How To Formulate A Brilliant Membership Pricing Strategy

How To Formulate A Brilliant Membership Pricing Strategy

By JoAnne D. | Membership Sites

How To Formulate A Brilliant Membership Pricing Strategy

Pricing is an important but highly misunderstood business decisions. In this article, learn how to come up with a membership pricing strategy that will allow your membership site to be profitable while being fair to your members.

Charging the right price for your membership site is crucial to both getting new members and keeping existing ones.

But how do you put a value on your content?

The problem is that putting a price on your time, effort, and content is so difficult that it’s tempting to just guess or look at how a similar site prices their site and just copy that.

What you need is a systematic approach to determine how much you should charge your members.

In today’s article, I’ll break down how to create a membership pricing strategy into its three main components: how much, how often, and how many price points. I’ll discuss each component and what you need to consider when deciding on any of them.

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How Much Should You Charge?

The exact amount you’re going to charge your members is the foundation of your pricing strategy.

So how do you figure this out?

The truth is that there are plenty of factors that go into it, and there isn’t a particular formula that will fit all membership sites.

Let’s break it down into the 5 aspects that are crucial to this decision and how they dictate the amount you should charge.

1. Costs

First thing you need to figure out is the cost of doing business.

coins in a caliper with calculator in the foreground

Fixed costs are those that will come in monthly or annually regardless if you get members or not. For starters, this includes your domain name, web hosting, content management system (CMS), website design, membership plugins, payment processors, email marketing service, and landing page software.

This is also where your member acquisition costs come in. Paid ads, affiliate commissions, referral incentives, special offers, and contest prizes are just some of the costs of increasing your membership base.

Also consider that when you initially launch your membership site, you’ll be offering a lower price for it as a promotional price. You want this price to be considerably lower than the regular price, but remember that you have to eat the difference in price, so only set a price that you’ll be able to live comfortably with.

You also need to factor in the costs of producing your content, whether they’re recurring or one-off payments. These include things like video editing software, image manipulation software, ebook software, video camera, lighting setup, podcasting microphone, and other tools and software you need.

Finally, if you’re hiring part-time or temporary workers to help you with certain tasks, like customer service, web design, or technical support, you also have to figure that in the costs. Don’t stiff your freelancers!

2. Profits

When you’ve figured out your costs, what you then need to figure out is how much profit you want to make on top of costs.

Set a realistic revenue target that allows you to deliver value to your members and allows you to add value to your life at the same time.

Consider carefully how much your time, effort, and expertise are all worth.

3. Product

Product here refers to your membership site on the whole.

What are you actually offering your members?

Remember that price should reflect the value that you’re providing. When your members realize that what you’re giving them is worth so much more than what they’re paying, they’re happy to keep shelling out.

Think about what you’re actually providing them in terms of quality of content, amount of support provided, demand for the service you provide, community, and exclusivity.

How much content are you prepared to offer? And what type of quality should your members expect?

Should your members go through the material on their own, or will you offer one-on-one coaching? Can they contact you anytime for questions? Or are they expected to attend live video webinars so they can ask their questions?

How much experience do you actually have in the niche? Are you able to provide practical, actionable knowledge so your members can get results?

Even how you want to position yourself in the market merits your consideration. When you’re only starting, you’re probably poised as the “budget option,” at least at first. As you gain more experience and skills from running your membership site, you can eventually charge higher.

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4. Competitors

When you were researching for the type of membership site you wanted to start, you should have done a competitor analysis as well, but if you haven’t, this is a good time to do so.

cars on a racetrack

Know who your competitors are, how many they are out there, what they’re offering (i.e., how similar your offerings are) and how much they’re charging for them.

If a prospect would compare your offerings to your competitors, would they expect yours to cost more or less?

If a competitor were offering the same as what you’re offering or more, but charging a lot less than what you want to charge, will you be able to compete based on your value proposition or would you need to add value to your site somehow to be able to justify the price difference?

5. Members

Your target audience has probably the most impact on your pricing strategy. They’re the ones paying, after all.

Consider your target audience’s financial situation. Can they afford the membership fee you plan to charge them? How much impact will your site have on their life for them to add to their list of things they’re already paying for?

Also consider how hard you’ll have to work to reach them. Would you have to spend on ads, or would a properly executed content marketing and social media strategy work well enough? These should all be factored in the costs, but that depends on your target audience as well.

Plus, how many members are you looking to recruit? Do you plan to have many members paying a lower amount, or open limited slots so you can charge more and provide more value?

Another thing to consider is if your members will have to spend on something else aside from the membership fee to be able to fully make use of your membership site.

For instance, if you’re running a membership site focused on teaching a musical instrument, your members will have to have that musical instrument before they can enjoy the benefits of your membership site.

From your perspective, you’re only charging your membership fee, but from their point of view, they’re spending more than that, at least initially.

laptop notebook calculator

Yup, all ready for research once the laptop is turned on

Now that you know these 5 basic factors, the next thing to do is to list them down, do your due diligence aka your research, and come up with a monthly figure. Take as long as you need because this price will determine if your site is going to be profitable or not.

