In the ever-evolving world of business, companies are constantly seeking innovative ways to increase customer engagement and drive revenue. One such strategy that has gained significant traction is the membership business model. This model, which hinges on the idea of providing exclusive benefits or access to members in exchange for a recurring fee, has been adopted by various industries with notable success.
Basically, membership business models are very similar to subscription models but focus more on customer retention by offering exceptional customer privileges, positioning in premium access, developing products, and building online communities to help retain customers.
If you’re interested in learning even more about this model, this article is just what you need. Stay tuned, as we will provide you with examples and tips for developing a suitable membership model for your business.
What is a Membership Business Model?
Starting off, let’s define membership model types and the characteristics they have. In simple words, memberships allow clients access to products, services, or additional benefits. A library card is one sort of membership that most people are likely familiar with. All people need to do to take advantage of this free membership is sign up to get a card that gives them access to all the library’s books (and typically internet access as well).
Online Membership Models work the same but in a digital way. Some premium memberships may not fit into the subscription business model. For instance, you may join a co-op that offers lifetime membership for a one-time cost.
Different Types of Membership Business Models
Best membership models, allow members to choose or bundle the services and benefits they want depending on their preferences and needs. There are different types of business membership models depending on how members can get advantages from an organization and pay fees.
Here are the organizations that use best membership models:
Providing access to an offering over a specified period of time, for example, a day, a month, or a year. (swim club, tennis club, gym club, etc.)
2. Trade Associations
Organizations or individuals seeking a specific goal or benefit. In most cases, these companies and individuals are involved in the same industry, which creates a common ground for them. (e.g., writing associations, engineering associations, nursing associations, etc.)
3. Non-profit Organizations
One of the best membership models in which members join an organization for a fee, and that fee is used to support a cause. It could be a church, an institution, a charity, or even a non-profit organization.
Your customers will be charged a fee in order to access your content. There are many options to choose from here, including online courses, e-books, and blog posts, to name a few. Take Netflix, Spotify, and Amazon, for instance; don’t we love them all?
1. Value-based Membership
Netflix is a great example of this model. It is a streaming service that offers a wide range of TV shows, movies, documentaries, and original content. Customers can choose from different plans that offer different features, such as the number of screens, the quality of streaming, and the availability of DVD rentals. Customers pay a monthly fee to access the content and can cancel anytime.
Additionally, Netflix can use its data and technology to develop unique and exclusive content that meets the needs of its audience and broadens its appeal on a worldwide scale. With over 200 million customers in more than 190 countries, Netflix has become the largest streaming service provider in the world thanks to its very profitable business model of content subscription membership.
In this case, members pay for regular access to tangible or consumable products. Customers can decide how frequently and for how long they wish to receive the products, and they are always free to renew or end their subscription. With this business strategy, the company may offer convenience and value.
For example, let’s look at Dollar Shave Club which is a grooming service that often sends out razors and other hygiene items on a recurring basis. Dollar Shave Club offers a greater shaving experience while saving clients time and money by charging a monthly or quarterly subscription to have high-quality razors and personal care items delivered to their doorstep.
Customers pay for a membership site business model or platform that’s all about providing value and convenience. They get to decide how often and for how long they want to use it, and they can cancel or renew their subscription whenever they want.
For instance, Amazon Prime is a subscription service designed for online shoppers, offering benefits like free shipping, easy returns, exclusive deals, and access to extra features such as Prime Video, Prime Music, and Prime Reading. Subscribers can pick between a monthly or annual fee. This approach helps the company ensure ongoing revenue, and consistently deliver quality and innovation. In addition, when customers purchase online, they can benefit from convenience, flexibility, and variety as well as have access to a sizable and varied library of digital content.
