Choosing member tiers, fees, & payment terms for membership websites
Choosing the right membership structure for your site isn't easy. Our breakdown of the tiers, fees and more will help you choose what's right for you.
If you’ve ever walked down the aisle or been ringside to the planning process, you’re familiar with the low-key panic that runs through every bride or groom to be when figuring out seating arrangements.
Do you place guests based on their expected gift contributions? Have you safely distanced that one aunt from that one uncle or are you about to spark a family feud to rival the Hatfields and McCoys?
But although the idea of setting up membership tiers and creating different levels for your customers may feel similar to plotting seating arrangements, it doesn’t have to stress you out.
Finding the right membership software is the hard part of your journey: the rest is easy-peasy.
Still, it never hurts to have a helping hand, so we’ve put together some of your most burning questions about memberships tiers and jam-packed the answers with actionable advice so you can make your membership program the best it can be.
Let’s jump right in.
What type of business is a membership website?
This won’t be the most popular opinion with some membership gurus, but hear me out:
Membership websites are basically like any other type of subscription.
Some may argue that because a membership program usually includes a social component, they can’t be considered part of the Software-as-a-Service package (SaaS) sphere. But they’re more alike than they seem when you get down to the basic model.
Here’s what I mean.
Most SaaS products -- like Netflix and Spotify -- charge a flat rate at a regular interval. Usually, it’s every month, but annual packages are often available, as well.
Now, think about your membership website -- either the one you’re about to launch or your current program.
How often do you (or will you) charge members? Does the price change from month-to-month based on how often they use your membership, or is it a flat fee?
Chances are it’s the latter, and that makes it an easy cousin to SaaS products.
And that’s great news for creators, because SaaS is prolific -- to the point that the majority of organizations are expected to rely on SaaS products entirely by 2020 -- and that means there’s equally prolific data on the best way to market, package, and sell products in this class.
In other words, we can take the mystery out of how to sell memberships and create their tiers if we just shift perspective and consider them alongside businesses like Hulu or Blue Apron.
The products themselves may be very different, but the billing models are the same.
And it’s a popular model. 23% of online shoppers have signed up for an online subscription service.
Which means, at the minimum, almost a quarter of everyone online is in the target demographic for memberships like technology website Ars Technica’s subscription:
And ProBlogger’s memberships, too.
But most importantly, it means a quarter of online shoppers are primed for your membership, except unlike these examples, you don’t have to pave the way and experiment to find out what works.
You can learn from their strengths and repeat none of their mistakes.
Membership websites work the same way as any other subscription service, which means we can copy their strategies and structures.
Now, the next question may throw you for a loop, but it’s an important one to consider -- and it may be more profitable than you realize.
Should your membership website have a free tier?
If you’re trying to build a membership business, offering a free membership tier doesn’t make sense, right?
You can’t profit off what’s free, can you?
As it turns out, you can. This is where membership websites’ similarities to SaaS businesses really helps us out. Free, as it happens, is an ace in the hole when it comes to upselling and generating more income.
Spotify is a classic example of how free turns into more. Their free tier converts 27% of signups into premium memberships.
They’re not the only one who’ve seen some crazy returns on “free”. Shopify, one of the internet’s largest ecommerce platforms, used their unlimited free trials to help grow their revenue by 90% in a single year.
The key to making free work for your membership -- and you should -- is making sure that what you’re offering will grab people from the start and convince them to invest their time into it.
That’s part of the reason we’re such big fans of giving away free content (it gets buy-in) and offer an unlimited two week trial to everyone who lands on Podia. We know our product can speak for itself, it just needs a chance to be heard.
So even if you don’t offer a fully free tier, you should provide customers with a free trial -- and ideally, you should do it without asking them for their credit card information.
Free trials that don’t require financial information convert twice as many customers into paying subscribers.
Free trials are so common and productive in SaaS companies -- remember, membership websites are intrinsically the same on a structural level -- that they’re considered part of the life cycle by some.
Looking specifically at membership businesses, you’d be hard-pressed to find a large site that doesn’t offer a free spin of their services.
For example, Smart Insights provides a free membership level alongside their premium levels.
So does Chantel Arnett of Blog Biz School, offering a free tier for users who may be hesitant to jump feet-first into a paid membership.
You see the same story with the Larry Silverberg's Actor’s Revolution Club, which is actually a totally free membership program.
So, should you have a free tier?
Definitely, if your membership platform enables you to do so -- it’ll help your other tiers sell.
Though that begs the next question -- should you have more than one tier?
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Should your membership structure have one tier?
In general, we’re fans of multiple membership tiers -- as is most of the SaaS world, where the average number of packages is 3.5 -- but they’re not right for every business.
After all, more tiers mean more responsibilities and more moving parts and administrative needs.
For less time-intensive membership programs or if you’re just starting out, a single-tier structure can work. It depends on the model, your desired end goal, and your ability to commit to maintenance.
Single-tier structures can be especially beneficial for membership models like content libraries, product bundles, path-to-result, and content updates. If you’re not savvy with these models, you can check out more information in our detailed membership guide over here.
Why does a single-tier membership work? It cuts down on the number of decisions people have to make before squaring with your membership program.
If that sounds familiar, it’s the basic principle behind Hick’s Law.
Here are some examples of websites that make a one-tier model work for them.
First up is Dave Stachowiak with his Coaching for Leaders membership.
Like the Actors Revolution Club, the only tier available is free, which makes it a powerful lead generation tool and helps build up Dave’s audience, but not necessarily right for you if you’re looking to monetize right away.
Which you can, by the way: the popular blogging platform Medium does. Their formal membership program only offers one tier, and it’s paid.
But since you can use Medium without a membership (and therefore, it could be said to have two tiers -- one just isn’t formalized), let’s look at a couple more examples.
