Which Pricing Model Do You Like Better ...?

[Esquire]

Suppose you were M.J.

And you had two ways to price an INSIDERS's Membership:

Option #1:
One-time Payment of $120.00 -- Automatically Recurring Once a Year at $120.00

Option #2:
One-time Payment of $60.00 ... Then $5 Per Month (Recurring) ... as long as you don't cancel.

Over the long term ... which of the two payment plans ... do you think would net the site the most money ... and why ...?

Here is the debate going on inside my head:

On one hand ... if you charge $120 for the full year ... you have them locked in for the full year.

No concerns about them dropping out early.

On the flip side ... when that $120 comes up for renewal ... you could run into some continuity problems ... from people who are not actively using the site.

In other words:

People are far more likely to notice $120 missing from their account ... than a stream of $5 ... and are far more likely to make a charge-back on the $120 ... if a refund request is not accommodated.

On the other hand ... people might be reluctant to give up the $60 annual rate ... if they think re-signing for a new year would set them back $120.00.

So on one hand ... you have a higher annual rate ... and a more secure fee structure.

On the other hand ... you have a reduced annual rate (after the first year) ... but a better chance achieving of long-term continuity.

With method (do you think) wins in the end ...? And why ...?

P.S. I am only using the INSIDERS Membership as an example ... because it is something we are all familiar with

 

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[Esquire]

What got me thinking about this (btw) was a product I bought last year.

I paid $37.00 ... for the basic service ... then was offered an upgrade at $9.99 per month. I said no ... and then was immediately offered the same upgrade for $4.95 per month ... as long as I don't cancel.

I took it.

Since then ... I realized the "real" price of the first year was approximately $97.00 ... then $60 per year in continuity. I thought that was fairly clever and effective. Much more so than if they said $97.00 then $60.00 per year.

I (myself) totally forgot about it until recently ... and even when I thought about it ... I was like ... $4.95 is not that much ... who knows ... maybe I will use it at some point ... or I was just feeling to too lazy to cancel.

Made me scratch my head and ask myself ... hmmmm ... perhaps there is something to be learned from this ...?

At the same ... I like the INSIDERS's pricing model ... as far as signing up people in the first year goes ... but I am less sure about how effective that pricing plan would be for continuity.

Hence the debate.

Which pricing model do you think is better ...?

 

[Growth & Learn]

You're asking a good question but you're neglecting something super powerful..perhaps the most important thing. What's your churn rate? How sticky is the site? If the site is super sticky you'll want to have a low as possible price point in the beginning to get as many people in as possible. Then, make all your money on the back end.

If you're not very sticky (which you absolutely need to fix and improve asap) then you'll want to get as much money as possible on the front end.

That being said you should test both price points. Ultimately, this is a #'s game. What's going to make you the most profit in the long run?

 

[Lex DeVille]

My first thought is the more expensive option leads to a higher percentage of quality users which are probably more likely to return next year and pay again.

80/20 principle.

Only those who either have the money to spare, or are willing to work hard and get it will afford it.

So, member quality goes up, as does the quality of his content contributions, which makes it more worthwhile for other members who join later.

 

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[MindWarrior]

Being that humans naturally gravitate towards the easiest option, $60 today is much easier to justify than $120 today. I would tend to think that the $60 upfront and $5/month would be more effective. Anyone can justify $5/month, IMO. Essentially, it's just like financing a purchase.

 

[johnp]

As a business I like to get the money upfront, especially if I'm dealing with businesses. I'll discount the upfront or annual option to provide incentive for that option.

But I think regardless of whether you're B2B or B2C it's always better to get the money upfront.

BUT as a consumer, I would rather pay monthly fees so I can cancel when I want. I don't like to tie up my money on the front-end.

I think that's why a lot of businesses offer both options. Try to appeal to both sides but attempt to push the buyer towards the annual model.

 

[Damage Inc.]

I know I've seen MJ say that he would prefer a lower number of higher quality INSIDERS as opposed to just selling as many subscriptions as possible for the highest profit possible. So I'm sure he is factoring in his other motivations when pricing. But I assume that's not the point of this example and we're disregarding any personal or non monetary motives.

So to answer your actual question, my gut says that #1 would net more. I think someone who just read the book, got excited about becoming a millionaire, joined the forum, and is ready to dish out money for a membership would pay the $120 if they are willing to pay the $60 most of the time. I don't think the extra revenue generated by the people who would go for option #2 but not option #1 would make up for the revenue lost by cancellations before the $120 mark is reached in option #2. I think a good portion of new subscribers will drop out of sight within a couple of months, settle back into their routine, and cancel the membership even at just $5/mo. With option 1 you've still got these people for the $120. And the members who want to remain active and still have a use for the content will not be reluctant to renew at $120 when the next year rolls around in my opinion.

That's just my guess for this kind of online content though. Gyms like Planet Fitness make a killing because of the startup fee and then the low monthly payments. So many people think "Well I might start working out again next month and I wouldn't want to pay the startup fee again, so for $10 I'll just let it ride".

 

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[BlakeIC]

option 2