393 – Advanced Membership Strategies With Robbie Kellman Baxter

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Robbie Kellman Baxter

In this episode:

01:16 – Why the membership model?
04:00 – Meeting the member’s needs
05:55 – Can your business become a membership?
07:33 – An incredible example of a membership
08:39 – The concept of the super user
12:21 – Culture creation
13:24 – Pricing strategies
17:31 – On member retention
20:10 – Finding the best billing strategy
22:45 – Too simple?
25:49 – How important is stuff?
29:24 – The best way to sell a membership
32:21 – The freemium model
35:38 – What about just making a paid Facebook group?
37:16 – Summary

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Transcription:

James: James Schramko here, thank you for coming back to SuperFastBusiness.com. Today we’re talking about memberships, subscriptions, all the good strategic stuff, and I’ve invited special guest Robbie Kellman Baxter. Welcome.

Robbie: Oh, thanks so much for having me, James.

James: I read your book, The Membership Economy. A friend of mine referred me to it. His name’s Andre Chaperon, so I want to thank him for that.

Robbie: Oh, me too.

James: And I devour books on this topic because it’s a passion spot for me and it’s how I’ve built my business around this whole recurring subscription thing, and I know you’ve built your career around this topic.

Robbie: Yes, I have. I advise companies and organizations, nonprofits on their membership strategies and how to use subscription models for recurring revenue and loyalty.

James: Fantastic. Now I’m hoping that you’d be able to advise us a bit today on this call. So a couple of quick points. Why membership subscriptions in the first place? You put forward some good points of view in your book, The Membership Economy, which I highly recommend to anyone interested in this topic. I love the way you’ve approached it, you talk about feelings and people’s needs being satisfied and the idea from the business owner that they get a forever income. You want to give us a quick overview of why someone might consider a membership model?

Making it good for the customer
Robbie: Yeah, absolutely. As you well know, the membership model is the Holy Grail for business people, because it drives predictable, recurring revenue and allows organizations to plan better, and to be paid many times for the work that they’ve done once, and build a really solid ongoing revenue stream. But what I think a lot of people don’t think about as much is why it’s good for the customers. And that’s the part that was really interesting to me, is how can you build a membership model that provides tremendous value for the members?

The thing that I’ve noticed over the past 15 years of working pretty much exclusively with subscription and membership businesses is that advances in technology are making it easier than ever before to extend the infrastructure of trust and build true communities and trusted relationships over the Internet.

James: Such a good point. I like how you talk about putting the customer in the middle of the business and building around that. It’s exactly the epiphany that I had, it was about 15 years ago, I was there in a Mercedes dealership realizing that there was one customer that we were dealing with and all these different departments were squabbling over it. And we started to think about this idea of one customer and how we could all interact and work around it, and it led to me building my business around having that customer in the middle.

And one of the key determinants that I work with students on is, are they dealing with the same customer or different customers, whether they’ve got one or two different businesses. And quite often we find, well, hey, you know what? There’s actually just one customer here, why don’t we build something around this customer, and then you can create layers of recurring subscriptions to look after this same person, but in a better, more meaningful way.

And the feelings thing is so true. The emotion that comes through in our community and in the live events is so strong. You don’t see that with one-time products where someone invariably will buy something, maybe consume it, maybe not, probably not, and then you never see them again. So it makes sense to have that recurring relationship, right?

Robbie: Yeah, absolutely. It makes sense if you’re confident that what you’re offering has high value for the long term. So for example, if you’re offering somebody in a Mercedes dealership, what you’re offering them is confidence that they’re going to have a great automobile to drive, and that that automobile’s always going to be in great condition for them. That’s really the promise. And from the customer’s perspective, if you guarantee that promise, and they just pay a fixed price to have that guarantee, it’s worth it to them.

