The Three Choices for Growing a Newsletter Business

The proliferation of newsletters has been incredible over the past few years. Thanks to the arrival of tools like Substack and Beehiiv, spinning up a new product is remarkably easy. And seeing Morning Brew (disclosure: I work there) sell a majority for ~$75 million and the Hustle for over $20 million has people motivated to build their own newsletter businesses.

This makes a lot of sense. Despite how old email is, it is incredibly dependable. If you create a piece of content, you can push a button and everyone who has subscribed will receive a notification. And since they’ve opted in, they won’t mind receiving it. There’s nothing more powerful than that ability to hit send.

But email has many limitations.

When Apple rolled out its mail privacy protection (MPP), it became much harder to track open rates, a traditional metric for newsletter operators to know how well they were doing. We used it to report to advertisers—similar to an ad impression on a website—and we used it to know when a subscriber should be manually churned.

There are also limitations on the weight of the email. According to Mailchimp, Gmail will clip your newsletters if they’re bigger than 102kb. Every letter, line of code, image, link, or whatever else you stuff in that email has weight. Byte by byte adds up faster than you’d think.

Finally, the types of advertising can also be limiting in email. I can’t tell you how many times I’ve heard someone ask if video can go into email. Very few email platforms can truly support it. And so, you’re limited to text, images, and gifs. Even then, there is only so much you can charge for ads before it starts to become cost prohibitive, a concept I will come back to.

And so, while I am a huge believer in email as the foundation for any media company, it’s not perfect.

Digiday has been writing a series of pieces about newsletter publishers and how they are building during these rockier economic times. On Wednesday, it published a piece about expansion and diversification out of the inbox.

The premise of the piece is that a newsletter can only get so big before it needs to move into new channels for continued growth. The assumption is that advertisers will begin getting priced out at some point. According to the piece:

[Dan] Oshinsky said that publishers can reach a cap on how much money they can sell a newsletter ad for as their audiences grow, so it bodes well for them to branch out into other products and channels.

The cost per open for a newsletter ad ranges from about $20 to $60, for every thousand readers who open the newsletters, according to Oshinsky. “Is a brand that spends $1,000 or $5,000 or even $10,000 on an ad – would they say, ‘Hey, your newsletter’s grown from 100,000 to a million readers, we’d be happy to now spend $50,000 on a single ad in newsletters?’ The answer is probably not,” Oshinsky said. “As those brands scale up, you start to see them expanding what they do.”

If the quality of the audience remains good while the list grows, then yes, an advertiser would be happy to spend $50,000 on a single ad in a newsletter. I’ve seen it hundreds of times. But it has required educating a new class of advertiser.

I would argue the harder thing is continuing to find good channels for growth. What worked for newsletter operators a few years ago does not work anymore. Before I joined Morning Brew, I had the chance to interview my future boss, Austin Rief, for the AMO podcast. He said:

For those first couple weeks of being on Instagram stories, ads very early, we saw single for a couple of days, it was $0.05 CACs and $0.15 CACs. We were pouring every penny we had into that opportunity. I’m constantly looking for new opportunities like that to grow and to find things that will be meaningful. As you get bigger, everything it’s just different. You’re not going to find anything that’s going to double you when you’re at 2 million subscribers like you could have when you were at 50,000 or 75,000.

While $0.05 to $0.15 CACs are certainly worth salivating over, it’s the latter part that has consistently resonated with me. What works when you’re small doesn’t work when you have scaled. It gets harder.

There are three approaches newsletter operators can take to grow their businesses. Each one has to be done delicately because what might work with the main product could dramatically flounder with others. So, let’s dig into that.

New Channels

The first approach is to do what the Digiday story says: expand into new channels. In the story, people talk about podcasts, events, social, etc. And these can be very valuable, but there are inherent challenges.

The first is promotion. It is easier to promote one type of content with the same type of content (email to email, podcast to podcast, etc.). That means, if you have a newsletter, it’ll promote another newsletter very efficiently. But getting a newsletter audience to start listening to a podcast is harder. It’s not impossible, of course, but it is harder.

