What Influences My Substack Income?

To determine how to earn money on Substack, I identified three key factors:

1. The average count of unpaid subscribers,
2. The conversion rate, which indicates the percentage of unpaid subscribers who become paid members,
3. The monthly subscription fee.

Thus, the revenue from my Substack newsletter is determined by these three elements: unpaid subscribers, conversion rate, and monthly price.

For instance, if I have 1,000 unpaid subscribers and a 1% conversion rate, that would result in 10 paying members (1% of 1,000). If each member pays €20 a month, that totals €200 monthly—still short of my rent but enough for a couple of nice dinners.

With these drivers identified, I could calculate the optimal numbers I needed for unpaid subscribers, conversion rate, and subscription price to reach my target income.

Fees: The Hidden Costs of Success

However, I soon realized that these three drivers only reflected revenue, not my actual earnings.

Substack retains 10% of the revenue generated by writers, meaning from €200, they would take €20, leaving me with €180. While that’s decent, there’s another layer to consider.

Payments are processed through Stripe, which incurs additional fees:

• Credit Card Fee: 2.9% + $0.30 per transaction,
• Billing Fee: 0.7% per processed payment for recurring subscriptions.

To keep it straightforward, I disregarded the fees for other payment methods, as most transactions would likely be via credit card. These direct costs, which add up to approximately 15% of the revenue, leave me with a gross margin of 85%.

Alongside these direct costs, I also needed to think about potential overhead expenses.

Marketing, Subscriptions, and Miscellaneous Costs

If I viewed my Substack writing as a genuine business, I would have to factor in additional expenses. These might include:

• Salaries for myself or anyone I might hire,
• Software subscriptions for tools like Figma or Canva,
• Marketing and advertising to increase subscriptions and engagement,
• Hiring experts for tasks I struggle with, such as creating visuals, audio narration, video editing, and SEO.

Given the small scale of my operation, I acknowledged that I couldn’t afford any of these. I also decided against paying myself a salary for tax reasons, which I will explain shortly.

Navigating Taxes and Dividend Distributions

Running this venture like a responsible adult meant facing corporate taxes, which in Spain are about 25%. Since the tax on dividends is lower than that on regular income, I opted to take no salary and instead pay myself through dividends. This would be the money I’d use for my rent (at least a portion of it).

Calculating My Net Income and Dividend Distribution

Ultimately, after all expenses, I found that I would keep approximately €98, or 49% of my revenue. Although this number seemed low, it encouraged me to reevaluate my targets for the revenue drivers: unpaid subscribers, conversion rate, and subscription price.

Setting Realistic Targets

To meet my income goal of €1,000, I had to adjust my revenue drivers. Realistically, I set limits for what I could aim for:

• Unpaid subscribers: While there’s no strict limit, surpassing 10K in the next 24 months would be a significant challenge.
• Conversion rate: I learned that dividing the open rate by ten could serve as a proxy for the conversion rate, which for me resulted in about 4%.
• Price: Subscription costs vary based on industry and content type. Generally, higher-value sectors such as Finance, Crypto, and Business accept higher prices, making a €20 monthly fee reasonable.

With my conversion rate and price more or less fixed, the only variable I could adjust was the number of unpaid subscribers. To net €1,000 post-tax, I estimated needing around 2,650 unpaid subscribers.

Key Assumptions vs. Actual Outcomes

In the newsletter space, my target is modest. Prominent figures like Lenny and Mario boast subscriber counts in the hundreds of thousands (700K+ for Lenny and over 250K for Mario). Securing just 1% of Mario's subscriber base would allow me to meet my goal of covering my rent through writing.

Fueled by the potential before me, I closed my laptop and declared to my wife that I was going to make a living as a Substack writer.

"Ha me favor," she said, giving me a skeptical look.

Ha me favor literally translates to "do me a favor" in Spanish but conveys a tone similar to "Please!" or "Seriously!" in this context.