How 7-Figure Newsletters Make Money: Part Two

Welcome to chapter five of our guide the newsletter industry.

In this section, we’ll be breaking down the business model that powers all media companies, and diving deep into the mechanics on how paid subscriptions are sold.

We’ve talked to leaders across the industry, including deep dives with our team here at The Hustle, as well as solo operators like Kevin VanTrump and James Altucher (both of who generate millions each year on paid newsletters).

We’ve also talked to decision-makers at companies like Motley Fool, New Yorker, etc., and the teams behind third-party products like Substack, Beehiiv, Pico, and more. All of them have tons of experience with paid subscriptions.

We’ve distilled their advice into a few simple frameworks to guide your decision-making. We’ll unpack them here, including:

  • How paid newsletters grow your bottom line through recurring revenue
  • When it makes sense to launch a paid newsletter
  • How to price newsletters, and rules for experimenting with prices
  • Step-by-step product flows for selling paid newsletters
  • And more…

When you finish here, you will have a better idea of where your newsletter currently fits in your overall business model, how to monetize it, and what you might want to add to increase earning potential.

Table of Contents

1. Why Paid Newsletters Are Great

2. When To Start Selling Paid Subscriptions

3. How To Price Paid Newsletters

4. How To Sell Paid Subscriptions

5. Creating New Paid Subscriptions

6. Retention

1. Why Paid Newsletters Are Great

When we talk about paid newsletters, we’re talking mostly about paid subscription-based newsletters — newsletters people pay for again and again, rather than once.

There are two things that make these significantly different from free newsletters:

  • They add recurring revenue to your business
  • Their value and costs scale differently

We’ll look at each in turn…

Paid Subscriptions Bring Recurring Revenue

If you run a free newsletter, and sell $1m worth of ads this year, that’s great. But come next year, do you know what you have to do? That’s right — sell $1m worth of ads all over again. In fact, you need to do more so that you can grow.

Compare that with the recurring revenue from a paid newsletter.

If you sell $1m worth of subscriptions this year, and half of those people renew their subscription next year, you start the year with $500k in the bank.

Even if you only sell another $1m in subscriptions ( same as the previous year), your revenue grows to $1.5m — a 50% increase for the same effort.

A good first-year renewal rate is 50%…

… and often reaches 60%-80% from year two onward.

This varies depending on the price of the product. Higher-price newsletters will typically see lower renewal rates because people are forced to make a harder decision when choosing whether to stay.

The first renewal period is the hardest because it’s the first time readers are forced to decide whether the newsletter has been worth the money to them.

Readers who renew after that first year often remain customers for years.

The key to unlocking this recurring revenue is retention — keeping your readers renewing. We’ll talk more about the ins and outs of retention toward the end of this section.

Value & Costs of Paid Subscriptions Scale Differently

As we discussed in the previous section, there are several ways to grow the revenue of an ad-supported newsletter, such as:

  • More ad inventory
  • Segmenting your list
  • Launching new newsletters

Morning Brew, for example, has grown their revenue to $20m+ by launching a total of six free ad-supported newsletters.

However, each newsletter needs content writers, copywriters, and salespeople. So your costs often grow as you try to grow revenue.

A paid newsletter, on the other hand, scales easily. Whether you have 10 subscribers or 10k, the cost of creating the newsletter is the same. 

Paid newsletters fall into one of two categories: front-end or back-end.

The main difference is their price:

  • Front-end newsletters typically cost between $5-$10/mo. (~$60-$120/yr.) 
  • Back-end newsletters start much higher (~$500/yr.) and go up from there 

The idea is to sell your front-end newsletter to members of your free list. Then, when the time is right, develop specialized back-end products and market them to the people who bought your front-end subscription.

To justify their higher price, back-end newsletters are often much more specialized than front-end newsletters. They also often have exclusive features, like private discussion groups, regular webinars, or limited memberships.

