So You Want to Start a Membership Business
Let’s get real for a second…
Starting a new business can be a long journey.
There are no shortcuts that will actually lead you to long-term success.
This is especially true when it comes to membership businesses.
When done right, creating a membership or subscription based business can be very rewarding. You have the opportunity to build meaningful, long-term relationships with your members, provide them with value month after month, and cultivate a community that creates secure and stable income for you.
However, unlike other businesses, running one that relies on members (or subscribers) is a whole different ball game. There are a couple things that make this type of business unique.
First, while traditional productized businesses sell a product or service once, they have to continue selling that product to new customers in order to keep making a profit. This isn’t the case with membership and subscription businesses, where the “product” results in regular monthly (or annual) income for as long as your members stick around.
Second, keeping your membership or subscription up to date (and customers happy) on a consistent basis requires more effort than a standalone product, which you only sell once and then forget about unless trouble arises. This means that you can’t be of the mindset of selling and forgetting – you’ll have to constantly be on your toes with content that benefits your members.
With that in mind, let’s take a quick step back and look at the high-level overview of membership businesses.
What Is A Membership Business?
In 2020, membership businesses are popping up everywhere. You can get your groceries with a Costco membership, get your sweat on with a Peloton subscription, and have just about anything shipped right to your door with Amazon Prime.
We’ve seen such an explosion of membership and subscription offerings over the past five years that it can be easy to lose sight of the true definition of a membership.
So, what is a membership business, exactly?
On the surface, a membership business is simply a company or organization that creates a product or service for which people pay to access on a recurring basis. This could be a monthly, quarterly, or annual billing cycle.
Going a bit deeper, a membership business is something to which people belong. It’s a community, center, or hub that provides enough ongoing value to people that they become ongoing members rather than one-time customers.
Think about it:
You don’t say that you bought another month at your gym. You say that you belong to a gym.
There’s a subtle yet significant psychological difference between buying something once from a business and trusting them to provide you with a product or service until you decide to cancel.
What it all comes down to is this:
Membership businesses are built upon long-term relationships vs. short-term transactions. Or as best-selling author Robbie Kellman Baxter would put it, membership and subscription businesses solve forever problems with a forever promise. If you’re able to do this, you have a legitimate shot at attaining the “holy grail” of business: stable, predictable, recurring revenue.
Fun Fact #1: Did you know that in 2018, Americans spent an average of $237.33 per month on membership and subscription services?
Memberships vs. Subscriptions: What’s The Difference?
This of course begs the question:
“What’s the difference between a membership vs. subscription business?”
While these two terms are often used interchangeably, there is in fact a difference between membership and subscription businesses. The easiest way to illustrate this difference is to look at two different business models you’re probably familiar with.
For our first example, let’s consider the entertainment streaming companies like Netflix, Disney+, and Spotify. These are your classic subscription businesses. You pay a recurring fee for access to content on each platform. There is no concept of a relationship involved in your Netflix subscription. If you pay, you get to watch movies. If you don’t, you’ll have to find another way to watch this week’s episode of The Great British Baking show.
On the flip side, let’s take a look at a boutique fitness business like a yoga studio or CrossFit gym. Yes, you do pay a recurring fee for access to these facilities in the same way you pay for Netflix. However, these are membership businesses because you belong in the community they’ve created.
When you check in to a yoga studio, the instructor will typically scan your membership card and greet you by name. If you stick around past your free trial period, you’ll likely build relationships with the instructors and your fellow students. They’ll know your skill level, whether you have any injuries that prevent you from doing certain poses, what type of class you like taking, etc.
It may seem like we’re splitting hairs here, but it is important for you to know the difference between membership and subscription businesses.
At the end of the day, membership businesses are more focused on relationships. Whereas subscription businesses are primarily built around transactions.
One isn’t better than the other. The model you choose really depends on the type of business you want to create. And the truth of the matter is that the lines between these two types of recurring revenue businesses are often blurred and blended together.
