How to set the right price for your membership site
"How much should I charge?" is one of the most common questions we get from membership creators. Here's everything you need to know.
It’s like clockwork. With every New Years Day, you swear you’re going to go to the gym, eat less sweets, and take your online business to the next level.
And similarly, like clockwork, every February, the gyms empty out as members return to their normal pace of life.
Which is probably why 53.5% of people terminate their gym membership within the first year.
In fact, research suggests that the only reason gym memberships retain as many customers as they do is because of the annual commitment required for long-term contracts.
But while we can’t help you (or us) stay on track for a gym membership, we can help with that third goal: taking your online business to the next level. If you’re looking for membership software to turn your business into a recurring revenue machine, we’re here to help.
Today, we’ll talk about four questions you need to tackle to figure out how much you should charge for your membership site.
1. Should you collect membership dues?
This one probably seems a little counter-intuitive. If you’re trying to bulk up your business, of course you should charge for your memberships, right?
Not quite. It depends on what your goals are. If you want to grow an audience, your charges should be minimal for your membership site, if any at all.
And, if you want your membership to support your other online products or help you sell online courses, your prices should be in the same range.
In both cases, your membership is more akin to a loyalty program that rewards customers who buy, or will buy, your other products (such as digital downloads).
Which is a smart strategy if your goal isn’t to make memberships a primary income stream. Giving away free content by offering a free membership can do a lot for your online course and download sales.
After all, 41% of consumers in the US are more loyal to brands that provide them with new experiences such as products and content.
Combine that fact with the 61% of businesses that say customer retention is their number one struggle, and you’ve got a strong business case for a free membership or loyalty program.
But if that’s not enough, there’s also this to consider:
Starting a loyalty membership program for their customers helped Dr. Axe rake in some big bucks. In three months, customers who signed up for the membership spent $235,000,000 more than non-members.
Which came to about a 2.7x increase in spending.
Obviously, part of their membership program success was providing loyalty rewards.
Which, if you’re building a free or minimal charge membership, you should copy. It’s easy to set up exclusive coupons for your online courses, digital downloads, and memberships to reward your customers.
But whether you choose to provide rewards or not, it still stands to reason that while a free membership program may not bring in direct income the way a premium one will, it’s still an easy way to create some revenue magic for the rest of your business.
And, you wouldn’t be the first creator to use it. Rewards don’t always have to be monetary, either.
Check out how Pixel Vision 8 leverages low-cost and free memberships to keep their audience engaged with the material by providing exclusive updates and demos.
Offering those updates and exclusives probably doesn’t cost Pixel Vision much by way of overhead, but it still lets them reap the benefits of building loyalty with their membership program.
MFSEF Studio offers similar rewards for signing up for its free membership program, providing subscribers exclusive content, new product information, and YouTube updates.
All of which hit the key parameters for increasing customer loyalty. And, like Pixel Vision, probably don’t cost a ton to produce.
So while this may seem like an obvious question, it’s one worth considering.
What are your goals? Are you trying to build your audience up and increase customer retention? Depending on the answer to those questions, the answer may be a surprising “no.”
If it’s a “yes,” however, you’ll want to turn to the next question.
2. How much should you charge for your membership program?
OK, you’ve decided that you definitely want to make memberships part of your core income, which means offering them for free isn’t an option. But -- how much should you charge? Should you start on the low-end of pricing and raise your online product prices later? What's the best way to find the price for a membership site?
That depends on if you can prove your value. If you’re just starting out, you have to start out at the lower end of the scale to get customer testimonials and reviews so you can prove your value.
In other words, you have to build up social proof.
Like the kind Glow Recipe garnered while growing their no-name ecommerce business into a major powerhouse.
But their example -- while strong -- isn’t feasible for most of us if we’re not interested in becoming a featured guest on Shark Tank.
For a more homegrown example, check out David Delahunty’s “5 Ideas A Day” membership program.
Easier to obtain but no less impressive, David’s page makes a strong, socially-validated case for signing up for his membership program.
But even if you don’t have any features like David or Glow Skin, you can still use social proof to sell your value by featuring customer reviews.
In fact, we’ve recently changed what you can do with testimonials, and we think you’re really going to like it.
Now, click on the “+ new section” option in the left-hand panel.
You’ll see this drop-down menu population. Click on “testimonials.”
This will add a new, pre-filled section that’s super easy to edit. Check this out.
To add and edit your testimonial, all you have to do is go through each field and enter in your customer’s name, a link to the testimonial (if you want to or can), and so on.
When all is said and done, your result is some stylish and easy social proof. Here’s mine:
Why, thank you, Mick!*
(*Mick Jagger has never signed up for my membership. Sadly.)
And, not only is this a really simple addition for your Podia storefront, but it’s also massively useful. 70% of people will trust recommendations from someone they don’t know.
“...I always include some form of social proof on them, whether it’s product reviews, testimonials, or even social media share buttons; it’s a no brainer for me.”
He’s not alone, either. For a real-life example of social proof, check out Justin Jackson’s Marketing for Developers course page:
When you have social proof like this, you can price your membership on the higher-end of the scale. So, hit up your email list and ask your most ardent customers for testimonials, then start setting your price to match.
Then, experiment with it. Will people buy at one price but not another? As long as you can prove your value, you’ve got room to play.
As for how to play, it’s surprisingly easy.
And, as you experiment, compile a table with your price point, conversion rate, and revenue to locate your optimal price for your membership program.