2. When to Start Selling Paid Subscriptions

Technically, you can start any time. But given the way the newsletter engine works, it’s a lot easier to grow a paid subscription if you have a successful free newsletter in place beforehand.

How big should your free list be?

Big enough to make launching the paid newsletter worth it. Check out the chart below, which assumes a 2% conversion from your free to your paid list.

As you can see, at a typical front-end price of $50-$100/yr., you need ~50k-100k free subscribers at a 2% conversion rate in order to make $100k — and more than that if you’d like to pay writers to produce those newsletters.

Expected revenue drops even lower when you factor in your open rate. The following chart shows how a $10/mo. ($120/yr.) product would be expected to sell among your free audience given different open rates.

Even with extremely high open rates of 40%-50%, a typical $10/mo. subscription won’t really pay the bills until your free list reaches ~50k+ subscribers.

You can adjust this by either increasing your price or trying to increase your free newsletter’s open rates so that more of your audience sees your offer.

If you have a small but highly engaged audience — like Jacob Donnelly of A Media Operator — you’ll likely see a higher conversion rate than 2%, meaning you could launch a viable paid subscription much earlier.

Donnelly’s early conversion rate has been ~8%-9%

  • Free list: 2.4k
  • Paid subscribers: 200
  • Cost: $200/yr.

3. How to Price Paid Newsletters

With advertising, you set prices based on the value that your readers represent to advertisers. 

Subscription products are different because you’re selling information — and when it comes to information, a single idea could be worth thousands, even millions, of dollars.

Price and conversion rate are often inversely correlated. The more you charge, the fewer people buy. So at the end of the day, you’re just trying to find the sweet spot that generates the most revenue.

Front-end newsletters typically start around $5-$10/mo. Back-end newsletters are more niche and designed to sell fewer subscriptions, so they often start at $500 and go up. 

The space between these two points is thought of as a kind of no man’s land…

… where it’s not clear whether you’d earn more by raising or lowering your price. 

You can and should experiment with prices in “no man’s land.” It’s just hard to start there, since you’re not sure whether to go up or down.

Here’s how Jacob Donnelly, founder of A Media Operator, thought about pricing when he first started charging.

Price Experiments: “Easy Up, Ditch Down”

When you test two different prices for the same product, it’s called A/B testing.

There are entire courses taught on A/B testing, so we won’t go into too much detail here. At a high level, the idea is to set up two product pages that are exactly the same, aside from  their price.

You funnel half of your traffic to one, and half to the other, to see which performs better.

There are plenty of tools that help make A/B testing easy, like:

But when you’re experimenting with newsletter pricing, keep this little catch phrase in mind: 

Easy Up, Ditch Down.

Easy Up: When you’re testing a higher price, simply raise it — quickly, with little or no explanation. Don’t add new features, or make any announcements.

You never really know if you’re undercharging. People may be willing to pay more for your newsletter, as is. Just raise the price and see if people buy.

Ditch Down: On the other hand, if you’re going to test a lower price, choose a few features you can ditch, essentially creating a new, lower-cost product tier.

This is important because it keeps your existing customers happy — no one wants to feel like they overpaid. It also avoids devaluing your existing product if you find that the lower price doesn’t generate more overall revenue.

4. How to Sell Paid Subscriptions

Ad sales rely mostly on real people having real conversations — identifying needs, building value, following up, and ultimately closing the sale.

Subscriptions, on the other hand, usually don’t have a sales team behind them, so you need to rely on great sales copy, automations, and systems — like email campaigns and auto-responders — that can take the place of a salesperson.

In this section, we’ll look at the real-life product flow for selling paid newsletters, both front-end and back-end, calling out the most important principles at work throughout.

The Conversion Funnel

Below is an example of the conversion funnel on a paid subscription. We’ll dig into the details in a moment, but first, here’s a high-level look at what’s going on here.

The diagram below represents the path that readers take from the moment they find your newsletter, to the moment they become a paid subscriber.

