Welcome to a fresh edition of Growth Croissant!

I’m Reid, your host on this journey. I’ve been lucky to be part of incredible teams that launched and grew some of the most well-known consumer subscription products: Hulu, Crunchyroll, HBO Max, and Substack.

Growth Croissant will be an evolving home for our learnings, painful lessons, and frameworks for making hard decisions. My goal is to deliver you a comprehensive and actionable guidebook on how to grow your business.

Hello friends,

We’ve been talking to publications and media businesses about how they earn money through sponsorships. We have a two-part series diving into our learnings and exploring ways to scale sponsorship revenue.

We’re exploring how we could help publications find more sponsors, streamline operations, and other ways to help scale sponsor revenue. We’re excited to hear from you as we go through this mini-series on sponsorships.

Reply to the email, drop a comment, or reach out to reid@caddielabs.com with any feedback, ideas, or questions.

Let’s first start with a few key points from our previous post on sponsorship revenue. 

First, no large media business has a single revenue stream — they all mix some form of advertising and subscription revenue, alongside other revenue streams (e.g., events, merch, courses, etc.). From last year’s post:

Below is a look at 2022 revenue for a grab bag of larger consumer businesses, segmented by advertising vs. subscription and other revenue.

There are different ways to generate sponsorship revenue. In other words, there are different types of sponsorship products, resting along a spectrum from programmatic ads to direct sales. From that same post:

Different types of ads vary widely in the degree to which it detracts from the user experience, how much you get paid, and how much effort is needed. Let's explore the two ends of the advertising spectrum: programmatic ads sold by an external platform, or direct sales where you sell your own ads.

The significant benefit of programmatic ads is that there is usually zero sales effort: you can make more money without much (or any) effort.

The sales effort is usually outsourced to an ad network, which tries to match a publication’s ad inventory (in a newsletter, podcast, on social, etc.) with sponsors. These ad networks might exist within a platform ecosystem (e.g., the ad networks from Beehiiv or ConvertKit) or as independent ad networks (e.g., Paved).

These ads are usually sold on a cost-per-performance basis (e.g., cost-per-click, cost-per-impression) to direct-response buyers. These ad buyers want a trackable impact on a specific metric, like new site visitors, customers, or purchases. 

The challenge of selling to these ad buyers is that they’re comparing the effectiveness of spend against their campaigns on Meta, Google, TikTok, and other leading ad platforms. These ad products are hard to compete against on driving cost-effective clicks, conversions, or impressions. 

It may be possible to grab a temporary share of an experimental budget, but it’s challenging to beat the leading ad products on an ongoing basis.

Programmatic, cost-per-performance ads tend to encourage a race for scale, something to consider for publications and platforms.

Let’s do some napkin math for a newsletter, assuming a 50% open rate and $5 cost-per-click. The table below shows revenue-per-post for different email list sizes and click-to-open rates (i.e., the share of people opening the email that click on an ad). We need a huge email list to generate enough clicks to drive meaningful revenue.

Beyond the race for scale, programmatic ads can also encourage a lower cost of production. Imagine spending 20+ hours researching, analyzing, writing, and editing a post to only eke out a few hundred bucks in revenue. 

You’ll probably search for other ways to make money, but you might also try to reduce the effort it takes to produce a post, shifting from more labor-intensive, longer-form writing to curation and aggregation.

That shift is perfectly okay, as long as it’s a conscious decision. There are large, sustainable media businesses focused on curation, aggregation, and summarizing news updates, showing that audiences value this type of publishing. For example, Milk Road and Superhuman have built large audiences and generate thousands of dollars per newsletter post.

Perhaps the toughest place to be is doing direct sales, but pricing and shaping sponsorship products based on cost-per-click or other performance metrics. You lose the main benefit of programmatic ads (i.e., not having to do sales) and still have to deal with the low-cost expectations of performance marketers.

For more original, labor-intensive creative efforts, cost-per-performance ads can be underwhelming or frustrating. In many cases, you have a deeper relationship with your audience. Getting paid based on clicks or impressions — especially compared to rates on Meta and the like — can deeply undervalue your endorsement.

Not all publications can sell high-priced, tailored sponsorship packages. But if you feel stuck in cost-per-click land, it might be worth trying to sell custom sponsorship packages.

Compared to programmatic ads, selling custom, tailored sponsorship products require more effort, but can also be more lucrative. Let’s cover a few of the distinct characteristics of tailored sponsorship products.

Multi-platform and multi-media. Higher-priced sponsorships are usually not sold for a specific medium (e.g., “newsletter ad”); they’re sold as a package across multiple platforms and touch points (e.g., mentions across newsletter posts, podcast episodes, events, and research reports). 

Sold for a fixed fee. These sponsorship products are usually more akin to brand marketing (not direct response ads). As a result, these products are often sold at a flat fee, not based on impressions, clicks, or any other performance metric.

Longer relationship. The relationship with the sponsor tends to be longer, stretching beyond a single mention in a newsletter post or podcast episode. These relationships can last for weeks, months, or even years.

Need to make a high-value connection. Most importantly, not all media businesses can do this type of sponsorship — you have to be able to create high value connections between sponsors and your audience. 

Also, that connection has to be made in a way that makes editorial sense. You can’t bend too far from your worldview or coverage area, or you risk breaking your relationship with the audience.

Require more effort, especially for getting new sponsors. These products almost always come with more overhead across the entire sales process: pre-deal negotiations, sponsorship fulfillment, reporting, and payment. Usually, the harder it is to finalize the agreement (e.g., longer terms, more complex packages), the more overhead is created.

Sponsorships will be a meaningful revenue stream for most modern media businesses. In some cases, programmatic, cost-per-click ads may be the right fit, allowing publications to make more money without additional effort.

But for other publications, exploring a more hands-on approach to selling customized sponsorship packages may be more valuable. That's especially true if you:

• Have the ability to make high-value connections between your audience and sponsors with a higher willingness to pay (without breaking your editorial worldview).

• Focus more on original, long-form, labor-intensive creative efforts (vs. less time-intensive efforts, like curation, aggregation, or bite-size news coverage). 

• Focus on a niche and have a deep relationship with your audience, evidenced by willingness to pay you (e.g., subscriptions, merch, courses, etc.) or high-engagement rates (e.g., on YouTube, a higher engagement rate / ER30 than peers).

Since custom sponsorship packages generate quite a bit of overhead, many individuals and small teams have a hard time maintaining or growing  revenue. In our next post, we’ll dive into the significant increase in work associated with selling custom sponsorship packages, and ideas for how a lean media business could scale this type of revenue.

In the meantime, we’re excited to hear from you. If you make money through sponsorships, what’s your approach? Do you use an ad network? Do you typically sell sponsorship on one platform(e.g., newsletter ad) or multiple platforms? How do you determine pricing (e.g., cost-per-click, qualified leads, or brand awareness)?

As always, thanks for reading,
Reid