post_front-load-membership-pricing_potentialLink bait title, I know, but this one change in your pricing could improve your revenues drastically. I see a large number of membership sites all making this same mistake over and over. I wanted to put this information out there to help you out.

Put simply, your membership pricing should match the value your membership provides, both in terms of (1) price and (2) timing.

Let’s break that down.


1. The price of your membership level should match the value your membership provides.

Most people understand #1, so I won’t explore this too much. There is a lot of advice out there that boils down to “increase your prices”, which is generally a good idea. Launching a membership site takes enough hubris by itself; you’re telling the world that you know something they should pay money for. Many site owners will set their prices too low, caving into fears that “nobody will buy my membership”. Don’t be afraid to set your price higher, even after you’ve launched. Just grandfather your existing members into the old plan and focus on obtaining new customers at the higher price.


2. The timing of your membership pricing should match the timing of the value you provide.

This is the mistake that I keep seeing people make. Most membership products deliver an incredible amount of value up front and then some residual value over time after that.

Lured by the appeal of passive income, MRR (Monthly Recurring Revenue), or generally more consistent revenue, entrepreneurs will give their membership a price like $67 per month, and then work to provide content and value to justify that monthly cost.

But even if you are giving your members more than $67 of value every month, it’s not going to be enough. When you charge the same price every month, you have to provide the same amount of value you provided in month one or your members are going to notice that they are getting less value but paying the same price.

You can’t expect your members to understand what a great deal they are getting paying $67 for $100 in value. They will just feel and know that they aren’t getting $200 in value anymore. They will still feel underserved, or worse cheated, and they will cancel.


What should you do?

The answer is pretty simple: Charge a higher price up front, and then a lower monthly or annual price.

The great part about this is that you can usually make this change without impacting your sales. Any pricing change should be done with care and (if possible) tested first. If you do this right you should see a nice increase in monthly revenue and monthly retention, with only a slight decrease in initial sales.


This chart compares a flat monthly membership fee to a front-loaded membership with ongoing monthly price. The chart assumes that the member cancels after month 3. However, in the front-loaded setup we would expect churn rates to go down, with more people keeping their memberships into month 4, 5, 6, and on.


Here are some examples to help to understand this.

Case Study 1: Paid Memberships Pro

We struggled through this pricing dilemma ourselves way back in 2012. When we first launched the site, our membership was $19 per month. Many folks liked this price, and we had a good number of members happy to pay that price every month for access to our support, documentation, and good will. However, most members were canceling their membership within 6 months. The average member stuck around for 3 months, paying us $57.

Some would sign up, get their support, and then almost cancel immediately… and then do that again a couple months later when they had another question. They were effectively paying $19 per support question instead of $19 per month.

We tried to deliver great content every month by releasing new addons and business focused blog posts. But nothing we released could live up to the value delivered that first month.

This wasn’t sustainable, and we realized that the high amount of churn wasn’t because our members were to dumb to understand the value of our membership. We needed to make sure that timing of our pricing matched the timing of the value we provided.

So instead of $19 per month, we started charging $97 up front and $47 per year to renew.

We went from 45 sales in May 2012 to 13 sales in June. But because we were charging $97 instead of $19 our total revenue went up. With a more sustainable price and the focus to deliver value up front, we could drive sales harder. We also benefitted by having fewer cancellations and charge backs to deal with.


Case Study 2: James Swanwick’s 30 Day Alcohol Free Challenge

This is a hypothetical case study based on what I heard of James’ membership site on episode 119 of Nathan Latka’s The Top Podcast. I don’t know James and haven’t spoken to him. So this is just some free advice.

On the podcast James says he is charging $67 per month. For $67, you get access to the 30 Day Alcohol Free Challenege and also a private Facebook group for members. During the first month, members get an automated email every day that helps them get through the first month alcohol free… a process that could help you lose 10 pounds, save hundreds of dollars a month, give you more energy for business, and change your entire life. The second month, you get access to the Facebook group.

Nathan has asked many guests on his show how they can continue to deliver value every month to their members. Most guests don’t have a good answer.

In James’ case, I would bet that access to the Facebook group is worth more than $67 per month. Let’s put it at $100/month. However, that $100/month pales in comparison to the life altering value delivered in month one. Just the savings on your alcohol budget alone is worth hundreds of dollars per month. Losing 10 pounds is worth $100 a pound. The value is off the charts and no matter what James does, he’s not going to be able to deliver for his members in month 2 like he did in month one.

