How much should you charge for your membership? A question like this can keep business owners up at night. Too high a price point and no one might buy; too low and it won't be worth your while.
James Schramko and KLEQ's John Lint go into the factors of working out your perfect pricing, in this continuation of The Membership Series.
Podcast: Download (Duration: 44:44 — 41.1MB)
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In the podcast:
02:19 – How much is your product worth? James and John lay out the value proposition canvas.
06:33 – Do what your customer might do. What does the buyer’s path tell you?
10:09 – How to make it all about the result. What can you deliver that will make price irrelevant?
12:11 – How access can affect your pricing. As an expert, you are an important factor in determining price point.
13:37 – When you have to change the price. Things change over time, and so will your pricing.
16:03 – The thing people should not do. This is James and John’s advantage over many online gurus.
18:05 – How traffic channels impact pricing. B2B is different from B2C, and pricing is accordingly different.
24:04 – Low-ticket and high-ticket pricing. Which will you have?
28:22 – Factoring in the churn. Know your retention rate before you forecast customer value.
29:30 – The things you want to work out on paper. Take this step seriously before quitting your job.
32:17 – Considering the different tiers of your membership. You can have more than one level.
34:20 – Do you offer monthly, or annual? Each has its pros and cons, as James and John explain.
40:14 – Where looks do count. The better it looks…
42:35 – Last tip: consider your currency. Do you go local, or global?
Create your profitable membership business with James’s help
How to price your membership is an important question, and often a challenging one.
James and KLEQ‘s John Lint take us today into the various factors that affect pricing, and share their experiences in pricing their own memberships. Their aim: to overturn price objections and provide some useful tools and ways to think about price.
How much is your product worth?
James thinks they should start the discussion around price versus value.
Value is certainly the most important thing, John says. It’s what you need to do, come up with the best product possible, something that will be extremely valuable to someone.
Value solves problems and gets results – that’s why people pay for it. It’s at the center of everything, and based on value, based on what we deliver, we can come up with a price that our market will be more than happy to pay.
“People will buy to be better off.”
It’s not a completely fixed thing, though, says James. He has products for sale on his websites that are either $10 per month or, in some cases, around $10,000 per month. He’s the same person, operating in more or less the same market, and people want different things. So the price can be very elastic.
You’ve just got to start at some point, but you want to get it within a range. And one of the things that determines price point is the value proposition.
James’s very simple definition of selling is, people will buy to be better off. So the main thing is, whatever you charge, you want to make sure you help people be better off more than the amount they pay. If you can do this, they’ll not only pay, but they’ll stick around, which is important for membership.
The best situation is when people feel like they’re ripping you off, they’re paying so little for the amount of value they get, and they stay forever.
Do what your customer might do
When a customer is in the market for something, they generally have a look around. They might start googling, they might ask for referrals.
One of the smartest things you can do is be aware of the market as if you’re a buyer. So go out and see:
It’s about giving you an idea, says John. Once you’ve got a sense of what’s out there, it’s up to you to decide where you want to fit in.
Say you want to do coaching. For it to be worth your time, you need to at least price it a certain amount. How far off from the market are you? If it’s a few $100 or maybe 1,000, well, maybe, you deserve it. Maybe you provide that much more value compared to others.
You pick one price, and you test it out. Don’t let indecision paralyze you. You can always increase or decrease it based on the results.
Ideally, you want a price that makes you happy, and also makes the customer happy. They feel they got a great deal, and you make a profit.
How to make it all about the result
One really simple thing to do, says James, is just think, what kind of result can I deliver that no one else is talking about? What will make price irrelevant? What will make people want to deal with you no matter what?
“What kind of result can I deliver that no one else is talking about?”
It comes down to a differentiation. What is special about you that no one else can supply? What result can you promise? And then what price can you charge, as John said, that makes you happy and makes them happy? Look for that sweet spot.
SuperFastBusiness currently has two price tiers – a $99 per month tier, and a $599 per month tier. The difference is access. For the extra $500, members get private coaching with James, via back and forth text discussion or Loom videos. And they can come to a weekly live call every single week.
That is a value proposition, and for the right person, it makes a huge difference. James, for instance, recently reconfigured a deal between a member and their client, which is now worth multiple six figures to the member. That is well worth $500.
How access can affect your pricing
Some membership owners go to pains to distance themselves from the customer, while charging high-ticket prices. The result is that people leave, because they want access.
If you’re going to charge a lot, you may want to offer more access. If you’re more distant, you should price accordingly.
If you are prepared to get closer to the customer, often you can charge a lot more. As you pay more with James, access goes up and up and up. And what he’s prepared to do for a client as they pay more is significant. He has distribution available for the right people, and thinks about their business on an ongoing basis.