Each piece of the diagram represents some piece of your marketing or sales process and shows every step readers go through, and all the decisions they make along the way, including:

  • Whether they want to give you their email address for free
  • Whether they want to open and read your emails
  • Whether they convert to your paid newsletter

At each stage, moving forward brings them one step closer to the bottom of the conversion funnel — which means they’re a paid subscriber!

If at any stage they opt not to move forward (e.g., they start a trial, but don’t convert to full paid membership), they’re either lost or put onto a drip campaign designed to nudge them along.

There’s a lot to digest, but let’s look at three crucial elements:

  • The email capture — This is where you get people to give you their email address, even if they don’t purchase a subscription.
  • Drip campaigns — Automated emails used to either convert trials to paid subscriptions, onboard new readers, or win back old readers who are inactive.
  • The conversion — Where people decide whether they want to sign up (either for a free or paid trial, or a full-price subscription).

Together, these approximate the job of a salesperson, collecting leads, showing them value, and ultimately, convincing them to buy.

Let’s break down each in more detail…

1. The Email Capture: 

Once someone lands on your page, your goal is to quickly convince them to give you their email address — even if they don’t buy now, you’ll have a shot at convincing them later.

Do this via a squeeze page: a page that offers something valuable, and forces someone to input their email to go further. 

Below is a look at how The Information does it. Notice how their homepage only lets you do two things:

  • Input your email address
  • Sign in if you’re already a member

The rest of the info is designed to convince you of the value of their newsletter and get you to input your email address.

Even if you click on one of the recent articles listed at the bottom of the screen, it takes you to a page like this where the article is gated. To read it, you need to input your email address.

Click the button and a pop-up appears, ready to take your email address…

… A few minutes later, boom…

… You’re now in their marketing funnel and, as long as you don’t actively unsubscribe, they will use drip campaigns (see below) to try to convert you to a paying subscriber.

2. Drip Campaigns: 

Drip campaigns are automatic email series designed to build trust and value with readers. Companies use them to nurture new leads, or to win back old subscribers. Most good ESPs and ecommerce platforms will let you set these up.

The trick to writing great drip campaigns is to remember two things:

  • Every email should have a purpose
  • That purpose is ultimately to move people closer to buying

People are busy — don’t waste their time with a drip campaign that isn’t moving them somewhere.

Let’s look at a few examples to illustrate the point, starting with the emails from The Information above.

Within two hours of handing over my email address, The Information sent two emails. Both tried to convert me from free to paid lead but accomplished it in slightly different ways.

The first email is a long letter from Jessica Lessin, founder and editor-in-chief of The Information

It starts the reader’s relationship off right, introducing them to the newsletter’s genesis story, and telling them what they can expect from their subscription.

But it’s not just telling a story. It’s moving the relationship forward.

At several points in the copy, Lessin has linked through to some of The Information’s more popular or important stories.

Can you guess where these lead?

That’s right — gated content, prompting you to subscribe.

If you click the subscribe button, it takes you straight through to a pricing page with on-screen checkout:

In the second example, around two hours after signing up, The Information sends a copy of that day’s email.

Similar to the first message, the story link leads to a gated content page, once again trying to move new readers closer to a paid membership.

They also insert something that’s worth considering all on its own: a trial offer.

3. The Trial Offer (AKA Conversion): 

The conversion is the point at which a reader decides whether to do the thing you want them to do, whether that’s signing up for a full-priced subscription or even a free/discounted trial.

While there are lots of different opinions on this, a free or discounted trial can be a huge lever in getting people over the hump from free to paid.

Not all newsletters offer one, but those that do typically offer an inexpensive trial that gives access to the product for 1-4 weeks.

Let’s look at two different schools of thought here, starting with The Information.

Inside their drip emails, they offer a $10 trial for one month, which is 75% off their normal price.

Readers who click that link are taken through to a special sign-up page.