So, if you can’t prove your value yet because you’re just starting out, set your price at the minimum you need to recover your costs for hosting and providing the membership. (As an added bonus, lower, more affordable fees may actually cut down on digital product piracy, so there's a lot to love about this approach.)
While if you can demonstrate your value, experiment with it until you find your profit sweet spot.
Just make sure you’re taking our next question into account when you do.
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3. How much does a membership website cost you?
Even if your membership program is free, it isn’t free for you. At a minimum, you’re going to have hosting costs.
Unless you’re on Podia’s “Shaker” plan, in which case, you’re good to go. Your flat monthly rate of $79.00 is all you have to worry about.
(And, if you aren’t on it yet, why not give it a free spin?)
Here’s what a package with them will run you:
As a word of caution, you should note the significant uptick in renewal price if you’re trying to gauge your costs out over the long-term.
Regardless, assuming you chose this package, your monthly costs will be $7.99 for the first year.
But you’ll also need some kind of security suite to protect your customers’ data on a membership site.
Sucuri, one of the industry’s finest -- and most accessible -- website security firms, costs $199.99 annually for their basic package.
Monthly, that comes to $16.67.
You may be tempted to skip this cost if you’re working on a smaller budget, but if you’re running a DIY operation and hosting your membership site -- as well as your customers’ information -- you can’t afford to omit this one.
In the second quarter of 2017 alone, fraud resulted in 3.3 billion dollars of revenue loss for online businesses. So, this isn’t a step you can afford to skip.
You should also factor in costs such as plugins and marketing tools. After all, your membership won’t sell itself, no matter how great it is.
If you use a plugin like Memberpress, you’re looking at $129.00 annually or $10.75 monthly for the most basic plan.
As a recap, your basic costs for running a membership site and promoting it are:
For a total of $73.66.
At least, until your domain name and host package switches to regular pricing in its second year, at which point it’ll be $16.99 + $16.67 + $49.00 a month, or $82.66.
So, for that kind of monthly cost for a new site, you’ll need to charge 12 members $6.33 to break even, or 16 members $5.00 to do the same. (We’re rounding up since 15.33 customers is hard to muster.)
And if you want to turn a profit -- even a small one -- you’ll need to recruit more members.
Or, you could just pay $79.00 a month forever and get tons of extra tools like an affiliate marketing program, at which point your minimum charge needed to recover your costs is always 10 members at $7.90.
Personally, I prefer simple. (If you want really simple, take a look at our membership profits calculator -- just plug your numbers in and we'll tell you how much you'll make and need to spend to hit your income goals.)
Now, for the last question you need to ask for setting your membership price:
4. Should you take a one-time payment or monthly fee?
You have to decide if you want to create lifetime, annual, or monthly memberships.
This question is imperative to ask because 60% of failed small businesses cited insufficient cash flow as their downfall.
And, the duration of the membership packages you offer will directly impact your immediate and long-term cash flow.
You can set up all three models on Podia. You can see how Krishna Teja sets up lifetime access for his members here.
Lifetime memberships are good for retaining loyalty, but they don’t offer you much revenue growth beyond the initial purchase.
If you want your revenue to change and expand without having to grow your customer base, you’ll want to offer annual or monthly memberships -- or both, as you can see QuHarrison Terry do in the example below.
But, if you’d rather just do one or the other, you have to take yourself back to our gym example.
Do your members get an immediate payoff when they sign up for your program? If so, monthly is a good way to go.
If, like the gym, they instead start seeing payoff after a few months down the road, however, you may want to go with an annual pricing model instead.
Education has some of the highest churn rates across industries at 9.77%, so anything you can do to mitigate your churn rate is a business-crucial step.
And, if you can’t decide which would be better for your membership site, you can always offer both and set your monthly rates at a higher premium to circumvent the revenue loss from churn.
It’s a pretty common tactic, as you saw in QuHarrison’s memberships. Here you see ecommerce giant BigCommerce do it, too.
And, on DevSprout’s membership pricing, as well.
Depending on which model you go with, you may find that your monthly income never changes, as would happen with a lifetime or annual membership, or that your monthly cash flow can fluctuate wildly, as would be the case with monthly packages.
Just remember: if you can’t settle on a pricing duration model to use, you can always refer back to the second section of this article and experiment with your offerings.
What converts more and leads to the least churn? That’s your optimal model.
Hopefully, these four questions have helped set you on the path to pricing your membership. For more help, be sure to check out our full guide on how to create a membership site where you can find expert tips, in-depth examples, and so much more.
What you need to know
Whether you’re brand new to the membership game or a veteran, figuring out how to price your membership can throw you for a hard loop. While every membership will be as unique as the business that offers it, we’ve come up with four questions to help guide your hand:
- The first is if you should charge anything. Membership sites can be a great source of recurring income, but they can also be strong loyalty and audience builders. If your goal is to attract more people, you should set your prices at rock-bottom, if charge at all.
- The second relates back to your value. Can you prove it? If you can provide tangible evidence about the value of your products or membership through social proof, you can experiment with your pricing and set it on the higher-end.
- If you can’t, however, you’ll have to use our third question to set your fees. Look at your costs for running and hosting the membership site. What’s the minimum you need for a given amount of members to breakeven? What about if you want to profit?
- Finally, you need to figure out if you’re going to charge for lifetime memberships, monthly memberships, or annual memberships. These can shape how your cash flow looks like and impact your churn rate, so it’s something worth experimenting with.
It’s hard to put a price on the things we create, especially when we pour so much love and passion into them, but with these four questions, it should be a little easier to nail down what your membership site should charge.