To use this model, members pay to join a group or community that offers exclusive benefits or features. This membership site business model enables the organization to provide differentiation and loyalty. For example, Costco is a retail company that offers a wide range of products and services at discounted prices to its members. Customers can choose between different membership levels that offer different benefits, such as cash back rewards, travel discounts, or optical services. Costco has grown to become the third-largest retailer in the world, behind only Walmart and Amazon, demonstrating the strength and profitability of its membership club.
2. Ability-to-pay Membership
Members of this membership site business model pays fees based on their earnings or level of revenue. Although this model gives members greater accessibility, it also takes more organization verification and management.
This is where fees are paid according to a range of prices that correspond to the member’s income level. For example, a yoga studio may charge $10-$30 per class depending on the member’s income .This makes yoga more accessible to more individuals, regardless of their financial circumstances.
By using this model, a yoga studio can also draw in more clients with various requirements and backgrounds who might not otherwise be able to benefit from yoga. Customers of a yoga studio may feel more supported by the studio as a result of the sense of community and trust the studio can offer.
Members of this membership site business model pay dues depending on the several categories or levels that represent their revenue or size. For instance, trade association groups whose members are employed by the same industry or practice the same profession. They typically provide opportunities for networking and professional growth, such as training, accreditation, publishing, conferences, or advocacy.
Depending on its size or revenue, trade groups can charge different dues for their members. They may charge $500 for small businesses, $1,000 for medium businesses, and $2,000 for large businesses. Trade association groups implement this membership model to bring in more members with a variety of needs and backgrounds who might not otherwise be able to join the association and take advantage of its services.
Pay What You Can
This is all about charging clients according to what they can afford or what they believe the service is worth. For example, museums typically provide exhibitions, tours, workshops, or events as well as other educational and cultural benefits. Depending on their value and accessibility, they may charge what you can for entry or membership. A museum might, for instance, offer a suggested admission price but let people pay what they can. Also, they can increase their income and donations from patrons who are eager to pay more or give to the museum’s cause or objective.
Subscription vs Membership Business Model
The Membership Model is community-centered, meaning it aims to build a community of members who share similar interests and viewpoints. It requires regular content publication to keep the members engaged and informed. The model must fulfill the requirements of the members, ensuring that their needs and interests are met. It also offers a limited-benefit trial period, allowing potential members to experience the community and its offerings before fully committing.
On the other hand, the Subscription business Model is 100% customer product centered. It focuses on delivering high-quality products or services to its subscribers. Unlike the Membership Model, it doesn’t require frequent content publication. Anyone can participate in a subscription model, regardless of their interests or viewpoints. This model often offers a benefit-filled trial period, giving potential subscribers a taste of the full benefits they can enjoy once they subscribe.
100% customer- or product-centered
Must fulfill the requirements of the members
Product quality standards must be raised
Regular content publication
No need to publish new content frequently
Participants ought to share similar viewpoints and pursuits
Anyone can participate
Offers a limited-benefit trial period
Offers a benefit-filled trial period
Advantages of Membership Models For Business
The effectiveness of the membership business model can be attributed to the fact that it provides numerous advantages to both the organization and the member. Let’s examine both perspectives.
Pros of Membership Business Models For Organizations
Here are 6 advantages of membership business models for organizations:
1. Regularly Recurring Earnings
A membership business model can generate stable and predictable income from selling one service or product to a loyal customer base. This may result in cheaper marketing and customer acquisition expenses, higher customer lifetime value (CLV), and lower churn rates.
2. Established Audience For Brand-New Business
Imagine you operate a membership business for cars, and you have around 10,000 members. In the event that you start a business around car tools and essentials, you can expect to gain at least 50% of your previous clients from your previous business. This could be a valid calculation if you can devise a compelling and charismatic business plan. As a result of your authority, you will be able to build another business quickly.
3. Exponentially Growing Business
You can grow your business tremendously by owning a membership business. Since your store does not limit how many people can join, you can gather as many members as you like. The more members there are, the bigger the community and the more opportunities are available. Moreover, your business structure can stay the same. Other online businesses require a lot of resources when they begin to grow. To succeed in the membership business, you must maintain a huge traffic volume and meet their needs.
