Substack is a very popular email newsletter service that allows writers to create and send newsletters or articles to their subscribers.
Substack primarily makes money by taking a percentage of the monthly earnings of its users. The company also makes money from an ‘advance’ model, giving the writer a one-time payment in exchange for posting their work on its network. Substack will receive a larger percentage of its monthly membership revenue if a writer accepts an advance.
Founded in 2017 by Chris Best, Hamish McKenzie, and Jairaj Sethi, Substack has quickly become one of the most popular ways for writers to make money from their work.
What is Substack & How Does It Work?
Substack is an email newsletter service that lets writers send out their content to subscribers who pay a monthly or yearly fee. Substack takes 10% of these fees and pays the rest to the writers.
In its early years, writing on Substack was by invitation-only. By launching their service this way, Substack guaranteed the service’s writing quality and established a high bar from the start.
Five months after it first became available in 2018, Substack ultimately allowed anyone interested in writing for the platform to do so. This also resulted in a shift from subscription-only content to the ability to create free content or to choose not to charge. For instance, an author might decide to forego subscription fees to gain a following.
As a subscription-based email platform, Substack allows users to sign up to receive content from their favorite writers weekly or monthly. Substack provides writers a way to monetize their work by charging readers for access to their premium content.
Substack has been growing in popularity among writers and readers alike as it offers a convenient way to consume and support quality writing. For many Substack users, the platform feels like a more intimate way to follow their favorite writers.
To use Substack, simply create an account and subscribe to the writers you want to follow. Once you’re subscribed, you’ll receive their latest articles in your inbox on a regular basis. You can also access Substack’s archives of past articles if you’re behind on your reading.
If you’re a writer interested in using Substack to monetize your work, simply sign up and start publishing articles. You can set your own price point for readers, and Substack will take a small cut of each sale.
One of the advantages of being on Substack is that it allows for a very targeted audience. You can write on Substack and build an audience of people who are interested in what you have to say without having to worry about getting lost in the shuffle of a larger platform.
In addition, Substack takes care of a lot of the technical aspects of running a website, which can be daunting for someone unfamiliar with coding or web design.
Some of Substack’s famous users are the controversial Pulitzer Prize-winning journalist Glenn Greenwald, Anne Helen Petersen, and the New York Times best-selling author Tim Ferriss.
However, in 2020, a New Yorker article named several authors including right-wing pundit Matthew Yglesias who had accepted substantial advances, as well as others, including Robert Christgau and Alison Roman, who had started Substack newsletters without signing contracts with the company 
Many have suggested that the authors signed by Substack have a right-wing bent leading some to argue that their approach to giving out advances makes the company seem less like a technology platform and more like a media company. At the very least, the company is a technology platform that also is involved in making editorial choices that people believe should be subject to scrutiny and criticism.
Business Model of Substack
The business model of Substack is quite simple. You can either pay to read articles on Substack, or you can sign up to be a member and get access to all of the articles for free. There are also options to upgrade your membership, which gives you access to more features, or you can choose to pay per article.
Substack’s business model is unique in that it offers a variety of ways to access its content. This flexibility makes it a good option for people who want to read articles on a range of topics and those who may only be interested in one or two specific topics.
Additionally, the pay-per-article option is also unique and allows people to only pay for the articles they are interested in, rather than having to purchase a membership that gives them access to all articles.
This laissez-faire attitude towards content is what sets Substack apart from other platforms. It allows its users to have complete control over their work and how it is presented to the world. Additionally, it gives its writers the freedom to experiment with their content and try out new ideas without having to worry about editorial approval or meeting strict guidelines.
However, the lack of editorial oversight is a double-edged sword. While it allows writers to be creative and experiment with articles, it also means that there is no control over what kind of content is being published.
This can be a problem if a writer decides to publish offensive or harmful material. In fact, this hands-off approach to content regulation, which tolerated anti-vax and transphobic material, did not sit well with many of Substack’s authors, who migrated to other platforms due to the platform’s lack of moderation.
While Substack previously faced little competition, that is no longer the case. Ghost, a newsletter platform that is similar to Substack, has been gaining in popularity. Many portrayed it as the anti-Substack due to the fact that it takes no cut of author revenue and its focus on transparency and community.
However, some claims that this is not even a competition. Even while Ghost has been actively wooing writers who want to leave Substack, it’s not quite a Substack rival.
The main offering of Substack is newsletters. Not the case with Ghost, which was initially intended to be a fancier variation of WordPress. In contrast to the venture capital-fueled Substack, Ghost is a bootstrapped operation with a small team of two dozen people dispersed worldwide.
Substack and Ghost have very distinct business models. In contrast to Substack, Ghost’s premium hosting solution, Ghost Pro, charges a flat rate beginning at $9 per month.
Substack has significant costs associated with its business model. The company must pay for server space to host its website and newsletters, as well as the staff required to maintain the site and create content. In addition, Substack charges a 10% commission on all paid subscriptions, which can add up to a significant amount of money if the newsletter becomes popular.
