Should I Charge Monthly or Annually for My Membership Site?
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Should you charge monthly or annually for your membership site?
This may sound like a straightforward question…
But if there's one thing that's not always simple when it comes to memberships…
Deciding on what to charge, whether or not to have multiple tiers and a joining fee…
These are just a few things to take into consideration.
Then of course there's billing frequency.
How regularly you charge your members can impact your sales, member engagement and retention.
Not to mention the implications on your wider business in terms of stability and cashflow.
With all of this to keep in mind, it's not surprising that the whole process can become overwhelming for some.
But if you’re planning to launch a membership site, pricing is something you need to nail pretty early on in your journey…
And deciding the frequency of payments is a good place to start.
So should you charge monthly or annually?
We're here to help you to decide…
Let's start by going through the pros and cons for both monthly and annual memberships:
Pros of a monthly membership
1. Monthly payments are way more affordable
The most obvious benefit of a monthly pricing system is that it’s more affordable for your members.
So rather than asking them to cough up a huge lump sum for 12 months, they can pay in smaller increments.
While the frequent payments might cost more over time…
It’s a lot easier for people to fit it into their monthly budget.
Remember, they probably have a lot of other subscriptions to pay each month.
And adding your membership to the list for monthly payments is easier for some than a one off up front payment.
2. There’s less risk for the buyer
When people purchase anything online, there’s always an element of risk.
That’s why people tend to do so much research before parting with their cash.
When people pay monthly, there's far less risk.
This is because the worst case scenario – even if they do get ripped off – they've only paid for a single month.
So even if there's not a money back guarantee…
They've only lost one month of payment.
So they've only lost, say, $40 to $50 vs losing hundreds – or even thousands – if they'd paid for an annual option.
Monthly payments lessen the risk and could be a deciding factor on whether or not people decide to join your membership.
3. Less issues with repeat billing vs annual
Let's face it, a lot can change in a year.
It's a big gap between the first billing and the renewal.
The member's card could expire…
They may change banks…
The member could be in debt…
There may be a blooming global pandemic!
Or they may simply forgotten they’ve subscribed and get a shock when it comes to their renewal.
With monthly billing, people are a lot less likely to forget they're a member…
And you’ll run into far fewer issues as it’s a regular ongoing payment.
4. Monthly payments give you stability
More people giving you smaller amounts of money gives you that little bit extra security.
Think about like this…
If you have 500 people paying $40 a month…
One person canceling isn’t going to have a massive impact on your business.
However, if you have 10 people paying $500 a year…
One person canceling is a more significant chunk of your income.
One of the main reasons people set up a membership site is for income stability…
But that stability goes out of the window if you’re relying solely on annual billing.
5. People use the content more
If people are actively paying every month, they're more likely to log in and use your site.
Because they're more conscious that if they don't, they're wasting money.
Whereas if someone signs up for a year, there's no real urgency to use and engage with the content.
They may think, “oh well, I don't need to log in this week or even this month because I've still got 12 months left to use what I'm paying for.”
If someone is paying monthly, they usually want to consume your content month to month.
That of course can be a good and a bad thing…
Because if someone is paying monthly and go two or three months without logging in…
They're for more likely to cancel than someone who has paid for the year.
The pros of annual billing
1. It improves the quality of your member base
One of the best things about an annual membership is that it can improve the quality of your member base.
You'll generally have fewer people signing up…
But because of the higher upfront cost…
People are more likely to do their research before joining and consider their buying decision more.
So this makes them a better fit…
And will hopefully make them stick around.
This usually adds up to a slightly higher caliber of members in your community who are more engaged.
2. More room for promotions and discounts
Annual billing usually means you have more room financially to offer promotions, discounts, and offers.
It’s a higher-ticket item, so you have a greater profit margin to play around with.
It also means that if you’re doing any kind of paid advertising, there’s room for a higher member acquisition cost.
In other words, you can spend a bit more on advertising.
3. It’s better suited for long-term results
If you know that members need to commit to a longer period of time to see the results they want, an annual membership might be best.
For example, if you’re coaching for weight loss and fitness and have a long-term program…
With monthly billing, you know that anyone canceling after month one is not going to see the results they wanted.
After all these things can take time…
So if your membership is geared towards delivering results longer term, annual billing is the best option.
4. It’s more cash in your business
A big plus for annual subscriptions is that it’s more cash in your business.
Every transaction will be a bigger cash injection.
That means you’ve got more cash in the bank to invest back into the business.
You don’t have to wait for a trickle of smaller monthly payments.
Which one is right for you?
There are definitely pros and cons to both options.
Monthly memberships are a bit more stable and are more affordable.
Annual memberships have the big cash injections that you want and a higher profit margin.
So, which one should you pick?
The good news is you don’t have to pick just one option…
We’d recommend making both monthly and annual plans available.
It’s the best of both worlds, and it gives your members a choice.
In fact, we’ve found with our own research that having two options side by side actually increases sales…
It’s a win-win!
A general rule of thumb for offering both is to give a financial incentive for people to choose the annual membership…
You might want to do 10x your monthly cost, giving them two months for free in exchange for the longer commitment.
This covers both the price-conscious members and the bargain-oriented members.
The price-conscious members will see $50 a month vs. $500 a year and see the monthly cost as better value.
Someone more attracted to a good deal (who isn’t necessarily price-constrained) will go for the annual one as it’s a better deal.
When shouldn’t you use both options?
The only time we’d recommend avoiding both options is if you’re also using multiple tiers of your membership.
If you have three or four different tiers, then giving multiple billing choices for each is overkill, and way too much info to throw at your potential members.
So keep it simple!
Too many options will lead to uncertainty and make it harder to make a decision.
Upsell and down-sell
The good thing about having both options is that you can use it to upsell or even down-sell.
If you have someone paying monthly, you can send out an email a few months in to see if they’d like to switch to annual billing to save money.
If someone’s thinking of canceling their annual subscription, you could automatically offer monthly billing instead as a more manageable cost.
This is something that Amazon Prime does pretty well.
Even if you’d rather not publicize both options…
You can have an alternative in your back pocket to either upsell or down-sell to keep your members.
There's no right or wrong way to do it…
There are pros and cons to charging both monthly and annually for your membership site.
But if in doubt…
And unless there's a specific reason for you not to…
We'd recommend you offer both options side by side.
This is what we do in Membership Academy.
And in our experience it's generally what works very well across most markets and membership topics.
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