Such as SaaS-Education hybrid The Great Courses Plus.
They offer different payment terms, but again, only one tier -- paid.
And it works for them because their products are exclusive and worth the investment. Plus, thanks to offering a free trial, users get a chance to browse and make sure it’s right for them before committing.
So yes, you can make a one-tier membership structure work, but it’s not the most popular. That begs the next question:
So, should you offer multiple tiers?
Absolutely. Just because multiple tiers is a little more maintenance heavy doesn’t mean they have to take up your life.
Consider this: Combining a free tier with a paid tier gives you more earning potential without necessarily adding to your workload -- which is probably why one third of businesses offer a free tier in conjunction with a paid option.
But unlike SaaS companies, you don’t have to fuss with usage-based pricing. All you have to do is divide your tiers based on what you give people access to, like you see QuHarrison Terry do with his program.
He has two levels: the first, called the “Observer”, provides premium features, while the second, “Advisor”, upgrades on that:
He doesn’t have to track who uses what, he just limits access to his products based on the features they signed up for. Super simple and easy to implement.
In fact, let’s run through implementing it now.
If you haven’t already, connect your Stripe account to Podia and swing by your Memberships dashboard.
Give your membership program a name -- don’t worry, you can change it later -- and click the purple button to proceed.
You’ll be prompted to set up your plans from the start. Go ahead and click “Create a plan”.
By default, your first plan is set to free. Let’s leave that toggled as-is for now and fill in some details.
When you get towards the bottom of the screen, you’ll have the option to select which products the members who sign up for this level can access.
Just click on the check mark beside the products to turn access on or off. If the shape is purple, you’ve given members access, and if it’s grey, it’s restricted from this membership level.
Easy as that. When you’re ready to roll, click “publish” at the bottom, confirm that you’re sure, and you’ve created your first membership tier.
You should see it pop up in your plans immediately.
To create another tier, repeat the same steps as last time, but add access to your additional products and toggle off the “free” option. You have the option of charging monthly, annually, or both. (Need help finding the right price for a membership? Got you covered.)
And like that, you’re now the proud owner of a multi-tier membership program. Congratulations!
As for how to price your memberships, you may be tempted to offer rock-bottom prices for everything, but there’s research to suggest that may not be the best approach.
The best approach of all is, well, a good-better-best (G-B-B) approach.
That’s a mouthful, isn’t it?
Here’s how it works.
Your “good” price is your bottom line, a basic price that makes your product more accessible to people, like Becky Mollenkamp’s first-tier membership.
Then there are your better and best packages. These come at a higher premium, but offer a lot more features as a result. Hulu’s packages are a good example of this approach.
Each price moves up on the scale, with the increase being -- ideally -- reflective of the improvements offered by the different membership levels.
Car mechanics and dealerships frequently use this model, too.
As for the fees themselves, you can’t create them in a silo. To price your membership levels, you have to talk to the people who are going to be paying for it: your customers.
Patrick Campbell of Price Intelligently explains why there’s no other way around it:
“You should not be afraid to talk to your customer about pricing. … [it’s] the ONLY data source that’s going to tell you what your value is, is your customer. No one else, no formula, no workaround, is going to get you to this answer, so just go head first and ask them.”
So start with your good price, then ask your members: how much more would you be willing to pay for this feature? And how much more if it included this other feature?
It’s the only way you’re going to get the G-B-B pricing that works for your audience.
Payment structure: Monthly vs. Yearly
Speaking of making sure your membership works for your audience, let’s talk about payment structure.
You’ve probably seen a payment structure like Grammarly’s before:
But which one is the best for your audience and business?
It depends on what your membership does. We’ve covered this pretty exhaustively in a previous article about pricing your membership, but here are the highlights:
Lowers barriers to entry by offering a more accessible price.
Great for memberships that give instant results and immediately prove their value, such as content libraries.
Yearly pricing, on the other hand:
Better for memberships that take a while to prove their worth, such as path-to-result types.
Heightens barriers to entries by requiring a higher upfront price, but is cheaper for the merchant -- Stripe takes 2.9% + $0.30 for every transaction, so the fewer transactions you have, the fewer fees you pay.
But in most cases, there’s no harm in offering both -- and you saw how easy it is to do with your Podia plan.
Just make sure to make the commitment to an annual plan worth it. Most businesses do this by cutting down the cumulative price when it’s paid in one lump sum. We do it, too.
So if your membership can prove its value in a single month, offer that and give users a little extra incentive to make an even longer-term commitment with a tidy savings.
But if it needs longer and you’re worried about losing members before they get the benefits they signed up for, don’t hesitate to restrict your pricing to a schedule that works best for you -- Masiel Encarnación does.
Your membership, your audience, and your terms.
It doesn’t get more beautiful than that.
Putting the membership pieces together
Layering your membership program doesn’t have to induce wedding-seat-arrangement levels of stress. You just have to shift your perspective a little:
When you consider membership websites on a structural level, they follow the same pricing strategy and intervals as SaaS services like Hulu.
Which means you can use the wealth of data behind SaaS websites to inform your decisions.
And that data all points to including a free tier in your membership program. It can generate more money and convert more customers than you think.
Of course, you can always have a single-tiered membership program if you’re looking for a simpler structure. Some membership models work better for this than others.
But we’re always going to be fans of multiple tiers, as is most of the subscription world. Set your prices with the “good-better-best” approach and talk to your members to see what they’d be willing to pay at different levels.
Finally, if you’re debating the merits of charging on a monthly or annual basis, ask yourself -- does this membership prove its worth in the first month? If so, offer both. If not, set the payment schedule that works best for your members.
Getting all the parts together for a membership website may feel like working on a puzzle, but with the right approach, you can transform that 1,000 piece jigsaw into a simple one-two snap.