If I were running the 30 Day Alcohol Free Challenge, I would charge $200 up front and $67 per month.

Raising the price by 3x will lower the number of sign ups. But it probably won’t cut sign ups by 1/3. If James was getting 100 people to sign up for $67 ($6,700), I’m guessing he could get 50 people to sign up for $200 ($10,000). That’s 50% fewer sales but almost 50% more revenue!

With the value James’ product is delivering, I’m not even sure sales would drop 50%. When we released the PMPro Plus level and effectively doubled the price of a membership here, we saw sales go up not down.

I would consider lowering the monthly fee, but I think he could keep it at $67. Even though members will be getting the same Facebook group for the same price, their perception will be different. Instead of comparing the $67 to the value from the first month, members  will be grateful for the “price drop” and should be more inclined to stick around. With a pricing structure that matches the timing of value, James should see lower churn and higher lifetime value from his members.


On Doubling Revenues

There are a lot of different factors that will affect what exactly happens after making a pricing change like this, but just to address my strongly worded title, here is the math on how making this change could result in doubled revenue.

Starting with the numbers from our second case study. Let’s assume we have 100 people per month paying $67 for an average of 3 months. That’s $67 x 3 x 100 = $20,100. (FWIW, James said he was getting $14/mo, but we’re also guessing his incoming members number. Let’s just run with these numbers.)

If we switch to $200 the first month, then $67 per month, we end up with ($200 + $67 * 2) * 100 = $33,400.

If we assume that the new pricing leads to more folks staying into months 4 and 5, we could get ($200 + $67 * 4) = $46,800 in revenue.

I pulled most of these numbers out of my butt, but they are based on our experience with our site here and some reasonable assumptions on customer psychology. Your milage may vary.


In Summary…

Your membership pricing should match the value your membership provides, both in terms of price and timing.

To do that consider charging a high price up front and then a lower monthly or annual recurring price.

Not every site will be able to take advantage of this setup. If you’re selling access to a monthly new blog, or would rather optimize for number of customers vs overall revenue, it won’t make sense to increase your up front price. This setup works best for memberships that dump a ton of content and value at the time of checkout.

If you end up taking the advice in this post, please post in the comments and let us know about your site. Come back in a few months and let us know how you did.


Other Posts on Pricing


Author’s gravatar

I like the methodology you use, but your insights on your own ‘churn’ might reflect something different.

You are not simply selling to community of code geeks. You are selling a payment solution for (for instance) authors / original content providers. I might have built the css myself for my site from a skeleton child, but I have zero knowledge about actual programming. I want to produce specialist content and I’d like people to pay for it.

For that simple reason I readily recognise the ‘join to get it set up’ and join again for help. I paid extra so you would set it up for me, then I also paid extra for some enhancements – no question, you did a great job and I was happy to pay for your professionalism – but with those in place, it’s fair to ask what value do I accrue from additional membership whilst not needing back-up? Note that my membership is not yet lapsed 😉

You may say that I derive value from the pmpro mailshots – but the problem is that I really don’t understand 99% of them as they are mainly code-jockying for complex situations that I cannot ever see applying to me. But then if you are lucky, I am really in a minority!

Happy new year and sincerely lots of success for you!

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Good points that match our own thinking about our business. We recognize that the value for a PMPro membership is lower the second year (things should be running smoothly for you by then), which is why we give a nice discount.

> it’s fair to ask what value do I accrue from additional membership whilst not needing back-up?

Specifically for the PMPro Plus membership, the primary benefit is to get automatic updates for our addons in your WordPress dashboard. Most of the addons are not in the WordPress.org repository and update through our own update server that we require a PMPro Plus license to use.

In addition to that, you get the peace of mind that if you ever need support or want to attend a webinar or read a premium post, you can just access it immediately instead of having to sign up again and pay a higher price. We’re hoping that enough of the content like this blog post and the videos we do makes an impact throughout the year so when renewal time comes, you are happy to pay it.

That’s the thought anyway.

