16 key indicators of the 'passion economy'

Original: 16 Key Metrics for the Passion Economy

By Li Jin - A16Z

Translation: Tmono

The “Love Economy” is growing, and more and more people, from writers publishing newsletters on Substack to designers monetizing influence on Pietra, are using digital platforms to monetize their unique skills. According to a study of nine digital platforms, including Etsy, YouTube and Twitch, 17 million Americans earned nearly $7 billion from independent creation in 2017.

As a creator, success can be measured relatively directly in terms of follower count, revenue or subscriber growth. But if you're a startup building a platform where people can teach virtual classes , build online communities , or accept fan sponsorships for creative work , how does that measure?

For ad-supported startups, the most important metrics relate to scale and user data (number of logged-in users, frequency of visits, and time spent) in order to better sell and target ads. But another set of metrics emerges when creators earn revenue directly from fans, rather than through ads or sponsored posts.

Because every technology platform is different, there are no comprehensive, one-size-fits-all metrics for the creator economy. However, this list is a starting point for startups to more accurately track their business performance and health.

Track "Love the Economy"

1. Success metrics

2. Income metrics

3. Engagement metrics

4. Growth metrics

5. Community related indicators

success indicator

A success metric is a measure of whether creators are getting value from the platform. For "economy-loving" companies, this goes hand-in-hand with earning income.

1. Free fan-to-supporter and subscriber conversion rates

"Economy-loving" creators often leverage free distribution platforms such as Facebook, Instagram, YouTube, or free podcasts and newsletters to grow their audiences and then convert some of those free users into paying customers. Platforms supporting fan monetization include: paid course startups Kajabi, Teachable and Podia; membership platforms such as Patreon and Buy Me A Coffee; and community platforms such as Mighty Networks.

Measuring the conversion rate of free users to buyers or subscribers can tell you how effectively your platform helps creators monetize their audience. The metric itself tells part of the story—low or high doesn't necessarily reveal anything about how the business is doing. Some creators may wish to monetize a small portion of their audience at a higher price, while others may wish to monetize the majority of their audience at a lower price.

2. The total number of creators who created sales (accumulation over the specified time frame)

The creator's total cumulative sales is a measure of how well the entire platform is doing. Also, this metric should be tracked over a given time period: activity is measured by the number of creators who have sales in a week or month.

Most Passion Economy platforms let creators decide whether to offer content for free or charge users. For example, Substack newsletter authors can choose to publish their newsletter for free or subscription-based. Since many Passion Economy platforms have business models that charge a percentage of creator revenue or charge a SaaS fee, it's important to track how many creators actually earn revenue. Those who make money are also increasingly likely to stick with the platform because they get tangible value. To that end, another metric we track is time to first sale — the sooner creators see a sale, the more likely they are to see value in the platform and keep using it.

3. Creators who reach a certain income threshold

Measuring the number of creators earning above a certain level is a way to assess how useful the platform is in generating revenue for creators. The exact threshold varies by platform and type of creation (from $10,000/year to $100,000/year from my observation), but should show your creators a decent amount of income. After all, the goal of the Love Economy platform is to enable individuals to monetize their creativity and skills; measuring the number of creators earning more than $X per year quantifies this impact.

Patreon has a KPI called " 1K creators, " or creators who make at least $1,000 a month from customers. It's also the success metric Amazon uses to measure sellers on its third-party marketplaces.

“Entrepreneurs and small business owners are successful on Amazon — they sell half of what Amazon’s customers buy, and in 2017, more than 140,000 small and medium-sized businesses made over $100,000 in sales on Amazon.” — Amazon Peter Faricy, former VP of Marketing

income indicator

These metrics help startups understand the user demand and predictability of the products that creators sell.

4. Total Transaction Value or Total Subscription Value

This is the total volume (often referred to as gross merchandise volume, or GMV) flowing through the system. It is a measure of total user demand.

GTV can also be a revenue driver if the business model charges payment processing fees or other charges. For example, Shopify's main source of profit is not SaaS, but payment revenue through Shopify Payments. Likewise, Teachable's payments business has grown to account for a third of the company's revenue.

5. Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR)

We see two main business models in the “Love Economy”: SaaS or capture rate (GTV) of creator revenue.

For platforms monetizing SaaS, what MRR and ARR does the company generate from creators? For SaaS business models, there are many important sub-metrics such as new MRR, expanded MRR, and churn MRR, and we recommend that SaaS companies serving creators track these ratios as well.

6. Average Selling Price (ASP)

The average selling price determines whether creators need 1,000 "true fans" or just 100.

In 2017, the average Patreon fan paid creators $ 12 per month . When the value is small, creators need more followers to make a decent income. On the other hand, creators need less effort to maintain lower-priced products. By contrast, creators who pay higher fees can support themselves with fewer followers, but they also need to justify their prices by offering a product or service of higher value. Some creators on Patreon charge more, for example, the host of the humor podcast This Might Get Weird offers a $500 tier service, including quarterly personal trainer sessions.

7. Share and Source of Income

The current nature of the “loving economy” is that platforms are fragmented, which in turn leads to creators’ income as well. Creators often cobble together various revenue streams from different platforms. They may use certain social platforms laterally for marketing, distribution, and potential sponsorship revenue; monetize appreciation through another platform; and another platform to host paid courses and personalized videos.

