How to Choose the Right Pricing Model For an Online Membership Site

When I decided to develop 4M Performance, one of the first decisions I needed to make was how I was going to price the service. I researched the various membership pricing models and decided to use the Fixed Price Model. This ‘how-to’ article discusses the various online subscription pricing models and should assist you in determining which model is best for your online business.

In the world of online membership businesses, the key consideration is that the Price of the service MUST equal the Value received.  Therefore the first issue is how much money do I want to make? And further, which pricing model is best to achieving that goal while delivering value to the member – and more importantly, retaining and adding new members.

Fixed Price Model

In this model, the membership level has a set term with expiration. Members must renew to maintain membership. This model is commonly used by Associations or Organizations that require membership on an annual basis and require members to renew each year. This model offers the ability to provide options to members, such as: a discount for early renewal, a discount for multi-year membership, and prorated membership so people can sign up mid-term.

Recurring Subscription with Fixed Price per Period

Under this model, a specific price is charged ‘per month’ or ‘per year’ for the life of the membership. This model is very common with blog or newsletter businesses, sites authored by experts, and by any recurring usage site, ie. content streaming. The major aspect of this model is the continued delivery of value to the member. If members are paying a monthly fee than each month ‘new and relevant’  content’ has to be delivered.

Easy to set up and administer, this model sets an initial payment and charges members that amount on a recurring, automatic basis – normally once a month.

Front-loaded Membership Pricing

This is a model where a higher amount is charged at signup, with lower amounts charged each period. This upfront charge can be a one time installment payment ($100 per month for the first 3 months then $15 per month thereafter).

This model should be considered if the value of the membership is delivered mostly in the first few months. This model is used extensively by health and fitness centers, software development firms, spas, and movie theaters to name several.

Installment Plan Model

Like front-loaded plans, this model does not require an on-going, recurring payment. This is used where the charge is a high price but you know your customers cannot afford the large expense in one payment. This model is used by consultants, coaching and training programs, and the sale of physical goods.

Under this model you want to lock a member into paying for the full installment but ensure you get a large amount in advance of the service to be offered.

Free or Reduced Rate Trial Periods

This is a model that is not based on value but is used to generate traffic to your site. It is a lure or what retailers have used for decades called a ‘loss-leader’. The free trial model charges nothing or a lower rate for the few months of usage. This model is used by ‘subscription box’ sites, online magazines, etc.

The goal here is that you must prove the worth of the site so you can then charge the full price of membership. Problem: you don’t want to price yourself so high that people aren’t able to maintain membership and you don’t want to deliver all of the value of membership during the trial so there is no reason to remain a user.

My recommendation is that if you use this model go for a reduced rate trail vs. a totally free trial. This forces members to be more committed and eliminate those people that just want the free trial and have no intention of ever becoming a member.

Lifetime Membership

The lifetime membership can be an add-on to almost any other pricing model. It may be offered for a limited time as an incentive for early adopters. Or offered to existing members as a way to pay once and never worry about recurring subscriptions.

To charge for lifetime membership you will have to decide on charging a multiple of the monthly membership rate, say 50x. So, if your charge is $20/month the lifetime membership would be $1,000. Having a high-priced lifetime rate can be used as a ploy – it will not be selected by any large number of members but make the regular price look like a great deal.

Group Pricing

This model is used when offering membership to an entity that has multiple users. You take your individual pricing and offer a discount for multiple members of the same group. For example, if your individual rate is $20/month and the group will have 8 users you could charge  a group rate of $145/month, providing the group membership a $15 price discount.

Add-on Pricing

This is the build-your-own membership model. Members are charged a base price then have the ability to select additional membership features. These models are often used by website hosting services, email services, domain name providers, etc. These are also popular with consulting/coaching services, ie. additional phone or video conference sessions for an extra fee.

Utility Pricing

With this model, members are charged based upon a consumption level. Email marketing services, like MailChimp, use this model and base it upon the number of members on your email list. Cloud hosting businesses charge based on disk space or bandwidth.

This is the model to use if cost to you is based upon member usage.

“Pay What You Want” Memberships

The donation-based or pay what you want memberships are normally managed by people who would be doing what they do for free regardless. Industry or business sector reviewers or critics are typical examples. Asking for optional donations can be a way to earn an income without the pressure of a traditional membership model.

What’s Best For Your Web-based Membership Business?

Hopefully this ‘how-to’ will help you decide which membership/subscription pricing model is best for your business. 

*Our thanks to Kimberly Coleman of Add Ons Business for her assistance with this article.

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