When you have to change the price
Your current price is unlikely to be what you’re offering a year or two from now, especially five years from now. By then, you might even be in a completely different business. So just start, and adjust.
When you put the price up or down, you have to be very careful how you communicate it. If James puts the price down, he rebates people the difference. It’s much easier, of course, to put a price up than down. If you put it up too high, however, call it early. Bring it down, let the people who paid more know, and give them a rebate.
If you’re putting a price up, then consider letting people stay on the old rate as a lock-in. A loyalty lock-in, James calls this. And they might stay for a very, very long time. James has a SilverCircle member, for instance, who’s been with him for 10 years on a legacy rate.
Test things out, says John, don’t be afraid of testing out. The most important thing is, pick a price, get started and then see what happens.
The thing people should not do
What people should not do, says John, is what he sees a lot – people with very expensive memberships promising access to themselves. And once someone’s in, the only access they have is a forum where the founder is never present.
If you don’t feel personal coaching is worth your time, don’t offer it. Or raise your prices so that it is worth it. But make it so valuable that people will think the option is a no-brainer.
The right people will see that value. So figure out who you can deliver the biggest aha moments to with ease, and just blow them away.
How traffic channels impact pricing
Different channels, says James, require different pricing. By channels, he means either business to business, or business to consumer.
With business to business, often you have a longer sales cycle, more of a process to make sales, more decision makers. Quite often, you can charge a lot more, and you may not get paid upfront, you may have invoicing.
James remembers someone from his dealership days who sold websites to large Japanese air conditioning companies. These companies paid tens of thousands for a website, which shocked James.
But there is pain involved in dealing with corporates, says James. There’s politics, and the ones who will shaft you so they can deal with relatives, or who get a bribe pack in the mail.
Then there’s business to consumer. When you’re dealing with the consumer, James says, you’ve often got a silent partner, and that is the partner of the person you’re dealing with – their wife, husband, spouse, lover – someone who you can’t see is there.
You’ve got to cover your bases, make your offer suit the silent partner who isn’t there, if you can.
John’s take on channels?
B2B, he says, is very much relationship-based, like who do you know, who knows you? You get introduced, you get access to that corporate environment. They become a bit political inside the company.
You can actually charge a higher price, because usually these companies work on budgets. They have a marketing budget that they need to spend – if they don’t spend the budget then it’s not renewed, they get a smaller budget. That’s the good and the bad.
B2C is much more personal. That’s where you have to understand how to sell your offer, how to connect with people, how to understand them.
In-person interaction may not be possible these days, but you still need people to get to know you, like you, trust you. This you can do by delivering valuable content, that talks specifically to them. It’s about content that solves a problem, helps them get specific results.
Then make your offer extremely clear, says John, so that if they need to go and talk to someone else, they have all of the data.
With corporates, adds James, sometimes they’re not in a buying window. They typically like to spend before tax time.
And when you do get the deals, one of the great things about slow-moving, difficult decision-making companies is often when they make a decision, they’ll keep paying forever, because it’s too hard to go and deal with someone else, not to mention sudden switches can make people look bad.
Low-ticket and high-ticket pricing
In pricing, James would define sub $100 as low-ticket and anything over 1000 high-ticket, depending on the market. He has clients who sell things worth $65,000. Other clients give away as much stuff as they can. And James gives away a lot of stuff – podcasts, his book, a challenge.
It makes you think of psychological barriers – James has just signed up to an Apple subscription, $11 monthly to access every single song ever made. He doesn’t question a small expense like that. So the lower ticket you have, the easier it is to retain people, as long as you’re doing a reasonable job with the solution.
And it’s not a big decision for someone to renew. So that could be a good forever program. The thing you need to consider, though, is you need massive volume for it to work.
And it’s not just sales volume, says John. It’s volume at every single step of the conversion cycle. Say you price something at $10. To make $10,000, you need 1,000 members. And to get 1,000 buyers, supposing your conversion rate is one percent, you’ll need 100,000 people to visit your sales page.
A good point, says James. He has a $10 monthly subscription, and does not have 1,000 members for it. But then, he hasn’t promoted it much. The members he does have, however, are often buying something else – KLEQ, or single products on SuperFastResults. Sometimes they upgrade to SuperFastBusiness. So the average customer value is hundreds of dollars.
Luckily, James has other products. With his $599 clients, he could serve 100 members and have a reasonable business. For his $10,000 clients, he could have just 10 of them and have a great business.
When thinking about your price point, he says, pull out a spreadsheet, and populate it. Put in the number that you want to charge for, and put in the number of customers you need for that to work, and then factor in churn.
Factoring in the churn
For SuperFastBusiness members, James has a membership calculator. You can plug in the numbers, and you can check out the churn, which is people leaving. This is the thing people often forget. They say, Oh, look, you only need X number of customers at X amount to have X per year.