Let’s zoom in on one important piece of this page: the account and payment info.

The Information is doing a couple things really well here: 

  • Pre-filled data — They make sign-up a little easier by pre-filling someone’s email address.
  • Clarify offer — They clarify that next month’s bill will be full price. You will be surprised by how many customers miss this. Clarify it as well as you can upfront.

Some people prefer to offer a free trial and don’t ask for payment info during this step. 

For example, Kevin Van Trump, founder of agricultural newsletter The Van Trump Report, opted to offer a free 30-day trial:

Van Trump is going for a much more personal touch here, using his headshot and a letter from him, and listing a direct phone number to get in touch.

He also collects information on subscribers, like what they do for work and how they found his newsletter, both of which could help him with writing or even be used to create targeted drip campaigns that will ultimately convert people to paid readers.

5. Creating New Paid Subscriptions

There aren’t many limits on how many front-end or back-end newsletters you can have. As you’ll see in the James Altucher case study later in this report, he has one free newsletter, two front-end, and three back-end. Combined, they generated ~$20m+ in 2019. (He also created an investment algorithm, so don’t salivate too hard, investment writers.)

For front-end subscriptions, the goal is to grow each one to tens of thousands of subscribers. As long as the topic is narrow (and interesting) enough to attract a paying audience, that’s generally possible.

Back-end newsletters often need a bit more consideration.

Here’s the framework Altucher uses when he thinks about developing new high-priced info products:

1. Does it work?

2. Will it keep working?

3. Can it pass the copywriting test?

1. Does it work?

Duh. If you’re selling information, you gotta be sure the information is good. 

2. Will it keep working?

You also need to be sure the information will keep working even if a bunch of people sign up and begin using it.

If your audience is competing too heavily among themselves to apply your information, the list will eventually self-cannibalize and people will walk away.

For example, a newsletter about “thinly traded” stocks — those that trade in low volumes and aren’t easy to liquidate — may be self-defeating. If demand goes up too much, the value of the stock will change and most of your readers won’t be able to benefit from your insight.

Once the information is popular, it no longer works. Elsewhere, this has been dubbed the “Lonely Planet effect.”

The travel guide company Lonely Planet writes about secluded beach towns and romantic getaways off the beaten path. Tourists read the guides and flock to these towns, ending the quiet, authentic charm that drew them there in the first place.

If you’re going to sell a paid subscription, make sure that whatever you write about will continue to work, even as the number of subscribers grows. Otherwise, cap the number of readers and keep increasing the price to control demand.

3. Can it pass the copywriting test?

A great copywriter can sell almost anything you can imagine, but you must be able to imagine it clearly. One of the first things Altucher does when dreaming up new products is put them through the “copywriting test.”

“You have to answer all the questions that a copywriter would ask,” he told us. “You know, Is this unique? Is this urgent? Is this ultra specific? Is this, you know, useful?

Answer these questions for yourself upfront.

6. Retention

As we pointed out earlier, one reason paid newsletters are so great is because they introduce recurring revenue into your business. Of course, in order to get that, people need to renew their subscriptions.

The art of getting people to renew is called “retention,” and understanding your retention rates allows you to…

  • Predict revenue more accurately, which in turn allows you to plan for things like marketing and hiring.
  • Define the lifetime value (LTV) of each reader, which helps you understand how much you should be spending on marketing.

In this section, we’ll look at two keys to retention, then go through the formulas you’ll need to calculate your retention rate.

Two Keys to Retention

While there are lots of ways to try to get people to stick with your paid newsletter, they can be boiled down to two main categories:

  • Transactional tactics: Anything having to do with the actual process of renewing.
  • Product usage tactics: If you can get someone to use (and love) your newsletter after they sign up, they’re more likely to stick around.

Let’s take a quick look at each.

