Membership Pricing Models: 8 Pricing Strategies For Membership Sites

Do you want to know more about the various Membership Pricing Models?

The goal of every business is to make a profit. Your price doesn’t just play a vital role in achieving this goal but also forms a crucial part of your marketing strategy.

For instance, if your membership site offers services to business executives, placing a price that is too low will affect their perception of your brand and the value you offer.

Pricing Models is a framework businesses use to determine how they price their memberships; this framework usually follows their marketing strategy.

For instance, if you are starting a membership site for the first time and are in a competitive market, you shouldn’t set a membership price similar to your competition (who have been in the market for a longer time) or above theirs. A more profitable approach is penetrating your market with a lower price and increasing it with time.

This framework is not applicable if you are an industry leader seeking to sustain your dominance. A more realistic approach is to limit new businesses from taking advantage of your high price by splitting your membership into tiers and setting prices to fit your target audience at their various purchasing levels.

Factors for Choosing a Membership Pricing Model

While working out the pricing models for your membership website, there are two factors you should consider:

1. The demand for your service: It is unrealistic to place an exorbitant price for a service that is not in demand. For instance, if your target market is very specific (like providing resources for preteens living with pneumonia), your target audience will also be streamlined. This means that your number of potential subscribers will be lesser than for a site with a broader market. You can not use the same membership pricing model with that site.

Your pricing strategy should reflect your market size. With less demand, you can explore a flexible pricing structure that allows you to change the price of your membership plans according to the demand rate per time.

2. The level of competition in your market: If you are in a competitive market, merely placing a price similar to your competitors’ pricing is not enough to convert sales. You can take an aggressive approach by placing a lower price or a psychological approach by placing a price slightly below round numbers.

The goal in a competitive market is to ensure that your services get seen. Whether you are being aggressive, cooperative, or using psychology, your price should help you achieve this goal.

This article explores eight membership pricing models and their pros and cons. But before we get into it, why is a pricing strategy important?

Why are Membership Pricing Models Important?

1. It attracts subscribers: Your price is one of the first elements your target audience notices about your brand and plays a crucial role in helping you sustain and convert them into customers.

For instance, a premium pricing strategy creates a sense of exclusivity and high quality. It will attract and convert leads who prioritize quality over price; freemium pricing will attract audiences who spend cautiously by offering them a free trial.

The right pricing strategy should reflect your branding message and value and consider the market condition.

2. It helps you stay competitive: Pricing strategies place you ahead of your competition. It enables you to maximize profit while staying competitive.

By considering the cost of running your site, market demand, the value and confidence in your solution, and competition pricing, you can map out a price that helps you stay ahead in your niche.

Pricing strategies also allow you to change your price with market conditions. Since you set your price following a framework, when the basis of this framework changes, you can adjust your price and still make a profit.

For instance, if you set your price following the aggressive competitive strategy when the price of your competitors changes, you can reduce your price and still make sales.

Pricing Models for Membership Sites

This list explores various pricing strategies with pros and cons to help you make an informed decision while setting the price for your membership site.

1. Value-based membership pricing

Value-based membership pricing strategy involves setting the price of your membership plan based on the perceived value of your service to your subscribers.

Below is a formula you can use while working with this strategy:

Value x Stickness x Confidence = Price per member

Value is the monetary quantification of what your site helps your members achieve. For instance, If your site provides resources to help entry-level practitioners scale up their career ladder and increase their salary to an average of $3,000 when calculating with the formula, the value figure will be $3,000.

Stickiness describes how long a subscriber will need to achieve their goal. If the entry-level practitioner needs to be subscribed for six months to reach an average of $3,000 in salary, your stickiness figure is 6. If they need one year, your stickiness figure will be 12.

Confidence describes how much you think your prospects will be willing to pay for your plans for the value you give. For instance, if you can help the practitioner earn $3,000 but think they will only pay $300 for the plan, then your confidence level is 10%.

Putting it together:

$3,000 x 6 x 10%= $1800/6 months; which results in $300/month.

Pros:

Value-based membership pricing can help you maximize revenue. Since you are considering the actual worth of your service and conducting market research to ascertain how much your prospects are willing to pay, you will set your price based on accurate data. This helps you avoid underpricing your service.

Cons:

Value-based membership pricing does not consider the cost of providing your service. This means that even if you end up increasing your revenue, if the cost of running your site outweighs it, you will make losses.

2. Competitive membership pricing

A competitive membership pricing strategy involves setting your price based on competitors’ pricing.

There are three ways to approach this strategy:

1. Cooperative pricing: This approach involves setting your price to match your competitors’ price. If their membership plans are within $60-$90, your price will be within that range. If they increase their price by $1, you do likewise.

While this strategy ensures that you set a price within your industry pricing model, it prevents you from differentiating your brand offering.

2. Aggressive pricing: This approach helps you differentiate your brand based on competitors’ prices. If they increase their price, you leave yours the same. If they reduce their price, you will reduce yours by more.

Aggressive pricing solves the cooperative pricing downside by helping you attract your prospect through price differences.

3. Dismissive pricing: This approach involves dismissing your competition’s pricing. The increase or decrease in their price does not affect your pricing.

This approach works best if you are selling a premium service or a leader in your industry. When done right, dismissing your competition’s price can create a sense of exclusivity around your brand.

Pros 

This membership pricing model helps you stay competitive in your market. It also keeps you up-to-date with your market trends and pricing.