The needs met by membership
You know, Abraham Maslow in the ‘40s, the psychologist (my sister’s a psychologist, so I love this stuff), but you know, he talked about this hierarchy of needs, and how once our physiological needs have been met, all people want to mitigate risk, then once they’ve mitigated risk they want to feel like they belong in a social community, be recognized for who they are. Then they want to be appreciated and held in high esteem by their peers. And finally, they want to self-actualize, which means they want to reach their full potential. So membership organizations can allow people to do all of those things.

James: Yeah, that’s so true. You know what, I hardly even thought about it until now, but it’s almost like Mercedes customers were definitely part of a group and you could see when they go to golf days and tennis events and car dealer meetups, track days, they did have that community feel. And it’s almost as if you have someone on a recurring monthly lease for payment, that they’re pretty much on a subscription for their car, forever.

Robbie: Yes. Absolutely.

James: They keep trading it in, and servicing it and getting a new one again.

Robbie: Right, because what they want, and what the promise is, is they’re saying, I want an awesome new car all the time.

James: Yep, and I’ll pay this much for it.

Robbie: And I’ll pay something every month for that. And if the dealership’s completely focused on that, they would just get more and more elegant in the way that they delivered.

Membership applied to traditional businesses
James: So someone might be listening to this thinking, could my business be a membership business? You know, if they’re in a traditional one-time business, what are some of the ways that you would talk to someone about that?

Robbie: Yeah, I think, absolutely. So I’m seeing it now in everything from retail – I had a talk this week with a company that sells healthy snacks, and they want to create both a subscription model so that you get a box of these healthy snacks every two weeks, but also bringing together people that are health-minded to share ideas and information around a healthy lifestyle. So that’s one example.

Another example is nail salons, which you know are very popular around here, where people get their nails done, and you know, some of them think they’re in the business of doing manicures. But I think they’re in the business of making people feel polished and poised and good about their hands and getting a little break in their life and treating themselves. So if that’s what the mission is, then you change the model.

So what some salons are doing is, instead of saying it’s 20 bucks for a manicure, they’re saying it’s 40 bucks a month, if people normally come in once a month or once every two weeks, and you can stop in and get a polish change, or get a broken nail fixed, and it’s all included. And maybe you even come at a certain time every week, so that you get to know some other people, so that increases your pleasure and the kind of leisure aspects of it while also making it incredibly convenient.

James: That is a great point, and such a good example of a traditional one-time service business.

Robbie: Yeah. The other one that’s really funny, this one just makes me smile, is in Manhattan, in New York City, there is a Botox club. Same idea. People stop in when they need their Botox. It’s a really lovely environment, and the people kind of get to know each other and they’re able to talk about side effects and concerns, and they have this little community of other people that are spending lots of money on their beauty regimen.

James: I love this notion, just to highlight that. It’s where we might traditionally think we’re going to get a better experience with one-on-one service, but then we find that there’s this network effect that really enhances the value of a membership.

It’s like the high level group that I coach. We have a convenient meeting time every week, and people come on a group call, and it’s usually seven or eight people, because there’s two different call times, and people can come to either of them, so it’s like a drop-by. And the interaction between them is some kind of magic that you would miss if you’re just doing one-on-one discussions.

Robbie: Yeah.

The super user
James: Now let’s talk about the idea of the super users, because you think that’s so important you put it in the title of your book. So tell me about the concept of the super user.

Robbie: Yeah, so a super user is a natural by-product of a membership organization, and it’s the person who goes well beyond just being a target customer. You know, a target customer is somebody who pays every month, uses the product well, fills out the customer service feedback, it says “I’m very, very happy.”

But a super user goes beyond that, and not only do they use your product and services well and frequently, so they’re highly engaged members, but they also use their own time and resources to provide feedback and encouragement to the organization to help them be better. They engage with other members and offer advice and support to enhance the experience of the other members. And they actively recruit and help onboard new members.

So the example of that that I just love is my sister, who is a Crossfitter…James, do you know Crossfit?

James: I know it’s quite a cult.