The second is the actual content. What works in email looks very different in other channels. And so, it takes time to develop the muscle to create exceptional content outside of the inbox. So, what do you do? Bring people on who excel at it.

This introduces the first major risk. Expansion into new channels means an increase in fixed costs. And since it’s an entirely new channel, you have to invest the time to grow it while carrying those fixed costs. This isn’t inherently bad since the margins on the newsletter might be high, but it adds legitimate risk.

And it’s not just new content creators. It’s more sellers to support the new products; more support staff to create the extra advertising; more back office people to help support those people. And if you don’t properly allocate capital, this can very quickly fall out of balance.

When I say that all media companies should start as a newsletter, this is what I have in mind. But there are risks. An expansion into new channels isn’t always the perfect option.

Same Channel, More Product

Why give up on what’s working, right? If you can perfect one newsletter, simply create another newsletter targeting a different audience and use the muscle you already have.

This is a model that many newsletter-first companies have taken. At Morning Brew, our B2B business has grown into a $20m+ revenue business in a few years. While the type of content is different than the main product, it’s still a newsletter.

Industry Dive has perfected its expansion into new verticals with plans to launch 12 new ones in 2023 alone. While not calling themselves a newsletter company (CEO Sean Griffey tells Digiday they’re “newsletter-driven), there’s no denying this model has worked for them.

You have to be careful here, though. If you’re going to launch a new product, there needs to be enough product and audience differentiation. Otherwise, your audience is going to get intense email fatigue. Having a clear understanding of who the audience is and being aggressive with churning out people who don’t fit is critical.

But there are only so many niches you can expand into with newsletter-only products. And so, even at this level, you start trying to figure out how to continue growing.

Targeted Segments

The third option, which is rarely talked about in newsletter-land, is to stick with the main product, but make it possible to buy advertising that is more targeted. If we go back to Oshinsky’s point above, he says that an advertiser spending $10,000 might balk at spending $50,000, even if you’ve grown 5x as large. And so, many advertisers will get priced out of what you have to offer.

But what if you could offer 20% of the audience? That would bring the price back to $10,000 to target 20% of the database, which is what that advertiser used to get originally. This lets you continue to grow your main newsletter and even be competitive on price increases if the audience remains engaged.

The downside to selling like this is that you need to sell a lot more ads. If your newsletter normally has three ads and now you’re selling 20% chunks, you now need to sell 15 ads per send. That’s a ton of inventory to support, which means you need to hire more people.

And so, building a targeted segment using first-party data is the sweet spot. If advertisers will balk at spending a large sum to target the entire database, build a number of target segments of people within the database that are roughly equal in size. If it’s a publication about financial advisory, make the reader pick what type of FA they are: a bank-owned FA vs. a registered investment advisor, for example.

Now you can sell advertising based on these segments. You’re still going to need to get more ads sold, but you’ll be able to sell each ad for a higher CPM.

Let’s say your database is 1,000,000 people, your CPM is $20, and your open rate is 50%. That means 500,000 people are seeing the ads, so the ad costs $10,000. If you split the database into four targeted segments, could you get away charging a $25 CPM? My suspicion is yes because the advertiser is spending more of their money to target the people they care about.

A targeted ad reaching 25% of the audience at a $25 CPM is $6,250. And so, it’s $3,750 cheaper than a blast to the entire database. But if you sell all four, you’ve made $25,000 on those same ads. The advertiser is happy and you’re happy.

The issue is that most newsletter-first operators don’t ask for any data that would allow them to build these segments. Their focus is on growing top-line subscriber numbers. And by the time they realize this is an option, they are years behind on capturing the information they want.

The easy answer when it comes to growing a newsletter business is to grow into new channels or replicate your current channel with more products. But a third option is to slice the audience up into more targeted segments. It’s the hardest to get right, but I would argue, it’s the most profitable. And we’re going to see the leading newsletter operators do this more.

Thanks for reading today’s newsletter. If you have thoughts, join the AMO Slack to discuss or hit reply. I hope you have a great weekend!