4. Lower Retention Budgets
Retention budgets could also be reduced through membership models. After a patron has become a member, it will usually take a pretty unpopular business move to get them to cancel their Membership proactively. Do what’s supposed to be done, and you’ll almost automatically have members buy from you. Keep in mind that if you offer long-term plans, such as those for one year or longer, you can also save money.
5. Customer Loyalty
This business model has the ability to attract committed customers who are more likely to support the brand and spend more on its products. Additionally, it has the potential to improve client satisfaction, retention, and word-of-mouth referrals.
6. Quality & Innovation
Using a membership based business model allows for the delivery of quality and creativity. The company may create distinctive and original content or goods that are targeted to consumer groups and preferences by leveraging data and technology. This not only distinguishes the company from rivals but also makes it easier for it to expand internationally and increase its appeal.
Pros of Membership Business Models For Customers
Here are some advantages of membership business models for customers:
1. Access Exclusive or Premium Services or Features
Members get exclusive access to premium services or features that are inaccessible to guests. For instance, Netflix users get access to a wide range of TV series, movies, documentaries, and other unique content that is not available to non-subscribers.
2. Enjoy Convenience and Flexibility
With the flexibility to choose the length and frequency of their service or product consumption, as well as the option to renew or cancel their membership, members enjoy convenience and adaptability. For instance, Dollar Shave Club members can elect to skip or cancel their subscription at any time, and they can get premium razors and other grooming necessities delivered to their home on a regular basis.
3, Benefit from Personalization and Customization
Members may customize their choices and experience customization to suit their own tastes and needs. For instance, Blue Apron gives its subscribers the freedom to select from a variety of meal plans that are catered to diverse cuisines, dietary requirements, and serving sizes.
Success Story of Amazon Using Membership Model
Amazon Prime is a fee-based membership plan that offers a variety of advantages to its users. Here are some key statistics related to this online membership model helping both Amazon and its users benefit from it:
- As of 2023, Amazon Prime has over 200 million global users, with Prime membership accounting for 65% of all US Amazon purchases.
- Amazon Prime’s service first became available to domestic customers in 2005 and has since expanded to over 20 countries so far.
- Amazon earns $25.21 billion every year from retail subscription fees.
- Amazon Prime Day sales surpassed $11.79 billion in 2021.
- A paid Amazon Prime membership is currently owned by around 81% of US internet users aged 18 to 34.
Choosing the best Membership based business Model
There are a number of things to take into account when choosing between a subscription box and a membership model for your business. These consist of:
It’s critical to understand your target market’s preferences, needs, and purchasing tendencies. If your target audience values experiences and benefits in addition to access, a membership model might be more suitable. If the primary interest of your target market is access to a good or service, a subscription model might be more profitable.
Think about your company’s objectives and the kind of revenue you hope to bring in. If your objective is to create a reliable and ongoing stream of income, a subscription revenue model might be a better option. On the other hand, If you want to concentrate on making one-time sales or promoting additional goods and services, a membership model might be more suitable.
Which option is the best may depend on the industry in which your business operates. While membership models are more prevalent in the fitness and education sectors, subscription services are more common in the software and media sectors. Consider the membership model a gym might use to provide access to exercise classes, individualized training, and other advantages.
Lifetime Value of the Client
Consider the long-term value that each client will provide for your company. This will enable you to choose between the models by assisting you in determining the appropriate pricing strategy and commitment level for each customer relationship.
A membership model might be more suitable, for instance, if your target market is likely to make repeated purchases or renew their membership over time.
To determine which model is most likely to be successful for your particular business and target audience, it is crucial to conduct market research. Customers may be surveyed, market trends and competitors may be examined, and focus groups or user testing may be conducted.
