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They aren't, and due to the type of culture that is common here many users are outright hostile to any monetization other than charity. mastodon has had instances being defederated for the crime of attempting to introduce advertising or subscription.
It remains to be seen if this changes, but for now you're unlikely to start a fediverse instance for profit.
They aren't
Personally, I like the way the haiku project does it. They have a bar with how much they need on the website and as they get more donations, the bar starts filling up. I think the most important thing is to be transparent about your costs.
That’s exactly what Reddit used to do.
I'm not sure there is one answer here. I guess it all depends on the instance. Also consider that it's pretty early on, some instances might ask you money to join, others might ask for donations and yet others might show ads or be completely paid for by the hoster. Having a small instance doesn't necessarily need to cost a lot.
it is more sustainable to pay for your small chunk of a network than to pay for a monolith that encompasses everything
i hope lemmy.world doesnt become too big for its own good and becomes to big to upkeep
If it becomes too big for them, then can always shut down sign ups and direct people to other instances.
I think you might really be asking about sustainability, not profitability (profit is what you have after all the bills are paid). It's generally donation-based. I'm sure different communities will have different ways of soliciting donations.
EDIT: I'm no longer partial to the below. I much more like PrimalAnimist's suggestions.
~~For larger, expensive instances, I'm partial to determining the cost of running a single user over some period of time (say, 5 years), and posting that little datum on the community info. Then, each user that donates that amount gets a badge reward. Users that pay double the minimum get a different badge, and so on. Cycle the badges every n years. Some users will have fancier badges, displaying a kindness for the poor and badgeless. Cultivate a culture of gratitude for those who support, and you won't have to worry so much about not having enough.~~
I dislike this idea because it creates "tiers" of users. Communities might not allow comments from anyone without at least the basic donation badge. Donations incentivized with perceived perks are made with selfish intent. The capitalist system has trained us that in order for people to do something, they must be given a sufficient reward.
This is not true. Using rewards as incentives to motivate people will create division among individuals. When rewards are introduced, the focus shifts from intrinsic motivation and personal satisfaction to the external reward itself. This leads to a competitive mindset where individuals start comparing themselves to others solely based on the rewards they receive.
For example, I've seen something as simple as a user tag being used to restrict and divide a community. (r/conservative comes to mind first).