Do you remember when your year nine math teacher insisted you needed to do all of your arithmetic homework by hand because you wouldn’t ‘always have a calculator in your back pocket in the real world’?
Boy, smartphones must have taken them by surprise.
But even if you’re an aficionado with your iPhone calculator like no other, trying to calculate the profits you’ll make when you sell memberships is an undertaking no one should have to juggle on a handheld display.
At its best, it's tedious, and at its worst, it feels as convoluted as getting a telemarketer off the phone politely.
That’s assuming you have a solid idea of where to start. If you don't, the challenges compound.
That’s why we built this interactive calculator to take you through the number crunching as painlessly as possible. Sure, you could hit up your spreadsheet program and toy with the numbers, but we prefer easy.
Just how easy? Check it out.
Your membership website calculator
Pretty cool, right? If you want to know more behind the calculations and learn how many memberships you need to sell to hit your income goals, keep reading.
Your monthly membership dues
This metric is fairly self-explanatory, but if you’re not sure where to start, consider selecting the lowest possible sales price that you’re willing to offer a member.
The logic behind starting at the lowest end of the price spectrum is this:
- Outside of free, it’s also the lowest-commitment level membership tier, which means it’s the easiest to convince new customers to sign up for.
- Because it’s the easiest, it’s also likely to constitute the bulk of your customers.
Though as for what that charge should be, there’s no definitive answer. It depends on a lot of factors like your costs to operate, desired profit margins, and your unique audience.
Jamie Keddie’s audience, for instance, consists of other teachers -- they can’t afford to front $50 a month on his membership program, even if it’s worth it. (And it definitely is.)
“Teachers don’t have any money to spend, and that’s okay,” he told us.
The price of your membership tier also depends on how much credibility you’ve built up. If you're an unknown, coming out of the gate at triple digits won’t get you far.
But what if you haven’t created your membership site yet and are still in the planning stages for your prices? No problem.
New membership websites often have to tweak with their price ranges to find their profit sweet spot. Your optimal price point depends on how many people convert and stick with you at that price.
Speaking of how many people sign up, that’s the next line you’ll need to put in.
Projected (or current) customer base
If you’re pre-launch, use the number of customers you expect to sign up in your first month. If you’re post-launch, slide the scale to the current number of customers paying at the price tier you chose in the first step.
Note: at this point, you’ll see your gross recurring revenue, but don’t get ready to put down the books just yet. Your gross revenue isn’t an accurate picture of how much money you’ll have at the end of the month.
Because like all good things, your profits -- and their continuation -- come at a price to you.
Anticipated market spend
This is where things start to get interesting.
In education, the industry standard for revenue expenditure on marketing activities -- promoting your membership, using paid advertising, getting a one-on-one consultant, and et cetera -- is 18.5%.
You can spend less than that, but a digital product is only as good as the number of people who know it exists, so if you want to be competitive, you’ll have to ante up sooner rather than later.
For now, just input the percentage of your anticipated market spend, and the calculator will spit back the revenue cost on a per customer and per month basis. The monthly total is calculated based on the percentage and your total customers at the beginning of the month.
Then, get ready to move on to everyone’s favorite fee.
This is a metric that far too many net profit calculators skip over, but it’s just as relevant as your marketing spend -- if obviously more compulsory.
Taxation on self-employment is complicated enough as it is (I’m assuming this is a global truth) without adding unnecessary uncertainty.
So if you don’t want to be caught off-guard by your taxation dues at the end of the year or quarter, you need to start accounting for your tax rate ASAP as part of your revenue.
Like before, you just enter your rate as a number, and the calculator does the behind-the-scenes work to scale it from a single member to the monthly rate.
Now, we’re almost done with the deductions, but there’s one more set of fees you need to consider: the ones that don’t change.
Maintenance and fixed fees
Market spend and taxation are variable fees -- even if they’re fixed percentages, they’re based on the total revenue you make. Maintenance fees, on the other hand, are bills that roll into your mailbox every month regardless of how well your business performs.
Fees that might fall into this category include monthly subscriptions for services like MailChimp, hosting fees for your website, additional dues for separate file hosting, or any expenses on an affiliate platform.
(You can skip all of these and make it one simple $79 fee with our Shaker plan if you're looking for a way to keep your fixed costs down. Just a thought.)
A break-even analysis sounds super complicated -- and in fairness, it can be -- but for the context of membership sites, what you’re trying to determine is the number of memberships you need on a monthly basis to offset your costs.
In other words, the minimum customers you need to not lose money.
Our calculator uses a break-even point analysis with units. You can learn more about the equation over here, but it’s basically your fixed fees divided by the net profit of each membership .
Monthly net recurring revenue
OK, we’ve finally arrived at the big moment. The one where we answer this question:
How much money can you make with a membership website?
You don’t need to do anything further. The calculator will subtract all of your expenses and give you the net -- i.e., take home -- recurring revenue you can anticipate at your current membership price point, customers, market spend, taxes, and additional fees.
Of course, if you want to dig in a little further, we’re thrilled to do it with you.
Retention is the number of members you hold onto on a month-to-month basis. Since your membership site is meant to be a source of recurring revenue, it’s an important metric to keep up with, and when your business is small, even small divots can be downright painful.
There are a few different approaches to calculating your retention rate. This calculator uses one of the more basic formulas and incorporates your new member acquisition.
The set up is like so:
(The number of customers at the end of the time period - new members who sign up) / the number of customers you began with during the same period.
After that, it’s multiplied by 100 to return a percentage.
Ideally, you want your retention rate as high as possible. 90% would be amazing, but it’s not always easy to get there. The more membership retention strategies you deploy, the closer you’ll climb towards it.
Churn is the opposite of retention. It’s the rate at which you lose customers, and as you probably guessed, has an inverse relationship to retention. In a paradise world, your churn rate would be 0%, and your retention rate would be 100%.
If the number you first arrive at looks frighteningly large, though, take heart. When your membership program is small -- less than 20 people small -- even one or two people can throw your percentages for a wild spell.
Which is why this isn’t our last metric in this section. The next one is just as important to consider and gives your churn rate context it may sorely need.
Monthly growth rate
Just like how a single customer can throw your churn rate into seemingly-dismal levels, that same individual can lead to massive increases in growth rate.
This calculation runs the difference between your acquisition, accounts for loss by churn, and returns the percentage increase.
In the early days, this kind of number -- or higher -- will be common. As your membership program matures, your growth rate will likely begin to descend, but so too should your churn.