Fair revenue share for independent designers

Why We’re Using “Subscriber Share” on Envato Elements

Xavier Russo
Aug 26, 2016 · 9 min read

At Envato, we believe that ‘when the community succeeds, we succeed’. So, for our new graphic asset subscription — Envato Elements — we had an important choice.

Should we stick with the traditional ‘big pool’ method to work out how contributors get paid? It’s simple, safe, and easy to do. And it’s what Spotify and most other subscription or streaming providers use.

Or should we try to be one of the first companies in the world to pioneer ‘subscriber share’ at scale? This method promises greater fairness, but it’s more complex and somewhat unproven.

Our conclusion: Subscriber share is the natural choice for Envato Elements. And it’s our job to do the hard yards and make it work!

Read on for an overview of each method, why subscriber share is fairer, and how we’re implementing it. We’ll also look at the effect on contributors: do they earn more with big pool vs. subscriber share?

What Is the Big Pool Approach?

The big pool method for calculating contributor earnings is simple and sounds logical. Take all the revenue, subtract the amount kept by the platform operator, and put the rest in a big pool. Then divide that pool of money based on subscriber usage (typically measured in number of downloads or times used).

A simple example of a big pool calculation

For example, if there is $10 million to be shared and 100 million downloads, each download is worth $0.10 (i.e. $10 million divided by 100 million). So contributor Sally who achieves 10,000 downloads of her items earns $1,000, and Bob with 1,000 downloads earns $100.

So What’s the Problem With Big Pool?

While big pool is simple & popular (used by Spotify among others), it has several inherent flaws. For more on this, see the great articles by Sharky Laguana:

The core issue is that a subscriber’s money does not go to the contributors of content they used. And for unlimited access subscriptions, this creates important problems:

  • Heavy users get too much of a vote. In effect, they decide where money from less active subscribers goes, even if everyone pays the same.
  • Specialized or niche content struggles to earn real money. Everyone goes for the big hit.
  • It is vulnerable to click fraud. You can control more money than you paid, just by downloading lots.

Imagine you subscribe for $49/month, with 50% covering platform costs and 50% (i.e. $24.50) going into a big pool for contributors. Let’s say you download 10 items, one each from 10 people. From your perspective, that’s great value, and you plan to continue subscribing. You might assume the contributors get $2.45 per download, right?

Actually, no. If the average subscriber uses 100 items (not 10), then all downloads are worth $0.245. So your $24.50 is split into $2.45 for your 10 items, and $22.05 for items used by other people. That’s right: 90% of your money would pay for other people’s use!

What Is Subscriber Share?

Subscriber share is an alternative way to calculate revenue share. The core idea is that a subscriber’s money should go to the contributors they actually use and value.

Take that example above. You pay $49/month, 50% going to platform costs and 50% to contributors (i.e. $24.50). With subscriber share, all of it goes to items you used. And we split it among contributors based on their share of what you used.

(Note: we could measure share of usage with downloads, item points, or some other metric. Let’s keep it simple here and use downloads)

So if you download 10 items, then each item is 1/10 of your total usage, and the contributor of each gets $2.45. Taken to an extreme, if you only download 1 item, then that contributor gets the full $24.50.

Get Paid for Delivering Value to Subscribers

With big pool, it’s all about downloads. With subscriber share, both subscribers and downloads are important.

Stop for a minute and think about where the revenue comes from. Yes, it comes from subscribers. There’s no revenue from downloads — they’re actually a cost. If we want more revenue to share with contributors, then we have to attract and keep subscribers.

And this is what’s great about subscriber share: it aligns everyone’s interests. We want to grow the number of subscribers. Subscribers want more content that is relevant and useful to them. And contributors get paid for the value they deliver to each subscriber.

Proud (and Viable) to Be Independent

With subscriber share, contributors can earn real money from just a few subscribers. To do this, they need to account for a healthy share of the items used by those subscribers.

This has huge implications for our content library because you don’t have to chase the next big “hit”. Instead, we foster an ecosystem of independent contributors who make unique and diverse content.

There’s also a further incentive on Envato Elements. When your items are relevant and useful, you earn a reputation with subscribers. And as they rely on your items for future projects, your earnings grow and become more consistent.

What Does It All Mean for Contributors?

Right now you may be wondering: does this choice matter to contributors?

Remember, the total amount of money going to contributors does not change. All that changes is how much each individual gets. But from the perspective of an individual contributor, it’s still a legitimate question. Does big pool vs. subscriber share matter?

After all, big pool pays contributors based on downloads. More downloads equals more money, so what’s the problem?

I’m glad you asked. Let’s explore how big pool vs. subscriber share affects contributor earnings. To do this, we need a more realistic example.

Imagine we have ten subscribers: two light users, five moderate, two heavy, and one extremely heavy. Each pays $49 per month for unlimited use (as per Envato Elements). Of this, 50% covers platform costs, while the other 50% goes to contributors (i.e. $24.50).