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How Often Should You Charge?

Aside from how much you’re charging, you also need to consider how often you should charge.

It’s simpler to calculate a monthly price for the fee, but there are many different frequencies you can choose from. Here are some of those frequencies and some pros and cons so you can decide for yourself which makes the most sense for your business.

Recurring: Monthly

This is the most common payment frequency we see for membership sites, and for good reason.

month

Membership site owners like monthly payments because this gives them a predictable, steady revenue stream per month. Plus, it inspires members to log in more frequently to make the most out of their monthly payment.

Another advantage of having a recurring payment is that it fits membership site business models that depend on drip feeding content. You get to provide continuous value for your members and they continue to pay for that value.

Moreover, there’s less risk for both the owner and the member. If there are issues with a member’s payment method, you only lose one month’s worth of that member’s fee.

For the member, if they use the site and they decide that it’s not a good fit for them or it doesn’t fit their budget at this point in time, then they can cancel it after their first month, and they’ve only lost that month’s fee.

A disadvantage of charging monthly is precisely that reduced risk for members; it’s way easier to cancel their membership because they’re not too invested, money-wise.

Plus, as the owner, you get a bit hesitant to build relationships with members that you don’t know will last. Building relationships is key to retaining members, but at the same time if involves some emotional investment at your end that may or may not see a return.

Recurring: Annual

Charging an annual membership fee may seem a little bit daunting to your prospects when they see the dollar amount that they’ll have to pay.

But, those who do sign in are much more likely to be higher quality members. They tend to engage frequently with you and the other members, and they tend to be more receptive to your content and give you more feedback.

Why? Because they’re heavily invested. And when members spend quite a large amount, they’ll want to achieve results.

Another good thing about charging annually is that you have a lot more room for promotions and discounts without severely cutting down on your projected profit. Plus, if your members raise concerns about payment and about needing the funds for something else, you can offer to change their membership into a monthly scheme temporarily until they get back on their feet financially.

On the other hand, it can happen that members paid annually and then they forget it and just laze around because they have 12 months to get to their goal. But it’s highly unlikely that people with this mindset will fork out a substantial annual fee in the first place.

woman lying prone on bed with white sheets

“Wake me up when it’s time to renew.”

One more drawback of an annual payment scheme is that a lot can happen in a year. Priorities shift, circumstances change, life happens. The payment method they used the first year may not be working when renewal time comes around.

The worst case scenario is that your members completely forget and when the charge comes through the following year, you’ll have to deal with members trying to have the charge reversed because “they don’t remember signing up.”

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Recurring: Quarterly

A quarterly scheme can be seen as a compromise between charging monthly and charging annually. You get more committed members than those paying monthly for a more affordable price than an annual membership fee would cost.

Recurring: Monthly/Quarterly/Annual

You can actually offer all three of these options to your members so that they can decide for themselves what type of commitment they can give your membership site.

Plus, having the option to change their payment frequency will help you retain members who will otherwise cancel if they can’t afford to make a one-time annual fee for reasons that are beyond their control.

If you do offer all of them, make sure the prices make sense. For example, your annual membership fee should always be less expensive than paying 12 monthly fees. The same goes for your quarterly fee: it should always be less expensive than paying 3 monthly fees.

Aside from the savings when members choose to pay for longer terms, you might want to provide additional value for them by adding more member perks and privileges.

man with hand on his head

“So. Much. Math.”

Flexible payment options, however convenient they are for your members, might end up overwhelming you. If you do make all three recurring payment options available, make sure you’re staying on top of your accounting.

Non-recurring: Lifetime Membership/One-time Payment

Depending on what you’re offering on your membership site, it might make sense to offer a lifetime membership option.

If you’re offering a single course or product with no additional content or support needed, then offering a lifetime membership option may be a good idea. But if you’re going to continue spending on maintaining the site for members who aren’t going to continue paying for that maintenance, then it’s not such a good idea.

If you drip feed your content, you’re going to lose out on so much revenue if you offer a lifetime membership option. Your costs continue coming in monthly, and the pressure is on you to recruit more members while your lifetime members continue to access valuable content that you struggle to put out every month.

collection of antique watch faces

Moreover, the word “lifetime” is vague in this context. What does lifetime mean? The lifetime of your site? What if your site only lasts 5 years? How long do your members expect to have access to your content?

Non-recurring: Fixed-term

A fixed-term membership may be a better option than a lifetime membership, as it provides the option of a one-time payment, but limits the amount of time that your members can access the content.

You can offer 3-month, 6-month, or 12-month membership for a one-time payment, again depending on the type of content you’re offering and how long your members actually need to see results from your site. If members want additional time to consume your content, they’ll have to sign up as members again for the fixed term.

This eliminates the problem of members “forgetting” they’ve signed up as members on your site because they won’t get charged again. Plus your members won’t need to cancel anymore because their membership just automatically cancels.