Robbie: Yeah, exactly. The Church of the Holy Crossfit, I know some people call it. So you know, she’s a full-time psychologist. She has a day job, she has two kids, she’s a very busy person. But in addition to going to her workouts three times a week, same time every week, and getting to know the people in her group, and the people that are in her box, which is the name of her workout facility, they call it a box, if the box is closed for whatever reason, she will actually host Crossfit driveway in front of her house. She and her husband.

They’ll put out equipment, and they’ll send out a notice to everybody that’s a member of their box, and say, “Hey, we’re hosting Crossfit driveway on Sunday, we know the box is closed, come by and get your workout in.” And they’ll hang out all day and help people get their workouts in, spot people.

She writes a blog, View from the Back of the Pack, for people who are slower athletes, you know, because there’s a lot of very, very fit people, and she’s fit, she’s not competitive level, so she helps with the psychology of staying committed when something’s hard. And she does all of this for free because she loves it so much.

James: That’s great, this idea that people use their own time and resources, but for the better good of the whole membership.

Robbie: Yeah. And it goes back to this idea that Maslow talked about, that we want to belong, and we want to be held in high esteem by our peers. And I think for your listeners, many of whom are building subscription models around their expert content, extending it to let people talk about that content, bring each other up to speed, explore different nuances of the content for one another, is going to increase both the experience of the members and also decrease or leverage the time of the person at the center of the community.

James: Yeah, it’s true. I do feel like a facilitator. What looks like an online coaching membership , is really forum based and what you’re talking about is so true. We have members who run local meetups in their area and they chase up everyone in that area. I give them a little bit of support because I can now segment by region. We have an annual live event, and people come in and a lot of them actually present, which is great.

And you can see that, especially when someone’s on board and they’re asking around, “Where do I get started?” There’s members diving all over them. Because they’re like the trusted guide, they know how it works, and I’ve been running this for about seven years now and it’s just fantastic to see the culture.

Robbie: Yeah.

James: But one of the most interesting experiments I had, once when I started my high level program, I actually thought I might start a workshop for 10, and I ended up getting four groups of 10. And I put them in separate communities, and each community of 10 was a completely different culture. It just shows how much the people make up the model.

Robbie: Yeah, absolutely. And you know, one of the questions to think about is, do you want to have those different cultures, or do you want to put together the bigger group to inform the culture, and that way, when the groups break up there’s going to be less diversity, if that makes sense?

James: That’s what happened. I actually thought, you know, I’ve got to put them in – and these were actually fixed term memberships, they were three months. And then I got sick of reselling them at the end of three months, so I put them into one community and made it recurring forever. And I’ve still got some of the original founding members of that, and that’s what we call SilverCircle.

Robbie: Ah.

James: So I’ve got a few questions that come up in our own discussions, that I’d love to put to you as an expert. You ready for them?

Robbie: Yeah!

How to deal with under-pricing
James: OK. One of the big ones is, let’s say we’ve got information products, we’ve been selling them one-time, and a pretty common situation, and I’d call this a mistake, is a lot of people, when they’re new and starting out, are a little bit under-confident and they offer lifetime memberships to people, in exchange for a one-time fee. How do they deal with that group when they’re moving to a monthly or an annual subscription? What are some of the steps they might take?

Robbie: OK. So this happens all the time, and not just to your members. I’ve seen this happen with subscription businesses in Silicon Valley that are venture-backed, big companies, where they under-price it in the early days. Either they give a lifetime membership, or they just have a really, really low price for a lot of value. And you know, once you’ve done it, I mean this is a little bit sad, but once you’ve done it, it’s very hard to raise the price for the same thing.

James: And it’s probably not fair on the consumer, either.

Robbie: It’s not. So if you promised a lifetime membership, which is what you asked me, you can’t do it. It’s unethical, I would say, to raise the price. Now what you want to do is you can entice them with additional layers of membership that are so appealing that they want to upgrade.

James: Yeah.