Take into account the expenses related to each model, such as overhead costs and costs associated with acquiring and keeping customers. You can use this to decide which model is more financially profitable for your company.
Consider each model’s scalability and how simple it will be to grow your customer base and revenue stream over time.
If your company’s primary focus is on digital goods or services, a subscription model, as opposed to a membership model that relies on physical locations or resources, may be more scalable.
You can decide which business model is best for your particular company and target market by taking these factors into account.
As you can add new features and expand your service, membership models provide more opportunities for growth and innovation than subscription programs do. The ultimate objective is to develop a model that offers customers value and produces steady, recurring revenue.
How Will Membership Models Look in the Future?
The future of membership models is promising and is expected to evolve with changing consumer behavior and technological advancements. In other words, the future of e-commerce for businesses may lie in memberships. With the availability of multiple platforms and plugins, it is now easy to launch a membership based site.
In the near future, 17% of responding companies plan to create new or additional recurring revenue operations. Therefore, as businesses increasingly recognize the value of membership models and the technology to support them becomes more accessible, we can expect a significant shift towards these models in the e-commerce landscape.
The future of membership business models lies in embracing subscription trends, as businesses recognize the value of recurring revenue, personalized experiences, and the convenience that subscriptions offer to customers.
Why is Shopify a Great Platform for Setting Up Memberships?
Over 1.7 million companies in more than 175 countries use Shopify, an e-commerce company. Shopify offers subscription management services, online storefronts, shipping support, POS systems, payment processing, and round-the-clock customer support services as a full-service ecommerce platform.
Among Shopify’s subscription management features are the following:
- Recurring payments
- Mobile wallet & international
- payment processing
- PCI adherence
- Adjustable billing cycles
- Subscription billing options
- Modern & advanced analytics
- 24/7 customer service
The Challenges of Using a Membership Model
Membership business models are becoming more popular among various types of organizations, but they also come with some challenges. Some of the common challenges of membership business models are:
1. Maintaining Networking Momentum
The ability to generate a sense of belonging and inclusion among members is a key benefit of membership models. But to keep this sense of participation and connection alive, especially online, requires constant effort. In order to encourage collaboration, acknowledgement, value and members’ active participation, entities must provide pathways for members to interact, engage, and learn from one another.
2. Increasing Member Expectations
Recurring payment members expect to get value and satisfaction out of their membership. Consequently, businesses need to be constantly focused on improving their member communications and offers. It is crucial that organizations understand the needs, preferences, and feedback of their members in order to deliver experiences that are relevant and customized for them.
3. Growing Membership in an Economic Downturn
Membership business models rely on members’ ability and willingness to pay for their fees. Members may show more hesitation or financial difficulty in covering these charges during times of economic instability or catastrophe. Companies need to come up with plans to draw in new members and keep the ones they already have by offering flexible payment options, promotions, discounts, and attractive value propositions.
4. Getting to Grips With Your Data
A variety of data sources, including membership applications, transactions, surveys, interactions, and analytical insights, are produced by membership business models. To effectively collect, store, process, evaluate, and use this data, entities need to be supplied with the right resources and skills. This data is an invaluable tool that helps companies understand their members better, divide them up into different groups, personalize their messages and services, and assess how well they’re doing as a whole.
5. Engaging Members to Avoid Member Churn
Member loss, also known as member churn, is the rate at which members stop participating in a group or cancel their subscriptions. The income and reputation of an organization may suffer as a result of this situation. Organizations should actively engage their members, continually provide value and benefits, aggressively solicit their input and feedback, and swiftly resolve any issues or complaints in order to reduce member churn.
According to the statistics provided in this blog membership models will continue to grow and adapt to meet the needs of consumers and businesses alike. The membership business model offers a unique approach to customer engagement and revenue generation. It allows businesses to build stronger relationships with their customers by offering exclusive benefits and access. While there are different types of membership models to choose from, the key is to select one that aligns with your company’s values and target audience.
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