Pricing Strategies. Don't be a guesser

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Mae Moore
5 years ago
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1 Pricing Strategies Resources: (give potential buyers a comparison to make vs. letting them decide in a vacuum) (have 3 tiers) Don't be a guesser When it comes to pricing, many people running membership sites are just taking a stab in the dark. They don't know what to base their price on, so worst case they're just flat out guessing, or best case they're basing their pricing on some other site that's kind of like theirs. The good news is you don't have to be one of those people! Let's consider the "guess and hope it works" method for a minute. Actually, let's not you're here because you want to take your business to the next level. The way to do that is to be a professional, and professionals don't guess when it comes to something so central as pricing. We're here to be intentional in all that we do. One (tiny) step up from guessing is taking inspiration from a competitor or other membership site (or even just blindly copying them). Some people rationalize this: "Well, they seem successful, so that pricing must be right. If it works for them, it'll work for me." There are several problems with this. Let's take a look: You don't know if it's working for them. Unless you're privy to the inner workings of their business, you don't really know if that pricing is working out well for them. Plenty of businesses have outwardly appeared successful, right up until the time they shut down. Your business is not the same as their business. Even if it is working for them, that's no guarantee it'll work for you unless your business is a carbon copy of theirs, with the exact same cost structure, marketing, product, etc. And if it is... well, you really should reconsider. Reach for greatness; don't settle for mediocrity. Again, even if that pricing is working for them, it may not be optimal, and you've got no way of knowing if it is. We're not going for good enough here we're going for great.

2 Hopefully by now you're convinced that blindly copying someone else's pricing isn't the path to greatness. So, if you don't base your prices on someone else's, what do you base them on? Value based pricing Ever heard of value based pricing? There are whole books on the concept (I'm not joking - there are dozens of them), but here's the basic concept: if your buyer perceives that what they're buying is worth more than whatever they're paying for it, they'll be happy. So, tie your pricing to the value that you're providing. Your offering can save members time, save them money, help them make more money, or even be something more abstract than all of that. Let's look at some examples: I pay a lawn company to cut my grass a couple times a month. By having them take care of that, I don't even have to think about it it just happens. So, not only do I save the time I'd spend cutting the grass, I save the time I'd spend trying to get the mower running, going to get the gas, etc. Instead of spending my Saturday afternoon doing that, I can take my son to the park, which is well worth the money spent on lawn care. Ready, Set, Love! provides lessons aimed at helping you have better relationships with the people you care about. It's impossible to put a dollar value on that what is saving your marriage worth? Besides the intangible value, you could contrast the price of a membership with "what would a dozen sessions of therapy cost?". Plenty of sites are focused on professional development (Lynda.com, Team Treehouse, etc.). The main thrust of all of those is to help members improve their professional skills and ultimately earn more money and have more fulfilling careers. Next to a $20,000 raise, a $30/month looks like a major bargain. TODO this paragraph is a bit weak: Ultimately, if you tie your pricing to the value you're providing, and more importantly to the value your members perceive in your offering, you'll have much happier members. Why? Because you'll likely be able to make the case that they're getting a tremendous return on investment. If what you provide helps them improve in their career and get a major raise, then unless you're charging a fortune, that raise is going to be many times over what they pay you. And if you're providing some more abstract benefit to them, the argument can be even stronger. Self-improvement, more time with family - all priceless.

3 Sustainability Another factor to consider when you're hammering out your pricing strategy: keep it sustainable. Unless your site has an extremely broad appeal (i.e. Lynda.com), you should be shooting for several hundred to a thousand dedicated members. And at those numbers, something that's priced at $5/month isn't going to cut it. Quick side note: especially when you're in the early stages, but really at any point, you should have a very narrowly focused offering. Being focused in what you offer will make it much, much easier to identify your target audience, market to them, and ultimately achieve success. One other note about sustainability: be extremely wary of offering lifetime access to anything, at any price. In the right circumstances that can make sense, but more often than not, offering lifetime access cuts into profits long term, and devalues your offering. ###Support Vampires No, I'm not saying I'm Dracula's biggest fan. I'm talking about something else entirely Besides putting a pretty low cap on the revenue you can generate, a low-priced offering also hurts you in another way: it attracts support vampires. What the heck is a support zombie, you ask? It's someone who joins your site and then sucks the blood out of your business by creating a support burden extremely disproportionate to what they're paying you. Over and over again we've seen and heard from plenty of business owners that their customers paying the lowest prices are the ones that take up the most time in support. And not just proportionate to the amount they pay, as in "the $10/month customer takes up more than one-tenth the support time that the $10/month customer does" try "the $10/month customer takes up more support time than the $100/month customer, period." There's just something about a low-priced offering that attracts people who don't value their time (go figure!), refuse to read ("Wait, this site is only vegan recipes? But I love meat! I'm filing a chargeback with my credit card company!!!"), and are just generally unpleasant. So, keeping in mind that we want to avoid Support Vampires and the fact that your site is likely going to be pretty narrowly focused, you should think about the minimum you could charge and still be able to build the business you want. And no, I'm not telling you to charge that minimum price this just exists as a check on our earlier discussion of value based pricing.

