Membership Websites; What’s The Catch?

Membership Websites; What’s The Catch?


It’s the dream - a steady and reliable income from the Internet that you can count on, month after month. Forget flaky search engine rankings and ever-improving algorithms designed by uber-nerds to induce stress, anxiety and frustration in online marketers.

On the face of it membership websites seem to offer the holy grail that is residual income. Unfortunately there’s a catch. Oh, there’s always a catch.. but you knew that. We all bloody know that. Membership websites just aren’t that simple.

I’m considering starting up a couple of membership websites later in the year and I’ve been doing a lot of research on the subject a long with a lot of head scratching. It’s far more complicated than it seems on the surface.

Members will not stay with you forever

The first thought I had when thinking of membership sites was ‘If I have 1,000 members paying $10/month that’s $10,000 in revenue each month. Fantastic!’.. this however, while exciting to imagine, is not the reality when you dig in to it all.

The fact is, members that sign up will not last forever. At some point they will unsubscribe or simply not wish to use the service any longer no matter how great your content or website is. This goes for any membership site meaning the income isn’t that steady after all, and there will be an average life-time value of each paying subscriber.

So much for the dream of residual income. What you’re basically doing by running a membership site is instead of selling a product one-off for $27, you’re hoping to extract a larger amount off each member over a longer period of time. Let’s say $67. This means you can either spend more money to acquire members or a similar amount and earn more off them than you would of selling them a single one-off product.

That’s the primary catch over with; don’t be fooled in to thinking you can relax once you have a level of paying members. They will drop off at a certain rate each and every month, meaning your income dwindles unless you’re actively promoting and advertising for new members. This is a complicated process to keep a track of as you would need to know:

Average number of months members subscribe
Acquisition cost of each member
The average value of members
Finding out the above figures will take months and hundreds of members, meaning cost, time and effort before you even know if the membership site you’re running is even profitable! Of course, if you’re acquiring members via free methods of advertising and creating the content for your membership site yourself, this isn’t a problem and it’s all gravy. That probably isn’t going to be the case though, so let’s look at the costs in creating content and break even examples.

What to create a membership on

Personally I believe if you’re asking people to subscribe at a monthly fee, you must look at targeting groups who you definitely know can afford to pay monthly. While a teenager who wants to make money may be able to afford The Rich Jerk e-book from the money he received for his birthday for a special one-off price of $9, they certainly couldn’t pay $9 the month after, and again after that.

I would look at markets such as investment, stocks, gambling, leisure, sports which are expensive to play etc and markets that generally attract the wealthy or people will money to spare but also includes an active interest and not a flash in the pan hobby they may not care about in a few weeks - common sense tells us this will reduce drop-off rates and increase the length members are subscribed to your membership website.

The cost of content creation, membership fee’s and your break even point

Alright, you’ve chosen your market and decided to offer personal advice as you’re a successful stock trader with a record to back it up. People want your tips and are willing to pay you $19 per month for them.

You can either create the content yourself and offer articles, videos, presentations and audio, or out-source the work to a knowledge writer or someone in the industry. Let’s say you want to focus more on advertising your website and would prefer someone else to create the content - costing $650/month for 5 original articles, 2 stock tips and a video presentation that includes time-frames of stocks and some general advice.

Charging members $19/month you would require 34 paid and current members just to break even - and that’s not the actual reality, as the cost of acquiring those members must be factored in before you’re breaking even. This can be worked out after your first handful of members, here’s an example:

Let’s say you spent $300 on an Adwords campaign in the first month targeting stock and investment keywords which got you 1,200 clicks costing $0.25 each, and there was a click to membership ratio of 3% - 36 paid members. That’s an acquisition cost of $12.50 per paid member, meaning the first month the statistics where:

Cost to create content: $650
Cost to acquire 36 members: $300
Initial revenue from 36 members: $684
Revenue after acquisition costs: $384
Overall profit after cost to create content: -$266 (negative profit)

Did I mention there was a catch?

Ok - let’s say in month two you increased your spending on Adwords and paid 0.25 again but for 5,000 clicks. That’s $1,250 to acquire another 150 paying members.

Assuming no members from month one unsubscribed you now have a total of 186 members paying $19/month.

Month 2 statistics:

Cost to create content: $650
Revenue from month one subscribers: $684 (pure ‘profit’ now from these members)
Revenue after acquisition cost of month two subscribers: $1,600
Balance carried over from month one: -$266

Overall profit in month two: $1,368
Now we’re getting somewhere and breaking even - wohoo.

Ok, that’s all for now - I made my point and I’m tired as hell. I will be posting a part 2 for this as it really, really demands one. In part 2 I will look at making more revenue off the back-end, membership site software, hosting, payment processors and more…

From: gadood.com

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