$$ What's a New Subscriber Worth? $$
Do you know?
If you’re thinking of doing paid advertising or paid promotions for your newsletter you need to know if it’s going to be a waste of money or not. To understand that you need to know what a new subscriber is worth to you, in actual dollar terms.
Marketers call this the “lifetime value” of a single subscriber and the “audience valuation” for your whole subscriber list.
Figuring out the value of a new subscriber is a bit of a fuzzy art, especially if you don’t currently operate your publication with a direct pay-to-read model. Before you can calculate what a subscriber is worth, you need to have a clear understanding of how you earn money (or will earn money) from your newsletter… you need to know how your newsletter is monetised.
How is your newsletter monetised?
There are three main ways you can get a financial reward from your newsletter.
1. Pay-to-read publications
A pay-to-read newsletter is one where some or all subscribers pay money directly to the publication in the form of subscription fees.
2. Promotional newsletters
A promotional newsletter is free for readers, it is monetised indirectly. Instead of getting money directly from subscribers, a promotional newsletter can earn money by promoting the owner’s work or by promoting other products or services to readers.
3. Sponsored publications
Sponsored publications are also free for readers. The publication owner receives financial support from one or more sponsors who provide money, products or services in exchange for advertising space or a “shout-out”. Buying/selling (‘classifieds’) newsletters can also be considered to be sponsored publications, if the advertisers pay for their listings.
Examples:
My main newsletter is for food safety professionals. It is a direct pay-to-read subscription model, so I get money directly from my subscribers. I also reap a financial benefit because it raises my professional profile and enhances my authority as an expert.
This newsletter, Pubstack Success, helps new Substackers, for free. I will be rewarded with happy readers. Some readers will buy my book too.
How to calculate your audience value
The method used to calculate your audience value is different depending on how your newsletter is monetised. In the instructions below I show you how to estimate the value for one year, or the annualised value.
An annualised value is a conservative (pessimistic) estimate. If your subscribers stick with you for a long time, they might keep buying your products or renewing their paid subscriptions year after year. In that case, each subscriber might be worth a lot more than their annualised value. Because it is risky to make future predictions, it’s sensible to use conservative estimates when calculating subscriber value.
1. Pay-to-read newsletters
In a paid Substack newsletter, some of your audience will always be free and some will pay. For that reason you need to calculate the average value of all subscribers. Here’s how:
Step 1 Calculate how much each paying subscriber will pay per year on average. You should include an estimation of how many people will cancel their paid subscription (your “churn rate”) to get a realistic figure.
Step 2 Multiply this by the number of paying subscribers to get your total audience value.
Step 3 Divide the total audience value by your total number of paying subscribers to get the value of each subscriber.
Example:
My main newsletter has 1,136 subscribers, 28 of whom are paid subscribers. Almost all of my subscribers have annual subscriptions of $100, and I estimate that 20% will not renew after their first year (“churn”).
Over two years, each paying subscriber is worth $100 x 2 years x (100% - 20% churn) = $160 in two years, which is $80 per year.
I have 28 paying subscribers, so my total audience value is $80 x 28 = $2240 per year.
Audience value per subscriber: $2240 ÷ 1136 = $1.97 per subscriber.
HINT: If you haven’t yet turned on paid subscriptions, but you plan to turn them on, you can estimate these numbers. Expect between 1% and 10% of your free subscribers to convert to paid subscribers when you go paid.
2. Promotional newsletters
A promotional newsletter aims to get readers to make a purchase at some point in the future. Calculating the value of subscribers to promotional newsletters therefore requires some guess-work, especially if your newsletter is new.
Step 1 Estimate what percentage of your subscribers will purchase your product or service in a year. This is your conversion rate. A conversion rate of 1% to 2% is considered “normal”.
Step 2 Use this conversion rate to calculate how many purchases your newsletter will generate per year.
Step 3 Multiply the number of purchases per year by the dollar value of the product or service to get your total audience value.
Step 4 Divide the total audience value by your total number of paying subscribers to get the value of each subscriber.
Example:
If a writing coach sells a writing course for $100 and has 2,500 subscribers, then, using the industry average conversion rate of 1%, her numbers would look like this:
In one year, if 1% of 2500 subscribers buy her course: $100 x (1% of 2500) = $2500.
Total audience value is $2500 per year.
Audience value per subscriber: $2500 ÷ 2500 = $1.00 per subscriber.
3. Sponsored publications
The value of your sponsored publication depends on the size of your audience and the nature of your audience. A very large audience makes your newsletter more attractive to potential sponsors. Likewise a very targeted audience could be very valuable to sponsors also.
Step 1 Estimate the number of sponsored posts, advertisements or ‘shout outs’ (‘placements’) you will publish per year.
Step 2 Multiple the number of placements by the price you charge for each placement. This is your total audience value.
Step 3 Divide the total audience value by your total number of paying subscribers to get the value of each subscriber.
Example:
If a fishing blogger with 12,000 subscribers offers sponsored adverts at $50 per email and sells 3 advertising spots each month…
… her monthly revenue is $50 x 3, and her yearly revenue is $50 x 3 x 12 = $1800
Total audience value is $1800 per year.
Audience value per subscriber: $1800 ÷ 12000 = $0.15 per subscriber.
Takeaways
Calculating the value of a new subscriber involves a bit of guesswork and the results are only estimates.
The calculations provided in this post are for the value of a subscriber for one year only, and that is a conservative (pessimistic) estimate.
Knowing the value of a new subscriber is important, because it helps you understand whether it’s sensible to do paid promotions or advertisements for your newsletter.