Robbie: Right? So in your example of the SIlver Circle, you might introduce a Gold Circle which has even – it has to have more value. It can’t just be semantics. You have to have something that is so much better that they say, “You know, I’m willing to give up my lifetime membership.”

I had this, in fact, with my data plan for my phone. I was an early adopter of data. I went to a smartphone pretty early, and I had a deal where it was unlimited data. And then what eventually happened is they moved me to a family plan because I have five phones that I pay for. And they got me, I don’t remember what exactly it was, but they got me off the lifetime grandfathered program and into something where they can move me around a little more.

James: Yeah, that makes sense.

Robbie: So you know, you can do that. I think anytime that you raise prices in a subscription model for the same offering, so you go, let’s say from $20 a month to $25 or what have you, you’re going to lose some people, and you’re going to get some bad-mouthing. And the reason is because you have such a trusted relationship that it almost feels, even though it’s completely within your rights to raise your prices, it feels like a violation. So you get that kind of grumbling. It doesn’t always last, and often it goes away and your business continues to thrive, but you have to brace yourself for it.

James: Well, I’ve had a few scenarios where that’s happened. In the first example, I had a one-time product when I was very new and started out, and I started a new domain and a new offering, and just about everyone went across to that on subscription. When that partnership stopped, I started a brand new thing at a lower rate, with more value, and almost everyone turned across to that, and I ended up with what I have.

That’s what I have now, as the ideal destination. But what I found with pricing is a whole strategy game there. I quite like grandfather pricing because it gives that loyalty lock-in effect of people who are getting a better-than-market rate tend to stick a lot longer. Is that something you’ve found with other examples?

Robbie: Yeah, absolutely. And they also feel a sense of esteem in the group because they’ve been there longer and they’re getting a better deal, so it actually gives them status in the community, it can, which increases their loyalty and also their likelihood of being helpful and engaged in the community.

James: Right. So just in case the listener’s not sure, grandfathering means that if someone joins at a certain rate, we leave them on that rate, even if the rest of the price goes up for the new people joining. And I have no issue with that. I think it’s a great strategy, because people coming in early are generally taking a little more risk as well, and they’re probably getting less of a mature product. So it’s fair value for people because they can choose when they join.

Robbie: Yeah.

Keeping your members
James: So we’ve covered the bringing in people from old programs. Here’s a big one: keeping members. How do we actually keep members once they’re on board?

Robbie: OK. So, retention. I think that the moment of transaction is the starting line, not the finish line, for your communication and selling. You have to keep convincing them that what they have is good. I don’t mean that you have to send them and say, “You’re so smart to be with us.” But you have to keep providing value. I would recommend that you track engagement. You want to see.

For example, in your community where people are actually calling in every week, if somebody doesn’t call in for a while, it could just be that they’re very busy and still completely committed. And it could be that they’re no longer seeing as much value. Maybe because their life has changed or maybe because they feel like they’ve gleaned what they can. But when you see change in behavior, you need to jump in quickly.

You can do that on a one-off basis or you can do that in a programmatic way where you actually have emails that go off based on certain changes and behavior like, “We haven’t seen you in three weeks. What’s going on?” Or a real phone call. Whatever you choose. But if you wait until you get to the point where someone’s cancelling, like for example, the phone companies wait until you call and threaten to cancel. And then suddenly, they give you 20% off of your fees.

James: What is that? Do people get better deals…

Robbie: You know that is stupid.

James: …when they’re not a customer, than people who are already a customer? That’s the thing that I’ve always thought was a bit strange. Banks do that, too.

Robbie: Yeah. They promote bad behavior. People can be trained. You can train people to wait for a sale and you can train people to call and complain. I’m sure you’ve seen this, too. If you had friends who say, “Hey, call the phone company and tell them you’re going to cancel. Right now, they’re giving you half off if you do that. So then you feel like an idiot if you don’t complain.