Examples Of Membership & Subscription Businesses
Now that we’ve covered most of the fundamentals, let’s take a look at a few real-life examples of membership businesses. This will help you ground all of the theories we’ve covered into reality and hopefully give you a few ideas for your own membership business.
Service-Based Membership & Subscription Businesses
- Verizon, Sprint, AT&T
Non-Profit Membership Organizations
- AARP, AAA, USAA
- Nest, ADT, Ring
Online Membership & Subscription Businesses
Movies, Television, & Entertainment
- Netflix, Hulu, Disney+, HBO Max, Spotify
Software As A Service (SaaS)
- Adobe, Intuit, Wistia, Ahrefs
Fitness & Wellness
- Daily Burn, Yoga International, Headspace
In-Person Membership Businesses
Gyms & Fitness Studios
- LA Fitness, Pure Barre, Orange Theory
Arts & Crafts Spaces
- Idea Fab Labs, The Clay Studio, Artists Space
Gardens & Arboretums
- The Portland Japanese Gardens, The Morton Arboretum, The Atlanta Botanical Gardens
Hybrid Membership & Subscription Businesses
- Blue Apron, Hello Fresh, Home Chef
- Peloton, Mirror, Hydrow
- Dollar Shave Club, Flaviar, FitFabFun
If you’d like to see more examples of niche online memberships, check out this post from our blog.
The Pros & Cons Of The Membership Model
Because the member-based business model is so unique, let’s take a look at some of the reasons why you might want to start one, as well as the challenges you’ll most-likely face:
- Recurring revenue with high profit margins (even if you have only 100 members who pay $50/month, that can create $5,000/month in revenue, or $60,000 annually)
- Continual engaged traffic to your site
- Customer loyalty and the ability to quickly create an engaged email list
- A platform to get referrals that create additional members/revenue
- Ensuring that you give your customers their money’s worth on a regular basis
- Retaining memberships over long periods of time
- Maintaining a good reputation with members (and their referrals)
Basically, the good parts of running a membership business come down to recurring profits and instant brand loyalty. If you manage both of those things properly, you can run a successful business for years. But that’s also the challenge: managing your members (and the benefits you’re giving them) over the long haul.
So, what does it really take to make sure your members stay happy for years to come?
What It Takes to Be Successful With A Membership
The biggest thing you need to remember is that your ultimate goal is to make your customers happy and successful. If your customers aren’t happy and successful, you’re not happy and successful.
Member Retention is Priority #1
This is different than selling a one-off product, which a few customers may struggle with, or end up not using/returning. In those businesses, as long as you keep selling new products it doesn’t really matter how many people stop using it. But with membership businesses, retention is a big deal. The more members you lose out the back, the lower your profits will be no matter how many new members are coming in the front.
Know Your Audience and What They Need
Making sure members stick around is also about providing them a good reason to stay and selling them once isn’t enough. You’ll have to sell them every single month. This means providing them with fresh content and support on a long-term basis. You’ll have to build real relationships with these people, so make sure you’re actually engaging and interacting with them on a consistent basis.
Have a Plan for Your Content As You Grow
Chances are, if you’re running off of a good model, your business will grow. While that’s the ultimate goal, you’ll also need a plan in place to incorporate new members without overlooking your long-time members. You’ll also need to make sure your content doesn’t get lost on your website.
For example, if you create one seminar a month for your customers, after the first year you’ll have 12 seminars. That doesn’t seem so bad at first, but give it a few years, and suddenly you’ll be struggling to help members navigate through your maze of website trying to find the content they’re looking for. A big part of success is creating strategies for easy content organization and access as your business grows.
Adapt To Needs If and When They Shift
Because your membership is made up of real people and not robots, your membership won’t look the same over time, because people (and their needs) tend to grow and shift as the years pass. This means that what you offer needs to grow and shift along with them. If you’re still offering the same courses and content in year 3 or 4 that you were offering the very first year, that’s a problem. Don’t be afraid to ask members what they want as they continue to face new challenges in their respective industries.