Although challenging to assess, it can be helpful to know your creator's total revenue and compare it to your platform alone. This can be measured by surveying the creator's source of income. In other words, how essential is your platform to supporting the creator's business?

8. Revenue Retention (Creators and Audiences)

This metric is also borrowed from the SaaS world: among users who make purchases, how does month 6 or 12 spend compared to month 1? Will user spending increase over time?

In terms of creators, what is the GMV retention rate? Ideally, what you want to see is creators becoming more successful and active by earning more over time on the platform.

engagement metrics

As with ad-driven platforms, engagement metrics are important for Love Economy, but for a different reason: Engagement is a leading indicator of whether users have a high willingness to convert to purchase and whether creators will stick with it.

9. Fan engagement rate

Measuring engagement with content can be the primary indicator of subscription retention. For example, for newsletters across all industries , the average unique open rate is 21%. Massive Open Online Courses (MOOCs) have an average completion rate of 5% to 15% . For the paid version, where fans pay the creator directly, the ideal level of engagement should be higher.

10. Fan Loyalty and Retention

The qualities of fan support vary widely: they may be lifetime customers, or they may only pay for a specific time frame or plan. There will always be some loss of fans because users may decide to cancel their subscriptions and creators may decide to stop using the service. Even the best subscription businesses churn. For comparison, according to Second Measure , about two-thirds of Netflix's monthly paying customers continue to subscribe 12 months after their initial signing. For Hulu, 53% of customers stay for 12 months after joining.

Diagnosing churn is important: it's likely that creators aren't producing content as often as subscribers expect. If churn is high, providing creators with guidance on best practices may help your business. Or the product itself may need to be adjusted to promote sustainable value rather than one-off value.

11. Creator retention and churn

Measuring how many creators continue to use the platform and make sales is just as important. Depending on how the platform works, the creator churn rate can be considered as a combination of the creators closing payment, inactivity or exiting the platform.

The next step is to find out the reason for the churn. Are creators switching to a different SaaS platform, perhaps one with more features or lower fees? Or did they fail to make a profit?

growth indicator

The acquisition efficiency of many “loving economy” platforms stems from the fact that many creators bring their own fan audience. These growth metrics reflect the reality and the fact that the flywheel of new creators drives audience growth, which drives the growth of more creators.

12. Flywheel: Percentage of fans who became creators, creators brought new creators, and fans brought new fans

Successful creator platforms often have powerful built-in growth engines. This can prompt fans to learn about the platform in the form of first becoming a customer and then signing up as a creator. Creators may also bring in new creators, which many platforms encourage through referral programs. In 2016, Patreon reported that 55% of creators mentioned about Patreon through another creator, either directly or through social media.

13. Creator affinity and value

As with any new Passion Economy platform, it is necessary to identify the creators who are most likely to successfully monetize their audience. This metric doesn't measure the health of your platform itself, but it can serve as an important signal as to which creators you're targeting. It's about creator engagement and affinity, not just audience size. For example, creators offering fitness or diet classes are likely to have a much higher percentage of paid conversions than celebrities with more followers but less user engagement.

In the world of media, the Financial Times has pioneered a metric called RFV , which records how long it has been since readers last visited, how often they visit, and how much content they read to target high-quality engagement , rather than just engaging the audience.

14. Acquisition costs and channels for creators and users

How much does it cost to acquire creators and users? This metric is all about understanding the scalability and efficiency of different user acquisition channels.

For creator businesses, the first few hundred creators are usually earned by doing something small , like attending a conference or meetup. After that, creators may stratify on other acquisition channels, such as paid advertising, content marketing, and affiliate marketing.

For user acquisition: Some platforms (especially marketplaces) are responsible for demand-side acquisition, while many creator SaaS tools require creators to develop their own audiences. If your creator has a large, established fan base, you can reduce or eliminate user acquisition costs. However, in our experience, even a large free fan base does not necessarily convert easily into paying subscribers. Here 's an example of how two online teaching entrepreneurs turned a topic they were passionate about into $2 million in sales.

Community related metrics

The following metrics apply to platforms that promote engagement between fans. Social features enhance stickiness and can help users get more value from their purchases through discussions and connections with like-minded people.

15. Interaction within the audience

Besides paid content, how much interaction is there among audience members? There is no one-size-fits-all measure, but examples of metrics that capture this data are: the rate of interaction between users (comments, likes, socializing with friends), the rate of content contributed by the community to the creators themselves, etc.

16. Network Effects

We wrote an entire blog about quantifying network effects . There are several types of network effects in the creator world. Measuring the percentage of activity or transactions from sources inside the network rather than outside is useful for marketplaces that are able to discover new creators.

For platforms that support community engagement, measuring active groups is helpful: Ideally, users become more active (and get more value from the community) when more fans are engaged. The power user curve also shows the existence of network effects.

The goal of the Love Economy company is to help creative people monetize their unique passions to pursue new forms of work. These metrics can provide a measure of effectiveness and success over time. By tracking these key metrics, startups can create value for their creators and, in turn, their customers.

Many of the metrics above were brainstormed through this thread of tweets - welcome to join the discussion!

Related Reading

Related reading:

16 Startup Metrics

16 More Startup Metrics

16 Ways to Measure Network Effects

The Passion Economy and the Future of Work

important ending

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