When I talk to creators who run memberships, I'm almost always shocked by their low retention rates. Most creators I speak to retain less than half of their memberships year-to-year, and if they charge monthly, they often lose members around the 3-4 month mark.
What's happening?
Clearly, there's a misalignment between price and value at the point of renewal. So there are two options: increase the value or decrease the price.
In most circumstances, I find the membership is priced too high.
The standard pricing logic
Hear me out – I'm typically the first person to tell creators they are undervaluing their products. With most products, the optimal price is the highest amount you can charge while capturing the most customers. You want to choose a price perfectly aligned with the customer's perception of value – or maybe a tad lower.
The bigger the gap between your price and the value delivered, the more delight or disappointment the customer will experience. So, in some situations, charging a low price to create customer delight is a smart strategy. But for a one-time purchase product, you leave money on the table – especially if there isn't an obvious next purchase for those delighted customers.
As a result, most creators will slowly raise their prices to the point where they feel price and value are perfectly aligned. This results in satisfied customers and maximum revenue.
This is where things are different with memberships.
How memberships are typically priced
Memberships fall into three categories:
- Premium content
- Peer-to-peer connection
- A blend of both
Even if you have a blended membership, you'll index more strongly on either content or connection.
When premium/gated content is part of your membership, the temptation is to factor the value of that content into the membership price. So if you have $500 of premium content (like courses) inside your membership that you sell for $1,000 per year, you might think that the community aspect of your membership needs to be worth $500/year to members for price and value to be aligned.
In year one, that is true.
But what about year two? When it comes time to renew, is that $500 of content still worth $500 to the member?
Probably not.
In most cases, they've probably already extracted that value in the first year. So, unless you've released (or they believe you WILL release) new content worth $500 or more, then their renewal consideration is whether the community aspect alone is now worth $1,000/year to them.
Is the community twice as valuable as they originally thought?
If not, they may not renew.
This is what I see with most memberships – year one feels like a bargain, but they have high churn because year two feels overpriced.
A recurring product isn't useful (or sustainable) if nobody renews!
Pricing memberships properly
The fix is simple:
Price your membership on the value of the renewal – not entry.
If I could tell any membership creator anything, you want to optimize for renewals, not new members. Of course, you want new members – but if you have a high renewal rate, your business can grow with very few new members. Plus, every churned member is another former customer in the world explaining to potential members why they didn't renew.
So, when it comes to pricing, ask yourself what price makes renewal a no-brainer. It may mean that if you have a blended content + community membership, you barely factor the price of your premium content into the membership price.
That's what I do with The Lab. Members of The Lab get ALL of my courses AND CreatorHQ on day one. When you look at the retail prices of the premium content alone, it's over $1,600. And ALL members get that – Basic ($699/year), Standard ($1,999/year) and VIP ($3,999/year).
I use the products as a way for new members to de-risk their first year of membership – knowing that I'm delivering a high-quality community experience worth the price of admission. The price is totally based on what I believe the year-to-year value of the community to be.
And as I continue to make the membership more valuable, I plan to keep the price the same.
Conclusion
So much community value is unlocked from continuity. In a membership based on peer-to-peer connection, the value comes FROM the people! It comes from their relationship to the space and to one another.
So, the better you retain members, the better and more valuable your community becomes. And if you want to retain your members, you need to make the ongoing investment a no-brainer.
Build A Beloved Membership
Earn recurring revenue with a membership community that people truly love.