How downloads are distributed among subscribers in this worked example

With big pool, the heavy and extreme users control 80% of contributor earnings. This is despite the fact they only make up 30% of revenue. In fact, the single heaviest user controls a massive 53% of contributor payouts. This is because they made 160 downloads out of the total 300.

But with subscriber share, each of the 10 subscribers controls 10% of contributor earnings. This is in perfect proportion with the revenue that they bring to the table.

What About Me as an Individual Contributor?

Let’s consider four key scenarios from a contributor’s perspective.

Again, to keep things simple, let’s use “downloads” as the usage metric for calculating earnings. In practice, Envato Elements uses “item points”, which is fairer when items can vary a lot in value.

1. You contribute items that have broad appeal

Let’s say all subscribers use your items, with two downloads by each of the ten users. With big pool you earn only $16.33, compared to $47.02 with subscriber share. This shows you’re better off with subscriber share. It rewards you more for creating items that many people need.

2. You contribute items that offer significant value to a niche

Say that your items are only used by a few subscribers, say five downloads each by three of the moderate users. With big pool you only earn $12.25, but with subscriber share you earn a much higher $36.75. This means that with subscriber share it becomes viable to target a niche and serve it really well.

3. You contribute items used mostly by the heaviest users

Say the top two heaviest users download your items 15 times each. With big pool, you earn a bit more: $24.50 compared to $9.65 with subscriber share. So big pool creates an incentive for copycat behaviour (imitating the most downloaded items). It also focuses attention on prolific users who probably do not care deeply about each item.

Subscriber share, as the opposite, discourages all that. It does a better job of supporting our goal of a broad, diverse range of unique content.

It’s easy to assume that subscriber share is unfair if you generate lots of downloads. But that’s not actually the case. The more downloads you get, the more money you earn with subscriber share.

Take this scenario, where you had 30 downloads from two super-heavy users. If you’d had twice as many downloads from them (i.e. 60), you’d have earned twice as much.

But importantly, if those same 30 downloads came from many more subscribers, you’d have earned even more. See scenarios one and two for this effect. You also earn more money over time as you build a reputation and those subscribers use your items often.

4. You try to game the system as an extremely active subscriber

Say the subscriber with the most downloads is also a contributor, and that they only download their own items, even if they don’t actually use them. With big pool they’d take home $130.67 (most of which is other people’s money, not their own). This means that they’d earn more than the $49 subscription cost, a lucrative but undesirable incentive to game the system.

With subscriber share, however, they’d only ever earn $24.50 of their own money at most. After paying the $49 subscription cost, they would lose money with this dishonest practice. Therefore, subscriber share is far better at discouraging click fraud.

Subscriber Share Encourages the Right Behaviour

As the above scenarios demonstrate, subscriber share helps to align contributor incentives with attracting more subscribers and retaining them over time.

In particular, subscriber share encourages contributors to:

  • Make items that are broadly appealing to many subscribers.
  • Make unique items that do a great job of serving various niches.
  • Not spend time as a copycat, or trying to target big downloaders.
  • Take a more sustainable and long-term approach to their content.
  • Not bother trying to game the system.

How Are We Implementing Subscriber Share for Envato Elements?

With Envato Elements, we are launching an unlimited access subscription priced at USD $49/month (NB: introductory $29/month pricing at launch). We will pay out 50% of net revenue to contributors (above industry average) with the rest going towards platform costs and helping us invest in growth.

So the examples above are close to how contributor earnings will work on Envato Elements. But there are couple of other tweaks:

  • We use revenue, not cash. This matters for yearly subscriptions where cash comes in a lump sum and revenue is recognized over time.
  • We use “net revenue” instead of gross. Each subscriber’s revenue is reduced by a small amount to account for refunds & reversals, affiliate costs and discounts, and payment processing fees.
  • We use “item points” rather than downloads. This allows us to adjust for some items being worth more than others. For example, a print template may be five points, a font three points, and a texture one point.

“But isn’t that complicated?” you may ask. Well, yes, it is a bit harder to calculate in our back-end systems, but that’s irrelevant.

Subscribers and contributors don’t care if we have to do more work behind the scenes, nor should they. It’s our responsibility as the subscription platform to sort that stuff out.

Most importantly, many of our contributors globally depend on these earnings for their livelihood. So we believe it’s well worth the extra effort to share revenue as fairly as possible with Envato Elements.

That’s why we’ve chosen subscriber share.

(Want to know more? Check out the Envato Elements website, About page, and the help center article about Supporting Independent Designers)

P.S — For an update on progress with Envato Elements, see our new article “How we signed up 10,000 paying subscribers in just over a month”.

Made By Elements

Notes, stories and learnings from the Elements team

Made By Elements

Notes, stories and learnings from the Elements team

Xavier Russo

Written by

GM of Certsy, a SEEK startup creating Australia’s leading pre-verified employment passport. Helped launch Envato Elements and RedBubble.

Made By Elements

Notes, stories and learnings from the Elements team