The aggressive and dismissive model can help you differentiate your brand and attract prospects.

Cons

Like value-based membership pricing, competitive pricing does not consider the cost of running your site and can lead to bankruptcy.

The aggressive model only works if your business has a healthy profit margin. The dismissive model makes you vulnerable to sudden market changes.

3. Cost-plus membership pricing

The cost-plus membership pricing strategy involves pricing your membership plans based on the cost of running the site. It considers the cost of buying a domain to marketing your plans.

While working with this model, below is a formula you can use:

Cost x Desired Profit = Price

While calculating your cost of production, concentrate on the percentage that has a more significant influence on your desired revenue.

For instance, if you offer ebooks, live coaching sessions, and offline shipping of your product, you can leave out the cost of creating your ebook and concentrate on the cost of hosting a live coaching session and shipping your product since they will likely convert more revenue.

Pros

Cost-plus membership pricing allows you to dictate how wide your profit margin should be. It also makes it easier for you to increase your price or explain the reason for your price increase when your cost of production rises.

Cons

This strategy does not consider your prospect’s ability to pay. The focus is to avoid loss and not your industry price trend or your members’ perspective of your brand.

4. Penetrative membership pricing

The penetrative membership pricing strategy is used to enter a competitive market. It involves setting an initial low price and increasing it with time.

For instance, if your competitors price their membership plans from $200/month and you set yours to $150/month, the price difference will convert price-sensitive clients and make your target audience notice your brand.

This strategy aims to build your client base and increase sales. The sales you make will cover your cost of production and keep your site running.

After establishing a client base and nurturing loyalty, you can increase your price and widen your profit margin.

Pros

The penetrative membership pricing strategy helps newbies attract clients. The price difference can motivate prospects to switch brands.

Cons

Your customers may expect consistently low prices, and a price change makes them return to your competitors.

Also, if your competitors use the aggressive pricing model, they will match your price with a lower price, which may force you to lower your price further.

5. Tiered Membership Pricing

This strategy involves offering clients a variety of prices, each linked to specific features or benefits of your site.

Most businesses use three tiers; the lowest tier is a starter pack comprising basic features, and the highest tier is usually a VIP pack.

Some businesses differentiate their tier levels by their different target audience. For instance, if you run a career membership site, your first tier can be for entry-level workers, second tier for middle-level workers, and third tier for business professionals.

Pros

This membership pricing model aims to offer your clients flexibility with price. This will help you convert prospects who want to test your service before committing to your brand.

Cons

A complex tiered membership pricing model can confuse your clients, leading them to your competition.

Also, knowing how to separate your offerings to design suitable tiers might be strenuous.

6. Freemium Membership Pricing

The freemium membership pricing strategy is a combination of 2 words: free and premium. This means that you will offer a free plan in addition to a premium plan.

Some businesses implement this model by running the two plans simultaneously. This means a subscriber can remain on the free version until they upgrade. When this is the case, the free version should have limited features. For instance, if you run a blogging site like Medium, your free plan can limit the number of articles the subscriber can post or engage with.

Some businesses use this strategy in the form of free trials where the member is locked out of the free version after some time.

Pros

The freemium membership pricing allows your prospects to experience your service at no cost. This can remove their doubts and make them complete their purchase.

Cons

There is a risk that if you offer both plans simultaneously, subscribers on the free plan will continue using that version. It would be best if you created a plan that encourages them to upgrade.

7. Bundle Membership Pricing

A bundle membership pricing strategy involves offering two or more complementary services for a lower price.

For instance, if you run a freelancing membership site and offer job ad placement for $10, profile badges for $5, and access to contests for $20, you can combine the three services for $30.

This strategy increases your client’s perception of the value they can receive from your site. Since the services in the bundle are complementary, the client gains more by buying the bundle than paying for the individual services elsewhere.

Pros

This membership pricing model helps you increase sales. To gain more, you can combine a slow-selling feature with higher-demand services. This enables you to spend less on marketing the slow-selling service and increase your profit margin.

Cons

This strategy is not effective for introducing unfamiliar products or services. You will also spend time testing the right blend of features to bundle. Offering a bundle that is not complementary can affect sales.

8. High-low membership pricing

The high-low membership pricing strategy allows you to set a high price for your plans and discount it during promotional offers. This model aims to establish a sense of exclusivity through the high price and then a sense of urgency through the discounted offer.

To make this efficient, your prospects need to know the average price of the service you discount. This creates a sense of urgency when they realize they can buy it at a cheaper rate.

To do this, you can use the strikethrough method to list the high price and cancel it to reflect the new offer. For instance, instead of stating that membership plans cost $100, you can say: $250 now $100.

You can also use the psychological pricing method, where you use decimals instead of round numbers—for instance, $25.99 instead of $26.

Pros

The high-low method can help you increase sales. It has a psychological effect that makes your prospects see purchasing as urgent. It also helps to increase the sales of slow-selling services.

Cons

Setting a high discount for an extended period can affect your profit margin. You also risk encouraging clients to wait for promotional offers before paying for your plans.

Conclusion

While working with membership pricing models, feel free to test and combine frameworks before committing to a model. For instance, while focusing on the value of your offering, you can also consider your cost of production, create different tiers to fit all levels of your buyer persona and offer them a chance to buy in bundles.

There is no one-size-fits-all in pricing strategies; if you are working with your competitor’s price, ensure that you identify their strategy and adjust the price to fit yours.