That doesn’t take into account that half the people won’t be there by the end of the year. If you do a reasonable job, five to 10 percent of the people will leave each month. If you do a crappy job, more than 10 percent leave each month, which means by the end of the year, every single person has left.
Churn has been the death of many a membership. So don’t set a price for today, set it for a few years down the track.
The things you want to work out on paper
Think about a price point for a few years from now. Think about how many members you’ll need, and what the cost of running your business will be. Factor in the software cost, the marketing costs. You may need team members as well.
Factor it all in and see if it looks good on paper before quitting your job to commit to this membership.
The impact on your lifestyle is extremely important as well, says John. He’d rather have much fewer members that are paying more, than a lot of members that are paying little.
Having a ton of members paying low ticket means you’d need a bigger team to save your sanity. And if all those members have access to you, that will be a major time and energy suck. So think about the kind of business you want.
Considering the different tiers of your membership
And consider tiers. You can have a high-level program with more access to you, operating alongside a lower-tier offering with less access. This can help maximise profits.
And you can really dial it up, says James. In SuperFastBusiness, he has limits on how much he can scale the $599 level before having to add group calls. With the $99 level, however, he could have an extra 1,000 members, and it wouldn’t really change much for him.
More members is actually better for the members in that level. And for people who need a bit of help, he gives them the option of a public progress journal. That way they can still get his attention and that of other members by making a them-specific post within the membership.
People do switch from one level to the other. It could be up or down. James would suggest having two membership tiers at the most to start with. It’s about dialing the mix to find your sweet spot of what you want to put into the business, how you can achieve it with leverage.
Do you offer monthly, or annual?
James has tried both monthly and annual, even quarterly. The easiest way to sell, he says, is just monthly, with no contract. If you can do that, then you’ve got a good product.
People don’t stay if you’re not delivering a result, so the risk is on you. It’s easy to sell because there’s less risk for the customer. If you want to get started, just sell monthly. People stay, they get a result. In economic crisis, however, you will notice more drop-off than if you had annual customers.
Sometimes annual customers can’t leave because they’ve committed for a year and paid for it. A lot of coaches commit people into a year or two of contract at high ticket. Not the way James would want to do business, though it’s a good way to bring in lots of money.
He thinks it’s a crutch. Annual payments are good – some people like to pay up front because it holds their feet to the fire and might give them taxation benefits. You will have to put more effort into reselling it, however.
“Don’t surprise people with annual payments.”
And you absolutely must remind people that a billing is about to come, because it is a larger amount. Don’t surprise people with annual payments. It’s far more likely to trigger a refund or a chargeback.
People who agree to annual can be really good customers. James does have an annual option, though he offers it only after people have chosen their tier. It gives people a bit of a saving, and James gives annuals on the higher tier an extra feature similar to SilverCircle, for half to two thirds of the price.
John prefers to offer the annual option when a member has been on monthly, loves the product, and would like to save a bit. He’d rather not run the risk of having to refund something like $1,000. It wouldn’t look good with the banks.
Yearly is typically your monthly rate times 10. James, however, offers more like 40 percent off. He wants it to be a no-brainer decision, and what you’re really buying, he says, is loyalty and retention.
“If your retention is three months, you don’t have a membership business.”
If you do have an annual member, you’ve got 12 months’ retention, which is four times what internet marketing gurus say is good retention. James will tell you, if your retention is three months, you don’t have a membership business.
Where looks do count
James has found design and the appearance of your membership to be a big factor in pricing. If you put more time and effort into design, make your membership look nicer, and go that extra level with professional images, you can definitely charge more.
James has invested time and energy briefing talent like Greg Merrilees to come up with beautiful designs. And he updated the words on his site as well. The sales copy is a massive return on investment. It enabled him to charge more and deliver a better result, because the expectation and the perception on the way in is of a higher quality.
Yes, design work matters, says John. He cautions listeners, though, not to hear that and think, Okay, I’m going to wait a year before I have my whole membership site ready. You should not do that. Get started, he says, do the best you can, and change things as you go.
Last tip: consider your currency
Final tip, says James: Standardize your currency if you can. If you can operate from a .com and a US dollar currency, that is like the gold standard for a global business selling information or a membership.
That is if you’re not in a geographic-specific area, working on a geographic-specific domain and a geographic-specific currency. If your audience were, say, pet groomers for a particular suburb of Sydney, you would very likely work from .com.au and accept Australian dollars.
That rounds out the episode. Expect, in the next Membership Series episode, a discussion on how to set up your membership. That one will lean heavily on John, because it’s really what KLEQ.com does.
If you want to delve deeper into memberships, visit SuperFastResults.com and check out the Profitable Membership course. Members of JamesSchramko already have access to that training.
And members of KLEQ have oodles of related training inside the Academy, which you get standard when you take the trial subscription. Check it out.
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