4 For instance, if you'll only ever be able to get to 500 members based on what you know about the total size of your audience, then $10/month just won't work, will it? Sure, that might be able to support you, but $5,000/month is a pretty low cap on what you can achieve and that's at your maximum! On the other hand, if you can provide enough value to charge $50 or $100/month, things start to look a lot better! At those numbers, you can afford to bring on some help to run the site and free up some of your time. If you've done that quick mental math for your numbers and come up with a minimum price point, but can't justify that based on our earlier discussion of value, the solution isn't to lower your price. Instead, look at other ways you can offer more value to your members. Would a monthly Q&A webinar with you, the expert, boost the value to your members? What about a discussion forum or similar component where they can connect with each other? Are there bonuses you can offer, like other experts you can bring in periodically? Whatever the method, always look for ways to increase value before thinking about lowering prices. ##Price Anchoring We touched on this briefly back in the Five Mistakes lesson, but let's revisit it and go a little deeper now. Remember the steakhouse metaphor I used there? Basically, the idea is that steakhouses don't put $70 steaks on the menu to sell $70 steaks; they do that so they $50 steak looks like a bargain in comparison. That way, you're comparing the $70 and $50 steaks, not the $50 steak and the $25 pasta dish. Look, pricing psychology is a crazy, bizarre world. We're not going to try to explain in depth how everything works in this course. But rest assured, study after study has shown that in general, products with multiple price points sell better than a product with a single price point. Beyond that, products with three or four price points usually do best, especially online. At those numbers, your potential buyers aren't overwhelmed with options, but they're still making a mental decision of "which one do I buy?" instead of "do I buy or walk away?" When you have three price points (which is probably the most common scenario, and what we'll use for our examples here), the two lower price points are anchored against that highest price your visitor sees that high price and their brain instantly jumps to thinking the lower two options are a "good deal" in comparison. There are two other main things you can anchor your pricing against:

5 The opportunity cost of doing nothing Some other option that costs more or doesn't produce the same results (or both) An example of anchoring against the opportunity cost of doing nothing would be us saying "Your membership site isn't flourishing like you'd hoped, and every day you don't fix it is a day you're missing out on greater profits. Can you afford to not join Member Up?" You do have to be careful to not come across as too negative or harsh with this tactic, but it is certainly legitimate to point out that the alternative to joining your site means not getting the benefits from it. An example of anchoring against some other option would be us saying "Plenty of people will sell you an ebook or a course with a promise of growing your online business. But Member Up is focused solely on membership sites, and we understand the challenges unique to this type of site. Are you looking for generic advice, or something laser-focused on the problems unique to your business?" Granted, there's no mention of pricing in that message, but it does very much position as us membership experts, in contrast to the huge pile of generic "online business" advice that's out there. The implication is clear: we'll help you achieve real success. A rough formula Pricing deserves a ton of testing, but for a starting point, Gumroad (todo link here) has said they've seen the most success with price tiers that are X, 2.2X, and 5X. Following that formula, if your lowest price point is $30/month, then from there your middle and highest tiers should be roughly $66/month and $150/month, respectively. Give your superfans an option Think back to your teenage years. Remember some of the popular bands? Lots of your friends probably bought a couple of their albums, and maybe even went to a concert. But if you think about it, I bet you can remember that one kid who was obsessed with that one band so much so that he owned every album they ever recorded, every poster they'd sold, every t-shirt they'd printed, and had been to a half-dozen of their concerts. Heck, he probably even named his dog after that band. He was what you'd call a "superfan." If you do things right, you'll have superfans too. Your superfans will be your biggest promoters; sharing your work with their friends, tweeting about you, posting on Facebook, etc. Depending on your offering, you should consider either making that third tier a higher multiple (more like 10X or more), or adding a fourth tier at that point. The reason? When discussing tiered pricing, something a lot of people miss is the fact that having a

6 significantly more expensive highest tier offers your superfans the ability to pay you more money than they otherwise would be able to. Besides that, some people just aren't very price sensitive, and will default to "I want the best, and I'll pay whatever it takes." As long as you're providing commensurate value, you should be delighted to take their money! Tiers with hands-on offerings Depending on your offering, it may make sense to offer an option that includes some hands-on input from you (or someone else on your team). A word of caution: ensure that this option is priced accordingly to make it worth your time, and consider limiting the number of people who can buy this option. For instance, if you're offering 1-on-1 coaching for a couple hours each month (in addition to whatever the cheaper price points include), don't price that option at $100/month! You'll find yourself completely overwhelmed with trying to service the people you're coaching in addition to managing the other aspects of your business. Instead, price it high enough that it's worth your time, and to start with limit it to just a few members, so you can learn and adjust as you grow. Recap To review, here's what we've covered in this lesson: 1. Be intentional with your pricing don't blindly copy what someone else does. And certainly don't guess! 2. Value based pricing leads to increased profits and happier members 3. Avoid support vampires and make sure your pricing strategy is sustainable. 4. Use price anchoring to your advantage. 5. Give your superfans a way to show their love. 6. Test the waters carefully with hands-on offerings; they aren't scaleable (but can be great in small numbers).

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