The actual amount the company pays in expenses is not known since Substack is a private company.
How Does Substack Make Money?
Substack makes money in more than one way. First, it charges a 10% commission on all payments processed through its platform. This includes Substack’s cut of any membership fees as well as any one-time payments made by readers to support a specific article or author. It also has Substack Pro and currently venturing into podcast monetization.
Since the company is not publicly traded, it does not have to disclose its financials.
Every subscriber who pays is assessed a 10% commission by Substack. So, unless you generate income from using Substack, neither the platform nor you generate any revenue. The monthly subscription charge ranges from $5 to $75 at the lowest end.
SimilarWeb’s data reports that Substack generated 43.2 million visits as of August 2022, a 6.19% increase from July.  The substantial majority of Substack’s traffic comes from the United States, where it is ranked 568th.
The top 10 authors on the site jointly produce $20 million in income annually, according to Substack, which informed Axios late last year.
The Times claims that Substack independently informed investors that its revenue for the previous year was under $9 million. A piece published last month admitted explicitly to the Times that it now hosts hundreds of thousands of sponsored newsletters.
With Substack Pro, the company pays an upfront one-year payment to cover its first year of production costs and then 15% of all revenue it generates from that point on.
The reasoning behind this, according to Substack is that a writer doesn’t have to stay in a job (or choose one) that interests them less than being independent because the payout may be more alluring than a paycheck, In return, all 15% of the revenue will be collected by Substack, and after its first year, it will revert back to the 90/10 split.
What makes it even more interesting is that, in order for a Substack Pro newsletter to be accepted into the program, it already needs to have a pre-existing audience. This is likely because Substack wants to avoid any financial risk by only investing in newsletters with a proven track record of monetization.
In April, Substack announced that it would be venturing into podcast monetization, urging creators to make podcasts on its platform. Same as its newsletter, a 90/10 revenue split applies for the podcasts as well.
This applies to podcasters who paywall their whole program and those who paywall only certain episodes. Listeners may access paywalled episodes on either the Substack app or through the RSS feed; therefore, posting on Substack does not prevent you from sharing public episodes on different platforms.
While Apple and Spotify take a 30% cut of certain in-app purchases and Google Play takes 15%, Substack only takes 10%. This makes Substack a more attractive option for podcasters. It also allows non-writers to enter the Substack ecosystem, allowing it to expand its user base. With the rise of podcasts and the popularity of on-demand content, this move makes a lot of sense for Substack.
Substack Funding, Valuation & Revenue
Substack is still a private company, so we don’t know its current revenue or valuation.
However, we do know that it raised $82.4 million over four rounds of funding. The last funding was a Series B round led by Andreessen Horowitz in March 2021, which raised $65 million, and valued Substack at $650 million.
Prior to that, the company raised $15.3 million in a Series A funding round in July 2019, $2 million in a seed round in April 2018, and $120,000 in a seed round in January 2018.
However, reports said that Substack stopped pursuing its Series C round of funding, which was rumored to be likely to raise around $75 million to $100 million. It was estimated that the funding round could have given the company a valuation of as much as $1 billion.
However, investors were not interested in the offering. With the current economic downturn, it appears that Substack decided to forgo pursuing funding due to fears of a down round that would have instead reduced the company’s valuation.
GrowJo estimated Substack’s annual revenue at $94 million in 2021. To fully understand where that number comes from, it is important to know how many subscribers Substack has and how much they are charged.
For the month of August, Substack had 43.2 million users and paying email subscribers make up between 5% and 10% of all readers. That would put Substack’s paying subscriber base at somewhere between 2.16 million and 4.32 million readers.
From that, it’s possible to can estimate that Substack’s gross revenue for the month of August was between $10.4 million and $21.6 million, with the company taking home $1-$2 million in profit.
Of course, these are all rough estimates based on estimated subscriber numbers. The actual numbers could be much higher or much lower.
Is Substack Profitable?
It is unclear if Substack is profitable. As a private company, Substack’s revenue is undisclosed. However, Substack’s annual revenue was estimated to be $94 million in 2021.
Whether the company makes much more or much less than that figure is unclear.
From funding from previous investment rounds, Substack likely has enough of a cash cushion to last them a while. However, they did unsuccessfully walk away from a fundraising attempt in early 2022 due to bad market conditions.
Whether they will be able to make enough money to not have to fundraise again or if they will need to complete another round of funding remains to be seen.
It’s clear that Substack has a strong business model and is poised to continue growing. The company has built a robust subscription-based platform that enables content creators to monetize their work and build authentic connections with their readers.
We hope that this guide has helped you better understand how Substack makes money, and what kind of opportunities are available for you on the platform.
We’re happy to have been able to give you a glimpse into the business model of Substack! It’s an interesting case study for anyone interested in subscription-based business models.
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Thanks for reading!