To retain your customers, what you really want to do is be sure you’re offering them value. Continue to iterate on what it is that you’re offering them so that they don’t take their blinders off one day and realize that you haven’t evolved with them in the way that the rest of the world is evolving. And then you want to notice when they’re about to leave or when their behavior changes before they leave, so that you don’t have to wait until the last minute to try to win them back.

Frequency of payments
James: This is good. And there’s tools out there like Intercom where you can set up slipping away programs. If someone’s not logging in for a certain number of days, you can start following them up. Very, very good tip there.

By the way, if someone doesn’t come to my weekly calls, I start hunting them down. I actually want them to get results. This sort of brings up a side related issue in terms of billing strategies because some people, I suppose people who aren’t really updating or sticking with their customers, are kind of hoping the customer forgets that they’re being billed and they probably want to have pretty subtle billing. Is there a preferred frequency or set up that you’ve seen work really well across the board? Or is it always customized?

Robbie: You mean how frequently the payments happen?

James: Should it be monthly, quarterly, annual?

Robbie: Yeah. So what I’ve seen is that generally, people are more loyal if they do annual. But you run into the risk that if they’re not engaged, let’s say that you have an annual membership, like SurveyMonkey does. It’s $200, $300 or $800 depending on what level you have. Let’s say that somebody uses it at $300. They use it heavily the first month and they don’t use it for the next 11 months. They’re pretty likely to cancel because they’re going to see it on their credit card and they’re going to say, “Oh, I don’t even use this. What in the world is $300 on my credit card?” So that’s the only risk that you run into.

James: And it can create quite a reaction if it’s a large amount. You’ll get this phenomenon of people calling up saying, “I didn’t want that. I want it refunded.” Or filing a chargeback.

Robbie: If they’ve forgotten about it, if they’ve forgotten that they’ve signed up. So I had this happen yesterday where I’m paying somebody $700 a year for something and I’ve been doing it for five years. They haven’t provided much value in the past two years. I got my billing yesterday and I said, “Oh, man. I hate these guys.” And I called them and I said, “I want my money back. I hate this. You guys haven’t done anything for me this year.” But if you’re providing value, I learned this actually through testing, through working with my clients who have gone from, and SurveyMonkey’s going up, they’ve gone from a monthly model to an annual model and most of my clients have because they stay longer.

And the few clients you lose who really want a month-to-month model are not necessarily the clients you want because they’re the ones that are on the fence about whether your value is good.

James: I’m with you. Actually, I offer people monthly or annual. I tried quarterly for both of mine and they sucked, actually, even for my services business. I don’t know what it was. Just was a wrong amount. But the annual, I offer an incentive, it’s the best value option. And I’ve noticed a lot of people will try a month or two, and then they want to switch billing to annual because they’ve taken the risk away, now they know what they’re in for. So I probably got to do a better job of explaining my coaching program before they join and maybe only offer the annual subscriptions. That was a very interesting discussion.

Product offerings
So if you mash all your products together or you create this membership, what else can you sell? Now, a lot of people have, like, 20 products or 30 products and they’re used to this whole creation and launch, and it’s exciting, and they’re entrepreneurs and they’re moving from thing to thing. Now they’ve just got one thing. It could get boring for them. Is there a way they can offer multiple layers of value with a subscription model?

Robbie: Yeah. Absolutely. So two thoughts. Number one, you should always have tiered offerings, where you offer silver, gold, platinum. Or regular, premier, super premier.

James: They call that precious metals.

Robbie: (laughs) Precious metals.

James: That’s what they do. Bronze, silver, gold, platinum.

Robbie: Yeah. I mean, that is industry standard. And that’s because, one, people have different levels of commitment and need. And two, because there’s often levels of prestige associated with the highest levels. So I definitely think that you should have more than one offering. And as you learn about your audience, you can segment and figure out who are the heavy users and what is it that they really want. What additional services could I provide them? Like the ones that are really pushing on the limits of what you’re doing for them.

From your case, that would be the ones who show up every week that ask the really hard questions, that email you in between meetings, that are constantly asking for more, you give them more. And you create those other levels.