What you are saying does bring up another point that I hope to address in a future post… also inspired by a The Top Podcast episode. Namely, lots of memberships sites (like ours) struggles to create a good reason for members to renew. The answer is usually “let’s give them more of the good stuff we’ve already given them”, which works for some members. However, if you can come up with something that the user interacts with on a daily basis… or at least monthly/etc that is integral to what they are doing (say an addon update service) you can capture more renewals. If people don’t “need” your membership, they will cancel to save money. It makes sense. I do it too. Some writers and content people are worried about developing “apps” or other functionality, but I think there are some really simple “apps” or applike things that sites can do to help retain their customers. Hope to write that up next week.

Thanks.

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Author’s gravatar

Thank you for the tip, Jason! I couldn’t have even imagined it but reading the explanations and examples have sold me on the idea.

I am (or was) planning to have payment plans (e.g monthly, quarterly, and yearly) that all offered the exact same but offering a discounted price the bigger the customer’s commitment.

Do you think it makes sense to adapt this to multiple payment plans or would it just over complicate things?
It would be nice to get more upfront with an annual fee but I don’t want to cut out potential customers that may not be able to pay an annual lump sum at front. Any suggestions?

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If you have regular monthly content, it’s nice to offer a monthly rate and annual rate. It’s common to discount the annual rate at something like 10 months worth instead of 12. This is a win/win since customers save, and site owners get the money up front and sometimes get more money from folks who might have cancelled before month 10.

There might be some stats on quarterly rates, but I would avoid that unless you have quarterly content. Keep the options as simple as possible.

If you wanted to apply the front loaded pricing AND offer monthly and annual plans, you could offer two plans like:
* (1) $200 initial payment, then $20/month
* (2) $200 initial payment, then $200/year

You could default to one and use a checkbox to allow folks to “pay annually and save $40”. If you need help with the specifics of doing this with PMPro, we can help you in the member forums.

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Hi Kim, Great post. I think part of the reason why your price hike worked so well is you already had a trusting audience. They had used your software and trusted it (and probably would have paid a developer $100 to fix their site, so your support makes great sense). For membership sites where members don’t really know the organization initially, I’m curious to what you think of having a very low initial price eg $1 for a week’s access then going up to a standard price after the trial? Or a low price/free offering then upselling to a more expensive membership once the trust has developed. Have you seen anyone do that?

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If most of your value is given in that first week, then having a $1 or $0 trial would be the opposite of the advice in this post. Expect to see a lot of people not renewing when the trial is up. However, free/cheap trials do work for serial content like monthly investment newsletters or podcasts/etc since the value is spread out evenly.

One strategy you might try is to give “early access” or “beta” users a lower rate. So if you’re thinking $100 is a good price for your membership, don’t be scared to give the “first 100 members” access for just $10 or something like that. Grandfather those members into the lower price and then raise the price for new users.

Note that a lot of folks will worry about grandfathering 100 members at $10 per year or something. “That’s $10k per year!” However, when you use this strategy you should keep your focus on the thousands of new customers you are going to get vs the 100 you already have. Just keep those 100 happy.

If you have a good product, your early members should help you build trust for new users by spreading the word and/or providing good testimonials.

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“Note that a lot of folks will worry about grandfathering 100 members at $10 per year or something. “That’s $10k per year!” ”

should that be 1K per year??

Author’s gravatar

I mean that if you have 100 members paying $10/year instead of $100/year, you are leaving some money on the table if you assume all (or most) of them would be willing to pay the higher price. $100-$10 = $90 * 100 = $9000 actually.

Author’s gravatar

Wow. Loved how your shared your own experience and put it into perspective again with the second case study. Thanks. I’ve shared your post with some private clients as well as members of my Rocking Your Path Community on Facebook. Some of them need to SEE this. I wasn’t familiar enough with pricing membership sites to recommend they consider things differently, but I felt something was inherently off with how some were handling it. Not to mention, the folly of the expectations of easy instant and long-term riches of others!

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Wow, great article. I have just launched my product and this info is very helpful. Thank you!

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About to pull the trigger on this idea, and I see where to make the change in PMPRO on the Membership Levels page with the one-time initial payment will be different than the recurring subscription billing amount. I JUST WANT TO MAKE SURE that if I make that change now.. going from $19.97 on the initial to $97, that it will not affect anyone that is currently a user, because their subscription plans are already set up in Stripe, right?
It will only affect the new ones – just making sure. And thank you so much for the value in this post!

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