How to Price Memberships (Part 2): 4 Important Insights

newtons_cradleWelcome back for part 2 of this exciting series on how to price your membership site subscriptions! Yesterday we talked about the anchoring effect and some consumer psychology behind spending habits.

Today, we’re bringing you 4 more popular considerations to take into account when setting your prices. Let’s jump right in!

Consider Your Product’s ROI

If there is a Return on Investment (ROI) — or a perceived ROI — from investing in your membership site, you can typically charge more for an offering. If you can show potential members that, by subscribing to your site, they will be able to make back the amount invested or more because of the valuable content you provide, people are much more inclined to dish out the dough. Great examples of these include financial (stock picks or investment advice) and business Software as a Service (SaaS) membership sites. However, if your offering is something more ephemeral (e.g. a joke of the day or recipe membership site), your members can’t really use that information to generate a profit in their own business and they will be much less inclined to pay a high, recurring fee for your content.

I’ve found that many businesses under-price their subscriptions when they don’t take this into account. You have to remember that in a membership site you’re starting a long-term relationship with your customers, and if they’re getting a great ROI, then it’s important to price accordingly so you can provide your members with the very best attention, products, and information they deserve. If your site doesn’t have enough revenue to deliver this to your customers then your relationship with them may be a bit less “long-term” than you’d like, no matter how cheap your offering is.

The Decoy Effect

The decoy effect is similar in some ways to the anchoring effect in that it utilizes the brain’s reliance on comparisons to drive sales to a superior product. In this case, however, you create a product that is similar in price to your main offering, but noticeably inferior.

Say, for example, you wanted to drive sales of your “Platinum Basket Weaving” program that includes all 12 basket weaving courses, a free 900-page eBook on basket weaving, and all of your basket weaving materials for $90. Using the decoy effect, you would create a similar offer such as a “Gold Basket Weaving” program that contained only 8 basket weaving courses and price it at $85. The price difference between the two is small, but the value of 4 additional basket weaving courses for only $5 makes the Platinum program a much better deal in the eyes of the consumer.

This effect is one that should be used in moderation. I think if overdone or done improperly it could reek of “tricking” customers and possibly lose it’s positive effect. But it is a technique used by many companies of every size so it’s something you should definitely consider when pricing your subscriptions.

Here’s another great read on the decoy effect if you’d like to further your research:
Freshplum Article

Price Right for Your Offering

Pricing can also vary based on how you decide to offer your content and how long people will have access to it. For instance, if you were offering a single class on basket weaving it would make sense to charge a high, one-time payment. Why? Because it’s a finite course – a one-and-done event packed to the brim with as much juicy content as you can fit into the length of the class. In contrast, if you chose to offer a resource site for basket weaving on which you drip out content regularly, you could charge a lower, monthly fee to entice more long-term, committed memberships. There are certainly advantages and disadvantages to both of these types of subscriptions. It really just depends on what works best for your business and what your consumers will respond better to. This ties into the concept and psychology behind bundling that we’ll cover more in depth in part 3 of this blog series.

Testing Your Prices?

Years ago I had a client who wanted us to start split-testing prices on their membership site. At first, I thought that was a really cool idea. What better way to figure out the perfect prices for your subscriptions than to let your users tell you with a test?

So I ran the test on their site and, well, their conversions actually went down while support and cancellation rates went way up! What happened? We were dealing with some users who often cleared the cookies out of their browsers and/or used multiple computers, so they started seeing several distinctly different prices for the same products! And to make matters worse, we never knew how many of their users were turned off by the split test itself so the data we got from the test was unclear at best.

A/B testing (also known as split-testing) can be a very important part of any online business. However, testing the location of a button or the wording of a header is greatly different from testing the prices of your membership subscriptions. Price testing is tricky because the psychology behind spending is entirely different from the psychology behind general decision making. If you toy with your members by testing various prices and fluctuating all over the place, this method could seriously backfire on you and could leave potential members feeling as though they are being taken for a ride. I, personally, recommend not split-testing your prices – there’s already plenty of data you can utilize when setting and changing your prices that you shouldn’t have to engage in this potentially dangerous practice.

Scott Brinker analyzes this approach in depth in the following article:
Search Engine Land Article

That’ll about do it for today! Again, there is no foolproof method to selecting the right price for your membership site, but be sure to read our next article in this series for our last 4 tips on setting prices and increasing your membership subscriptions.

Read the final article in this series here: How to Price Memberships (Part 3): Final 4 Considerations

About Blair Williams

Blair is the creator of MemberPress. He is an experienced Software Developer who has created large scale web apps for scores of businesses. He now focuses on WordPress and Ruby development -- in particular the WordPress plugins and services he has created: MemberPress, Pretty Link Pro, Affiliate Royale and Buy Now for Stripe. You can read his blog by visiting BlairWilliams.com.