The other thing about boredom. Subscription should not be boring for the provider because you are on the hook to constantly be changing your offering. You’re not selling a product, you’re selling value. And how that value gets delivered has to change because technology is going to change and your customers’ needs are going to change. The environment that your members are living in is going to change.

For example, if you think of professional associations, one of the biggest things that they used to provide was a binder with all the contact information of all the other professionals, whether that’s accountants or physicians or marketing professionals. Getting access to a database of people’s contact information was really valuable. Now you can go to LinkedIn and find out that information for free. And what’s happening is some of these associations are saying, “Oh, I guess people don’t value contact information anymore,” or “I guess people are just getting really cheap.” And neither of those things is true. What’s true is that the environment has changed. And that item’s value has declined.

James:That is a fantastic point. One of the turning points in my business was when I was quitting my job and starting online. And the commitment I made to myself was, I’m going to have to be able to constantly innovate and evolve if I choose this path, because one thing’s for certain, it’s not going to be static. Not like a hundred-year-old car industry. This thing is a dynamic place. I imagine you’ve seen more companies come and go than you’ve had hot dinners. So really, really useful. We’ve talked about that.

I want to ask this one other thing that comes up, and this is, again, I see this with people starting on this journey. They often have this idea that to have a membership, they need to have a lot of stuff. They’ve got 130 modules, or they create this stuff forever. And I’m more of the idea that they’re not buying stuff, they’re buying a combination of stuff. Yes, maybe some content is why they come. Maybe some coaching is definitely going to see them get a result but also the community. They can’t really value that before they come in but once they’re in, that’s the reason they stay, from my experience.

Starting your journey
How important is stuff at the beginning versus the other aspects?

Robbie: You’re so sophisticated. I really am enjoying talking to you. I come out of the world of marketing and people will often want you to use, as your marketing message, what customers say about you. So for example, if customers say, “James is the trusted go-to adviser. He’s so smart.” You can’t say, “Come work with James. He’s a trusted go-to adviser. He’s so smart,” because that doesn’t mean anything to someone until they’ve had the experience. It might mean something if the person saying it is a credible source. If some very successful entrepreneur says it, it carries weight. But once they’ve had the experience, they’ll say, “He’s a great adviser.” But before they’ve had the experience, the message has to be something more specific and that they will believe and that they will try. That’s a question about the different kinds of messages you need to have.

And then in terms of what to actually have in your offering, you want it to be as lean as possible. A lot of organizations make the mistake of throwing everything in because you’ve got it. I wrote some articles 15 years ago about negotiation, but my business model is about membership, what the heck, I’ll just throw it in. It’s all included. Look at all the stuff you get, more than 5,000 articles.

James: (Laughs) I get tired listening to that, let alone having to think about opening it.

Robbie: Right. Exactly. Here’s a great example. My daughter did her SAT prep, the tests to get into college. The person that we went to said, “We’re only going to meet three times. We’re going to meet three times, for three hours, it’s going to cost you a fortune. The reason I charge a fortune is because I’m going to give her only exactly what she needs to move her score.” Everybody else was saying, “For the same cost, you can have 50 meetings. Like a meeting a week for a year.” And he said, “No.” Because what he was doing was he was providing the value, which is figuring out what you don’t know and prepping you so that you learn it, as opposed to selling you stuff. You know, 52 meetings.

James: Yeah. And people are trained to look for stuff, which is the unfortunate part. And sometimes, we have to re-educate them a little bit. This topic, plus tying back to the super user idea. You’re a real advocate of the Pareto principle. You’re looking for the minimum effective part that’s going to get all the results and that’s a really interesting observation. “Lean” is music to my ears. One of my bank accounts is one of the best memberships I’m involved with. I just put money in and it keeps paying me interests. I don’t have to do anything at all. It’s like zero effort for a return.