As long as you’re flexible with your strategies, you don’t mind creating new and engaging content, and you’re able to treat your business as something living and active, you’ll do great.
Fun Fact #2: When surveyed, only 150 people out of a group of 2,500 knew exactly how much they spent on membership and subscription services per month.
Questions to Ask Before You Launch Your Membership
Of course, all of that’s well and good to think about, but where do you actually start? How do you know for sure that you’re ready to take the leap into a member-based business model? Well, here are some things to consider…
Who is your target market? Having your target market established before you start is half the battle. Make sure you’re in high enough demand with that market, so you can keep growing over the years (if only five people want your product or service, that’s a problem).
Does my site/product/service already exist? If no, awesome! Just make sure there’s a market for it and that there’s a good reason why it doesn’t already exist. If yes, then check out the competition and make sure what you’re offering is unique. Do you cater to your members in a different way than those other sites? Sometimes the little things – like member engagement – are enough to make you stand out.
How much time do you have to dedicate each week? Remember, your business won’t run itself, at least not like a traditional drop-ship business might. You’ll need to dedicate a certain amount of time on a weekly basis to keep up relevant content and engage your members, so make sure you can actually commit to the workload before you start.
What’s your price point (and are you willing to adapt it)? It’s a good idea to get a general sense of the market for your product and what other, similar companies are charging for similar services. But, you’ll also want to make sure you’re charging what you’re worthwhile making sure your members are getting what they pay for. You’ll also need to be able to adapt those prices as your business grows, so starting lower may be a good idea in order to build towards your “ideal” price point.
What are the technical aspects of your site going to require? Building a great website can be hard. Do you know what platform you’re using? Are you hiring a designer or developer? Will you use any plugins (we’ve got a suggestion, of course)? These are all questions you’ll need to have answered before you start.
How will you provide value on a consistent basis? Will you use a blog? Webcast? Email course? Seminar? Having a content strategy in place before you start, in addition to your product/service is a really good idea. If you’re getting close to launch or you’ve already launched, make sure you’ve got something of value for your members.
Once you’ve answered those questions, you’ll be in a good place to know whether or not you’re up for the challenge. Remember, if done right, a membership or subscription business can be a very profitable choice, so if you’re up for the unique challenges on the journey ahead, buckle up – you’re in for one wild ride.
Ready To Start Your Membership Website?
Now it’s your turn!
Do you feel a bit more confident in your ability to start a membership or subscription business?
We’ll be the first to admit that there’s a lot that goes in to creating a successful membership business. Because of that, we are happy to share a number of valuable free resources with you that can help you along your journey.
If you’re still in the process of building your membership site, we highly recommend that you listen to this episode of our podcast featuring expert membership site developer Ali Jafarian:
Or, if your site is already up and running, this conversation will be the perfect next step for you:
From there, there are a number of other things you might need to learn about to ensure the success of your membership or subscription business. Here’s a grab bag of our most read blog posts and most popular podcast episodes:
10 Niche Membership Sites That Will Inspire You
The Complete Guide To Naming Your Membership Levels
The Essential Guide To Pricing For Membership Sites
How To Build A Forever Transaction With Your Members
Mastering Recurring Revenue: From Startup To 8-Figures
How To Launch A Membership Site From Start To Finish
How To Promote Your Membership On Instagram
Proven SEO & Web Optimization Tips For Membership Sites
How To Build A Profitable Membership Marketing Funnel
How To Double Your LCV & Triple Revenue
If you have any questions or concerns along your journey to building a successful membership business, please feel free to reach out to us. You can leave us a comment here or send us an email at [email protected]. We’d love to hear from you and help remove any obstacles you might encounter along your way.
Joanne is a writer who specializes in educating online site owners about building a thriving membership business.