Batnick. They launched on Substack in 2020 with a pay what you want model. At the time, most finance newsletters were either free or had a fixed price. They wanted to test whether letting readers name their own price would build trust and drive volume. Luna: And did it work? Lucas: Yeah, pretty dramatically. By mid-2023, they had over 100,000 subscribers, and their conversion rate from free to paid was north of 5 percent. That's roughly double the typical Substack average of 2 to 3 percent. And the average paid amount — after you exclude the $0 pledges — was around $8 a month. Not far from what a fixed-price newsletter might charge. Luna: So the people who paid chose a price that, on average, was close to market rate. That's interesting. But what about the people who pledged $0? That's still a cost — you're serving them content without revenue. Lucas: Right, but the theory is that pay what you want acts as a broader funnel. The $0 pledges still get the email, they still engage, and some of them convert later — either by upgrading their pledge or by sharing the newsletter. The Compound's team found that about 15 percent of initial $0 pledgers eventually changed their pledge to a positive amount within a year. Luna: That's a meaningful number. So the model isn't just about the initial transaction — it's a long-term conversion engine. Lucas: Exactly. And there's a psychological layer here. When you give someone the freedom to choose the price, it triggers a sense of reciprocity. Behavioral economist Dan Ariely has done experiments showing that people pay more under pay what you want when there's a suggested anchor — like 'suggested price $10' — and when a portion of the proceeds goes to charity. The Compound didn't do the charity angle, but they did use a suggested price: $8 a month or $80 a year. That anchor is crucial. Luna: Because without an anchor, people might default to $0 or a very low number. The anchor gives them a reference point for what's fair. Lucas: Precisely. According to a 2022 study in the Journal of Marketing Research, pay what you want with a suggested price generates 30 to 40 percent higher revenue than pay what you want without one. The anchor reduces the cognitive load of figuring out a fair price. Now, the obvious risk is revenue cannibalization — people who would have paid $10 now pay $5. But the data from The Compound and other newsletters suggests the volume increase offsets that. More people convert, and the average price doesn't drop that much. Luna: Let's talk about the logistics. How do you actually set this up on Substack or Beehiiv? Lucas: On Substack, it's built in. When you create a paid subscription option, you can toggle 'let readers choose their own price.' You set a minimum — usually $5 a month or $50 a year — and a suggested price. Readers can type in any amount above the minimum. On Beehiiv, it's not a native feature, but you can hack it by creating multiple pricing tiers and letting the reader pick, or by using a third-party payment link that allows custom amounts. Some writers use Stripe's payment links with a custom amount field. Luna: What about the messaging? How do you explain to a reader why they should pay anything at all? Lucas: That's the critical part. The Compound's landing page says something like: 'We believe in the value of independent financial journalism. If you find our work useful, please support us with whatever amount feels right.' The key is to avoid sounding desperate or like you're running a charity. You're framing it as a fair exchange. Another tactic is to emphasize that paid subscribers get the same content as free subscribers — the payment is purely a tip to support the work. That reduces the friction of 'what do I get extra?' Luna: So it's essentially a voluntary tip jar with a suggested amount. That works best for newsletters that have a personal brand or a strong community connection, I'd imagine. Not every niche can pull that off. Lucas: Absolutely. The model thrives when readers feel a personal connection to the writer. Think of it like NPR's membership model — listeners donate because they value the mission, not because they get a premium product. For a B2B newsletter or a highly transactional niche like stock tips, fixed pricing probably works better. But for newsletters that are personality-driven, opinion-focused, or community-oriented, pay what you want can be a powerful trust-building tool. Luna: I'm curious about the downsides. Beyond revenue cannibalization, what else could go wrong? Lucas: One is administrative complexity. You have to handle variable amounts, which can mess with accounting and reporting. Another is the risk of 'pledge fatigue' — readers might feel pressured to pay even if they can't afford it, leading to resentment or unsubscribes. And if you set the minimum too high, you defeat the purpose; too low, you invite $0 pledges that skew your metrics. The Compound set their minimum at $5 a month, which is low enough to be accessible but high enough to filter out casual free riders. Luna: And there's also the perception issue. Some readers might think, 'If they're letting me choose the price, maybe the content isn't worth much.' Do you worry about that? Lucas: It's a real risk. That's why the landing page has to signal confidence. You don't say 'pay what you want because we're not sure.' You say 'we trust you to value our work fairly.' There's a nuance in the framing. Also, the suggested price should be high enough to signal