Best way to sell membership
Last question is selling these memberships. A lot of questions come up about, can they be sold directly? Do you need to put a product in front of them? John Warrillow famously quipped on the podcast I did with him that you can’t be half-pregnant. Can you sell a membership straight up or does it have to ride off the back of something, whether it’s a small entry product or a high price product that you can downsell from? What’s the best way to sell a membership?

Robbie: So when I think about a membership, it’s ongoing value. So it’s not just the community, it’s also what you get. So it might have some content. I think that a lot of people are very product-focused. If you’re saying, “This is my product. These three videos is a product, and these four white papers together, with two tests, quizzes that come with it, that’s another product.” But instead you’re thinking about providing an ongoing value for someone and you’re building a solution for them where all they have to do is pay a regular amount and you’re mitigating their risk.

You’re guaranteeing them they’re going to achieve their goals, and you’re promising that you’re going to evolve with them over time. So it might just be a community, it might just be what you call products,  it might be a combination. But the important thing is that you are solving an ongoing problem for them. That’s what they joined for, as opposed to buying.

James: So it can really be at any part in the cycle.

Robbie: Yeah.

James: I’ve found it’s really good to sell from the back of a live event, because it’s like the live event was the start, now you can continue, you can devour other recordings, you can talk with all the people who were at the event.

Robbie: Oh yeah, it is a great place to sell it, timing-wise. But people buy all different times of year. It’s ideal to understand triggers. That’s getting into selling and timing.

James: Yup. We’ve talked about behavior and making sure that you’re observing when people change behavior, making sure that you are in sync with them. I don’t think you use the exact words, but if you get out of sync with your customer, then billing becomes a shock. So you’ve basically got to be all over the customer, by the sound of it.

Robbie: Yeah. You don’t have to be all over them. You have to really know them.

James: Yeah. That’s what I mean by all over.

Robbie: Yeah. (Laughs)

James: It helps if you care about them and all that sort of stuff, right?

Robbie: But you have to understand what motivates them. So if you know that people think about dieting on New Year’s Eve and then again as the weather gets warmer, then of course you’re going to invest most heavily in marketing of health programs at those times of year. If you don’t know that, then you’re going to waste your money by trying to market all year round equally.

James: Yes.

Robbie: That’s why toy manufacturers spend all of their marketing budget against Q4, because everybody buys presents for the holidays.

James: Yes, fantastic to go with the grain, as my grandfather used to say.

Robbie: Yeah.

James: All right, so Robbie, you’re a world expert on this topic. What question should I be asking you that I’ve forgotten to ask you so far?

Giving it away for free
Robbie: Oh, you know, you’ve done a really good job. We haven’t talked about freemium. I think that’s something that’s important for this audience, so thinking about what you give away for free, forever.

James: Well, it’s kind of almost the question I was asking before, is how to sell it but I didn’t ask it the right way. Like in my world, I’m kind of different to most people out there because I have five podcasts, which is my free part, and then I go to paid recurring. There’s nothing in between. And when I took out all my one-time products, I eliminated the option for people to just nibble or snack on my stuff. They’re either having it all they can eat for free, or they pay. And cutting that out made a huge difference to my profit and my ability to help people.

Robbie: Yes.

James: So let’s talk about freemium.

Robbie: Yeah, so you’re basically a freemium model, which is great. Like you have a membership that’s free, and then you have different levels of membership that are paid. And people can do whatever they want, and when that works, I totally agree with you, the half-pregnant thing, people always say to me, “Well, what if we sell it in three different ways?” When companies or organizations do that, it’s because they don’t understand their customers.

James: Well, most people want to sell a one-time product and a recurring, because they’re just too worried about turning off the one-time product.

Robbie: Right, because they don’t understand their market, and they’re like, well, if I put everything out there, I don’t really know what’s going to work.

James: Number one problem is, they say, “People are going to come in and download all my stuff and then cancel and I’ve just given away for a small amount what I can normally sell for a big amount.”

Robbie: Yeah.