A drawback is that instead of working to retain members, you’ll tend to focus more on getting new members to sign up, which is more expensive in terms of time and overall effort.

Plus, this payment term isn’t conducive to establishing a community. Unless you open your doors for membership only certain dates in a year, members will have access to different content and won’t all be on the same page, making discussions about content tough to facilitate.

Non-recurring: Pay-as-you-go

In this business model, your members will be paying for each piece of content or content package that they consume.

This best fits an online course membership site with various courses spanning different topics. In that type of membership site, it makes sense for members to only pick and pay for the course/s that they’ll benefit from.

However, same as the fixed-term payment scheme, you’ll tend to focus more on getting people to buy access to different courses instead of keeping the members who’ve signed up.

A good compromise is to offer this as a basic option. Instead of a free trial, prospects can pay to access one of your courses. If they like it, then they can go all in and sign up to be a member with access to all courses for a monthly fee.

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How Many Pricing Tiers Should You Offer?

Not only do you have to think about how much and how often; you should also consider how many pricing tiers you should offer.

You can offer a single pricing tier, no doubt, and have all your members pay the same thing and get the same member perks and benefits. Fair enough, right? Many membership sites do achieve success with a single pricing tier.

But there are advantages to offering more multiple pricing tiers.

We often see this in software-as-a-service (SaaS) business models. Take a look at the pricing options for Trello :

Trello Pricing

Screenshot from Trello Pricing
(Click To Zoom)

Unless you’re offering an SaaS product as well, don’t pay much attention to the software features and that it’s billed “per user/month.” Instead, please focus on the three pricing tiers.

They offer three pricing tiers: Free, Business Class, and Enterprise. In a membership site, you can do away with the free option and just have a Basic and Premium offering, or you can retain three pricing tiers Basic, Premium, and VIP but no free option.

Your lowest-priced option, in theory, is the one that attracts your prospects. Offering a slightly higher-priced option right beside it will show prospects that by spending just a few dollars more, they’ll get more value.

Give your prospects good reasons why the higher tiers are more expensive than your lowest-priced tiers, and you create a perception of value to those additional perks.

Moreover, presenting higher-priced options with features and perks that aren’t available to the lowest-priced membership option gives your prospects more options than “yes” or “no.” They can say “yes” to some features and “no” to the other features that they don’t feel they need.

Plus, prospects who sign up for the lowest-priced plan feel that they’re saving money; they get a feel for your site and a preview of what you’re offering without being “in too deep.” And the door is always open for them to change up their membership to the more expensive ones in the future when they decide they want more.

Be careful not to be too zealous and overdo the pricing tiers; two or three is enough. Any more and you’ll end up paralyzing them with too many choices.

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Final Thoughts

Determining how much to charge for your membership site can be quite challenging and frustrating. Breaking your pricing strategy down into three components makes the whole process more systematic and less overwhelming.

Here’s a recap of the three components I discussed above:

How To Devise A Membership Pricing Strategy

  • How Much Should You Charge?
    • 1. Costs
    • 2. Profits
    • 3. Product
    • 4. Competitors
    • 5. Members
  • How Often Should You Charge?
    • Recurring: Monthly
    • Recurring: Annual
    • Recurring: Quarterly
    • Recurring: Monthly/Quarterly/Annual
    • Non-recurring: Lifetime Membership/One-time Payment
    • Non-recurring: Fixed-term
    • Non-recurring: Pay-as-you-go
  • How Many Pricing Tiers Should You Offer?

 

Before you come up with your own membership pricing strategy, here are a few more reminders.

NEVER compete on price.

Undercutting your competitors will quickly become a race to bottom, with the worst case scenario equal to pricing yourself out of business.

Remember: no matter how low you can go, there will always be someone else who’s willing to go even lower.

If you find a competitor that has a very similar offering to yours but is charging a lower price, find a way to raise the perceived value of your membership site. Or raise the actual value of your membership site by offering more so that you can justify the difference in price.

The one thing you shouldn’t do, bless your heart, is lower your price. Once you play that game, it’s all downhill.

Be flexible but not fickle.

If there’s one thing consistent in an internet-based business, it’s change.

Changes in your costs, your skillset, your members’ needs, your competitors, and the market in general will continually come, and you must be willing to adjust your pricing strategy over time to accommodate these changes.

However, changing the price frequently without good reason decreases your members’ trust. They’ll feel like you’re just taking them on a ride and arbitrarily choosing prices based on what will make you the most profit.

The whole point of creating a pricing strategy is coming up with one that will tide your site over for the long-term. Remember: the perfect price is that which allows you to keep your membership site running and gives you a profit while providing considerable value to your members that they can afford to pay for.

Over To You

Have you come up with a pricing strategy for your membership site? What other factors did you consider that I haven’t included here? Share them in the comments!

About the Author

JoAnne is your average, everyday, sane stay-at-home mom who believes in the power of the internet to make dreams come true. She has an insatiable appetite for chocolate, as well as all things internet marketing. She keeps up with the latest trends in blogging, affiliate marketing, e-commerce, and more.

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