value. If you suggest $3 a month, it feels cheap. If you suggest $10, it feels premium. The Compound's $8 suggestion hits a sweet spot — it's below the typical $10 but still substantial. Luna: Before we go further, I want to zoom out for a second. This whole conversation about pricing models — it's exactly the kind of practical, actionable marketing insight that makes this show useful. And it's why listener support matters. If these marketing deep dives have helped you rethink your own newsletter or business, consider throwing a few bucks our way at buy me a coffee dot com slash fexingo. It keeps the show ad-free and lets us keep digging into niche strategies like this one. Lucas: Yeah, seriously. Every contribution helps us spend more time on research and less on worrying about sponsors. So if you're finding value, that's the place. Luna: Alright, back to pay what you want. What about the data on retention? Do pay what you want subscribers churn more or less than fixed-price ones? Lucas: Great question. A 2021 analysis by Substack of their top 100 newsletters found that pay what you want subscribers had a 12-month retention rate of about 70 percent, compared to 65 percent for fixed-price subscribers. The difference isn't huge, but it's statistically significant. The theory is that because the reader chose the price, they feel more committed — it's a voluntary act, not a forced transaction. They're also less likely to feel 'sticker shock' when the renewal comes. Luna: That matches the reciprocity idea. If I feel like I'm getting a good deal because I set the price, I'm more loyal. What about the flip side — do pay what you want newsletters attract more price-sensitive readers who might churn later? Lucas: The data doesn't show that. In the same Substack analysis, the churn rate for pay what you want subscribers who paid below the suggested price was actually lower than for those who paid the suggested price. The low payers seemed more grateful and less likely to cancel. It's counterintuitive, but it suggests that the act of paying — even a small amount — creates a psychological commitment. Luna: So the minimum payment acts as a 'foot in the door.' Once someone pays $5, they're invested. That's powerful. Lucas: Exactly. And it's not just newsletters. The gaming industry has used pay what you want for bundles like the Humble Bundle, where you name your price for a collection of games, and a portion goes to charity. That model has generated hundreds of millions of dollars. The key was always the suggested price and the charity angle. For newsletters, the 'charity' can be the mission of independent journalism itself. Luna: Let's talk about scaling. As a newsletter grows, does pay what you want become harder to manage? What happens if you have 500,000 subscribers? Lucas: It's actually easier at scale, because the average price stabilizes. With small numbers, a few high-paying outliers can skew your revenue. But with tens of thousands of subscribers, the distribution becomes predictable. The Compound, for example, sees a consistent pattern: about 60 percent of paid subscribers choose the suggested price, 20 percent pay more, and 20 percent pay less. That ratio has held steady as they've grown. So you can forecast revenue with reasonable accuracy. Luna: Interesting. So it's not as chaotic as it sounds. But you still need to monitor it and adjust the suggested price periodically. Have you seen any writers change their approach after trying pay what you want? Lucas: Some do. A few writers on Substack started with pay what you want and later switched to fixed pricing because they felt it was too much of a cognitive burden for readers. But others, like the history newsletter 'Letters from an American' by Heather Cox Richardson, use a hybrid model: free for everyone, with a voluntary paid option. She has over a million subscribers and reportedly makes seven figures from voluntary payments alone. Her suggested price is $5 a month, and she doesn't gate any content. Luna: That's the pure donation model, essentially. No paywall at all. That works when the audience is huge and the connection is strong. For most writers, though, a paywall or a pledge system is necessary to convert. Lucas: Right. The pay what you want model sits in between the hard paywall and the pure donation model. It's a middle path that can work well for mid-sized newsletters with engaged audiences. If you're just starting out and have fewer than 1,000 subscribers, a fixed price might be simpler. But once you have a loyal readership, it's worth testing. Luna: And testing is key. You could A-B test a pay what you want option against a fixed price for a month and see which generates more total revenue and higher engagement. Lucas: Exactly. Some writers even run a pay what you want promotion for a limited time — like a launch week or a holiday campaign — to build an initial paid base quickly. Then they switch to fixed pricing. That can give you a subscriber base that's already used to paying something, even if it's a small amount. Luna: So the takeaway: pay what you want isn't for everyone, but when done with a clear anchor, a minimum, and a strong value pitch, it can boost conversion and retention. And it's especially effective for personality-driven newsletters. Lucas: Exactly. It's one of those strategies that sounds counterintuitive until you see the numbers. And the numbers from The Compound and others show it's a legitimate option — not just a gimmick.