While there is no silver bullet or magic price for memberships, there are a number of factors to consider when pricing your membership to ensure that revenue generated from membership fees are accretive to your bottom line.
Understanding the perceived value
Assess your customer profile
What is the average income level of your potential members? What are they currently paying for similar services?Define the value proposition
How does your membership improve the lives of your members'? The perceived value of these benefits will play a significant role in what members are willing to pay.Brand positioning
How is your brand perceived by the marketplace? If you are a luxury brand, you will want to ensure that your pricing signals premium offerings in line with customer expectations.
Analyze costs and profitability
Customer value
What is the average customer worth to your business? Consult data points like your average order value (AOV), repeat purchase rate and customer life-time value to get a better sense of pricing.
Calculate and project operational costs
Most membership programs tend to be light in overhead. However, costs of servicing members and fulfilling benefit commitments can involve additional costs (dedicated support, events, credits and discounts).
Profit margin
Decide on a reasonable profit margin that aligns with your business objectives. Your membership price should cover costs and yield a profit, ensuring the sustainability of your program.
In combination, taking these various factors into consideration will help you paint a clear picture of the economics of a membership program at differing price points and costs. Select the price that strikes the best balance between profitability and willingness to pay (unfortunately an art and not a science).
Some examples for inspiration
Now that we've outlined the various factors to consider in pricing your membership, lets take a look at some practical examples.
1. Bandit Running
Bandit Running is a community powered running brand based out of Brooklyn, New York offering a membership experience priced at $125 annually.
Members receive a pair of complimentary socks ($40 value), a $50 gift card ($50 value), 10% off orders (~$12 per order), free shipping (~$15 value per order), access to samples and exclusive content.
Assuming that their average order value to be $120 (typically a slight premium over the average selling price), their average purchase frequency to be at least twice a year, and their margin to be 20% we can run some basic calculations breakdown the $125 price tag.
Inflows
Membership fee + revenue from sales
$125 + ($120 x 2) = $365
Out
Gift card credit + sock costs + discount value + free shipping value
$50 + $36 + ($12 x 2) + ($15 x 2) = $140
Profit
$365 - $140 = $225