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

Welcome back for part two of our series on how to price your membership site subscriptions. In part one, we talked about the anchoring effect and some consumer psychology behind spending habits.

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

Consider Your Product's ROI

If there's 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'll 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 types of sites 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'll 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 ROI into account. Always remember that with a membership site, you're starting a long-term relationship with your customers.

If your members are getting a great ROI, then it's important to price accordingly so you can provide them with the attention, products, and information they deserve. If your site doesn't have enough revenue to deliver all this to your customers, 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 the case of the decoy effect, however, you create a product that is similar in price to your main offering, but noticeably inferior.

Say, for example, you want 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 included only eight basket weaving courses and price it at $85. The price difference between the two is small, but the value of four 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. If overdone or done improperly it could reek of “tricking” customers and possibly lose its positive effect. But it's a technique used by many companies of every size, so it's something you should definitely consider when pricing your subscriptions.

Here’s a great article on the decoy effect in case you'd like to learn more.

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 respond to. This ties into the concept and psychology behind bundling, which we'll cover more in depth in part three 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 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, do not recommend split-testing your prices – there's enough 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 his 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 four 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

Categories: Advice Pricing
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 he has created: MemberPress, Pretty Links, and Affiliate Royale. You can read his blog by visiting BlairWilliams.com.