Pricing Your Membership Site to Maximize Profits

A recurring income from an online membership website can help you generate a predictable, steady source of income that is similar to a wage without sacrificing the flexibility, freedom as well as the financial benefits of running your own businesses.

  In this blog, you'll learn about:  

1.         Pricing models
2.         Pricing 101: The most well-known optimization dilemma
3.         How do you determine optimal pricing for your membership site
4.         Membership pricing rules and guidelines

Most membership-based entrepreneurs launch their business with a revenue goal and return to a monthly subscription target by dividing their monthly income with a figure that seems "reasonable." Perhaps you've encountered this formula in ads or social media: "If you want to make $100,000 per year it's only 416 subscribers who pay you $20 a month or 832 subscribers paying you $10/month!"

While the math is right, starting with a revenue goal in the mind can be reversed. The ability to determine any subscription price and any subscriber count to produce any amount of revenue.

This is all conceptual until there's a real problem you're solving that members are willing to pay to have solved with a membership. This is the only way to decide on a profit-maximizing rate.

Using the above example Consider what happens if your subscription solution is so good that 832 customers willing to pay just $10/month are actually willing to pay for $30, $40 and even $50 per month? And what happens if you have 10,000 customers ready to pay, if were to charge them $5 per month?

If you set the goal of generating revenue before reverting to a targeted cost for membership, you may not meet your goal or, even more, you may leave significant income to be lost.

Pricing is among the most important decisions you'll make for your membership site, but it actually comes third in importance. Before you set a price, you must first:

1. Find out the issue you're trying to solve and the market you want to target.
2. Choose the best solution for the problem through the use of a site for members

  Pricing Models  

Before you dive deep into the pricing of your product then you'll have to consider which solution to solve your target market's problem calls for a one-time installment, a recurring one, or a combination of both.

  One-Time Payment  

A one-time payment is best if your solution does not require regular content, service as well as delivery. For example, you may offer a single-time charge for access to a fixed-duration class or low-maintenance group.

But, if your service requires you to provide ongoing training, new content, and support without having a set endpoint, then it's better to charge an ongoing membership.

  Recurring Payment  

A recurring payment is a monthly or annual subscription for an ongoing connection to your service. It is ideal for solutions that require the provision of continuous training or ongoing access to your service. Many membership sites are built upon recurring fees.

A periodic payment allow you to earn regular income, but it allows you to amortize the expense of customer acquisition over the duration of. It's less costly to keep an existing customer satisfied than to find a new member.

  Hybrid  

Some sites for membership charge a higher one-time payment up front, with a cheaper, recurring monthly payment after.

This model works well in the event that members receive substantial value upfront like access to a course, with ongoing training and support in the wake of course teachings.

  Additional Models to Think About  

• Freemium: Certain entrepreneurs provide the option of a free membership offering basic benefits as well as a paid member area, which includes more information or other value. If you're offering a complimentary option, ensure that your free offering is valuable enough to suggest there is even more value in the paid version. If the free offer you provide is high quality by your target market's standards the customers will be able to have more confidence to enroll in the paid version of your solution.
• Membership Tiers: When your product lends itself to different degrees of support, you might be able to provide a cheaper as well as a more expensive paid tier. A lower priced tier may offer DIY solutions but a more costly tier might provide a personal consultation with you, the website owner or the ability to create a custom solution. "Free" could be an option for one of your membership levels. A number of tiers may be confusing to prospective members.

  Pricing 101: The traditional optimization issue  

When setting your membership price it is solving an economic optimization issue How do you determine the most profitable price?

If you'd prefer to skip ahead for the "how-to," go ahead and click to go to the next section. If you're looking to learn about the costs of joining a site take a look.

It is possible that you remember the classic demand curve for economics from high school or college in economics.

In the case of a conventional product there are fewer units that are sold at a higher price and more units are demanded at a cheaper price. In order to determine the price that maximizes revenue to determine the "area under the curve," multiplied by the quantities at every price point until you find the revenue-maximizing combination of price and quantity.

In tracing revenue's position on the curve of demand, you'll see that the monthly income is highest in the area where the curve of revenue is most advantagious:

The demand curve is like this:

If you set your prices to low, you'll end up with many fewer subscribers, as your membership will be perceived as being unimportant. It's like this: If a car is selling for only $4,000 There must be some issue, right?

If you price excessively, you'll find too few subscribers with willing to pay.

It is the visual image of the maximum revenue with the above demand curve:

In a perfect world, you'd know the equation of your demand curve and then you could decide on the best revenue-maximizing rate of your subscription. Unless you're willing to hire an economist who can conduct market research to determine the most likely revenue-maximizing price and you'll need to come up with a best estimate for your ideal price for your membership.

How to determine optimal pricing for your membership website

In the event that you've taken these guidelines to beginning your membership site, you've already established (1) what issue you're solving and your target audience in addition to (2) you've decided on how you can solve your problem with the creation of a membership website.

Now you've got enough details regarding your proposed product to identify competitors offering similar solutions. Their prices will ground the target market's price for an acceptable cost.

Create a list of your rivals' products, pricing as well as a rough estimation of their member count and the number of years operating. It is necessary to have these figures in Step 2.

For a review of your competition, use this table as a guide or grab our Competition Review for Members Sites Excel Template.

Equipped with a market-leading ballpark, go into the next phase and calculate your Rough Price floor.

  Pricing Step 2: Calculate Your Rough Pricing Floor  

In the next step, you'll have determine your monthly cost for providing your membership service you've designed. It will serve as your pricing ceiling. Prices that are lower than the cost you charge per member will cause you to lose money.

There are two expenses you should consider: Variable and Fixed.