James:  I say, “Well, what you’re doing is converting someone from frequency of one to frequency of like, 50 or more.”

Robbie: Right. Yeah, absolutely. But for the freemium model, it works for three reasons. The first one is it’s an awareness tool. And it gives people a chance to trial. You know, they kind of get a little nibble.

James: Test drives.

Robbie: Yes.

James: Demonstrate.

Robbie: Yeah. And so that’s a reason you know, we say, we’ll keep them in the communities, they can stay as long as they want, and then when this becomes really important to them, they’re already in the fold. That’s reason one.

So the network effect is the second reason that you would use freemium, and that’s when the value to the paying customers, the paying members, increases with each new free member that joins. And so this would be the case with LinkedIn, where the vast majority of members of LinkedIn don’t pay anything to have access to all of that content regarding other people’s professional resumes and history and all of the content that’s created by the members. But if those people weren’t there, the free people, it wouldn’t have as much value for the recruiters and salespeople who pay very high monthly fees in order to have access to additional services.

James: So part of that is about who your actual customer is.

Robbie: Yes, exactly. Because your freemium people are actually part of a customer. Another example is lady’s night. You know, where the girls get free drinks, and the boys have to pay for an entry fee?

James: Yeah.

Robbie: Right?

James: So the girls are the content.

Robbie: The girls are the content. Exactly.

Should you have a Facebook group?
James: You know, we’re on a very similar topic for a massive question. Should someone have a free Facebook group or a paid Facebook group? Or should they be building outside of such public platforms, or such lack-of-control platforms?

Robbie: Yeah, I was just talking to someone about this this morning.

James: I talk about it every day.

Robbie: Gosh, OK.

James: I don’t have a Facebook group, and I pioneered my forum before there were Facebook groups, but I have resisted the urge, even though people say they want it for engagement. I think it’s pretty lousy for organizing content, and I don’t think it’s in my best interests. It’s certainly much harder to automatically add and subtract people, but also I don’t have that control and they could shut it down at any point, is another concern that I would have.

Robbie: Yeah. Everything you just said is what I would have said.

James: OK, good, we’re on the same page.

Robbie: The only thing I would add is that it’s a great way to build awareness.

James: Well, I use a page for that, and you can do remarketing and stuff. And going back to before, I just want to clarify: I don’t have a free forum, I only have free podcasts and free blogs. So people can comment, and they can interact, and they can ask questions on the blog, but if they want a deeper level of coaching they have to go into a paid subscription.

Robbie: Right, right. The coaching is not part of the free.

James: No.

Robbie: No, you can’t do that, because you have your own variable costs.

James: Well, I’m not looking after people who are investing in me very well if I coach everyone for free. There’s got to be a line, and I think that’s why I don’t have a Facebook group.

Robbie: Yeah, I agree.

A recap of the episode
James: OK, wow. We’ve covered quite a lot, and I think we should hang up our boots soon. So just a quick recap. Some of the real highlights that I think have come through are that we’re focusing on our super users. Yes, as a business owner we’re getting a forever income, but we’re also helping people because we’re solving their problem ongoing, and that’s got to be better off than a one-time solution.

We’ve got to pay attention to the behavior of our customers, and we’ve got to keep in check with them and be aware when they’re about to change something. We should always have tiered offerings, because the high offering, some people want to use that. And if they don’t want to use it, I can’t help but think it’s going to make the lower-priced offering look like fantastic value. And we’ve covered this idea that annual subscriptions are probably better if you can maintain your promise with the customer.

Well, I think this is gold for anyone interested in the membership thing. Robbie, thank you so much for sharing this with us.

Robbie: Oh, it’s been a pleasure James, really.

James: And I’d like to strongly endorse The Membership Economy. It’s a fabulous book, and thank you for coming along and sharing this information. Hopefully, one day you’ll come back and tell us some more stuff.

Robbie: Any time.

James: All right. Thanks, Robbie.

Robbie: Thanks very much, James.

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