Transactional Tactics

Transactional tactics are those that have anything to do with modifying the actual process people go through in order to renew, such as:

  • Billing monthly vs. yearly
  • Sending renewal notifications
  • Dealing with credit card transactions

Anything that makes the renewal transaction happen more smoothly falls into this category.

Should you bill monthly or yearly?

Unfortunately, there’s no clearcut answer to this — the best option will be different for each audience.

But we can give you some concrete things to think about:

  • Psychology — For high-priced back-end newsletters, people often like to “rip the Band-Aid off” by paying all at once rather than see their statement get charged $100, or even $1k+, each month. 
  • Chargebacks A chargeback is a payment reversal, either because a customer disputes a charge, asks for a refund, or their card fails. Chargebacks suck because you, as the merchant, typically incur a fee when they happen (and worse, you often lose the customer).

If you’re running a low-cost front-end newsletter charging $5-$10/mo., people can typically afford that without their credit card bouncing. Higher monthly charges can be a different story, so if you’re selling a more expensive subscription, consider billing all at once.

  • “Warm” cards — The longer you go without billing someone’s card, the more likely the billing information will be out of date when you do charge them. 

Email Billing Notifications

Since most subscriptions run on auto-renew, your goal is to try to keep people from shutting that off.

By law, you need to notify someone if you’ve billed their credit card, but you don’t always need to tell them in advance (this varies from place to place, so be sure to double check for your location). Many subscribers are slow to cancel a subscription or request a refund after a payment has already gone through.

Of course, you don’t want to rely solely on people’s laziness — you want them to renew their subscription because they love your newsletter, which brings us to the second crucial point on retention.

Getting People to Use (and Love) Your Newsletter

If you can get people to use your newsletter — not just read it, but apply it somewhere in their life — they’re much more likely to see its value and renew their subscription when the time comes.

Jordan DiPietro, the head of HubSpot’s content team, says that the ideal time to ensure a customer engages with a product is in the first 45 days.

Prior to HubSpot, DiPietro was a senior leader at The Motley Fool, where he honed many of these insights over the years. The Fool calls this their “Welcome Experience” and dedicates lots of attention to it. They have experimented with direct mail welcome packets, surprising people with something physical:

And even gift boxes…

They could experiment with these things because they knew the LTV of a renewing client, and how much they could spend to get that person excited about their product. A more engaged reader is more likely to renew, and thus, has a much higher LTV. 

We’ll talk more about LTV in the growth section, but first, let’s take a quick look at the formulas used to calculate retention rate.

Retention Formula

There are three important formulas used in tracking and analyzing retention rate, and people often mix them up. They are:

  • Net Refund Rate: The percentage of readers who ask for a refund within 30 days of purchasing
  • Net Renewal Rate: The percentage of renewals still active one month after their first year’s renewal
  • Net Retention Rate: (1 – refund rate) * (renewal rate)

Most companies offer some sort of refund period, whether it’s three days or 30, and people will definitely use it from time to time. So it’s important that when you’re calculating your retention rate, you take refunds into account.

Let’s take a look at each below. For the sake of this example, we’ll assume you have a 30-day refund window:

If 100 people purchase on Day One, and by the end of your 30-day refund period five people have refunded, you have a 5% net refund rate, and you now have 95 customers. 

Then let’s say that one month after your renewal period, 70 of those 95 people renew. Your net renewal rate is 70 / 95 = 73.6%

To figure out your net retention rate, you then subtract your net refund rate from 1, and multiply the result by your net renewal rate.

In this case, your net retention rate is → (1 – 0.05) * (0.736) = 70%. 

A good year-one retention rate is 50%-60%. But, as the years go on, that figure can climb as high as 80% from the people renewing for their second, third, or fourth time.

Retention rate is one of the many things you’ll continually try to improve as you move deeper and deeper into the life of your newsletter.

There’s no magic bullet.

It’ll take patience, curiosity, and a lot of testing with your audience. But at this point you’ve got everything you need to get that ball rolling, and we wish you the best of luck with it.

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