  Variable costs  

Variable cost is the expense directly related to each new member who subscribes to your website. Variable costs might comprise:

• Processing fees for transactions (e.g. Stripe fees or PayPal fees)
• Commissions for sales (if you have an sales team)
• Consulting hours (e.g. when you offer a consultation service for X hours to each member and have a value to place on your time)

  Fixed cost  

Fixed costs are the expenses that which you pay regardless of subscription number. These include:

• Software subscriptions
• Advertising costs
• Content-related expenses to feed your member
• Salary of employees

The decision to add a pay check you earn as a fixed expense will depend on your personal desires and objectives for business. Some entrepreneurs will include self-employment as an essential element of their business, while others prefer to view their own personal income as profits when all costs are considered.

Be aware that the more members you've got and the greater your ability to distribute your fixed cost across each member.

To calculate your rough break-even month-long membership cost Consider three basic assumption:

1. Costs per month for a member that are variable.
2. The projected number of members that you will be paying per month for membership fees towards the end of your first year. Make use of your competitor research to estimate. Divide the expected members by number of years they have been in operation in order to estimate the growth in membership of your competitor each year. Reduce this figure by up to 50 percent since some membership sites accelerate annual growth when they show outcomes. Change your projections as you like.
3. Fixed monthly costs total for delivering your intended solution.

Now, calculate your rough break-even pricing floor by following:

1. Determine your monthly per-member fixed cost allocation by dividing the fixed cost of your month by the desired number of members by the close of your first year.

1. Add your monthly per-member variable cost into your fixed cost for each month per member.

The result is your approximate monthly pricing floor. Any pricing that is lower than this can result in losing cash.

Be aware that the accuracy of your monthly pricing floor is only as good as your assumptions. Do not view your estimate as more than a mere ballpark number.

  Pricing Step 3: Floor of Pricing Sanity Verify  

Check your estimate of pricing floor with your rivals. Do you have a comparable area?

In evaluating the pricing floor in relation to your competition, remember the price of public sale has a an income margin that is built in. If you didn't include an income for yourself as a fixed-cost in the second step, add the desired profit margin into your pricing floor here.

How does your price per member floor and desired profit per member margin compare with the competition's prices?

If the price floor you set and profit margin is significantly higher than the prices of your competitors, you should consider whether you can command a premium in your market or, if not, the market you are targeting is willing to pay for the more costly solution.

  Pricing Step 4: Set Your Initial Price  

The time has come to determine the price for your first purchase! Consider these strategies:

1. Cost plus profit margin It's one of the most common ways retailers set their prices and it's also one of the simplest. If you've completed these steps, then you've estimated the cost with this method, in Steps 2 and 3. The challenge with this pricing strategy is it doesn't consider consumer demand (refer for the Pricing 101 section in this guide if you've not yet) as well as the benefit of your membership for the members could be greater than your cost and the standard profit margin.
2. The price you charge is roughly similar to what the competition charges: You studied your competition's prices in Step 1. It's a simple pricing model because your competition already has told you how the market responds at the price you've chosen. However, this pricing model isn't taking into consideration your solution. Is it a more valuable solution than your competition's? Perhaps, it's simpler than the solution offered by your competitor, and you could actually earn more profit from a higher volume by pricing less? Or, do you want to undercut your competition in order to increase market share, and price increases after you've demonstrated your value in the market?
3. ROI to your customers: You may be capable of calculating ROI to your customers from learning about how to implement your program. Price based on expected ROI. This pricing method, you may consider offering a form of money-back guarantee for members who don't earn the ROI they expect to achieve. Make it clear in advance what the member must perform to receive a money-back guarantee.
4. Market research: Survey your target market to understand their willingness to purchase your product. If you use strategy, remember there may there be biases in the responses, and participants may tell that they know what you want to be hearing. This strategy is intended to sanity check a high price to determine the possibility of rejection rather than if the high price can be recognized.
5. The position you want to be in the market Price can be used to promote your business. If your membership service is a high-end offering or you offer something exclusive or unique, the pricing you offer should represent these attributes.

If you're doing the math, you're likely to employ a mix of the five methods to determine the price you'll set for your first purchase.

This is a different way of thinking about pricing that comes from Melissa Guller, Founder, Wit & Wire--the three pricing levers

•    Increasing the Significance of the result  

Ideally, the result should be urgent and important to the customer, and it should be connected to any of the three categoriesof wealth, health, or even relationships.

•    Enhancing the buyer's certainty  

The more certain the buyer is that your offer will help them reach their outcome, the more they will be willing to pay (case studies, testimonials etc).

•    Reduces the amount of money a buyer spends  

This is how much time or money they would have to spend to accomplish their objective. The lever is pulled by decreasing the time and money that the purchaser has to invest to accomplish their objective.

  Pricing for membership Do's and Don'ts  

  The Final Word on Pricing  

If you have an economist in your team in order to design the perfect actual-time demand curve for your site's membership, pricing is more of an art than a science. Compelling marketing and an all-star sales force can help sell a membership site that's priced too high on its face. However, insufficient investment in marketing and a poor sales process can limit growth of a well-priced membership site.

Finally, there is an overarching issue of business strategy.

What's the objective of your membership website? What is its place in the other aspects of your business, or is it part of your overall business? If your site's membership is an investment in cash to help fund your daily life, you could decide to set a price that will give you just enough income to support yourself with smaller, more dependable clients. If you aspire for the long term, and have money to fund your venture You may be able to lower your price for the moment to create a fan base to begin with. You can also grandfather in the first members at a lower price at the beginning, and then charge your new customers more once you've gained market shares.

There are endless options for pricing. Don't overthink it, and keep in mind that price is just one element of your site's membership. Membership value comes first.

  This blog first appeared in February 2021. The blog it was revised on March 20, 2023 in order to make it even more valuable.