Why It’s Stupid to Charge a Monthly Fee for Your Online Community

I remember 5 years ago when I first started Location 180 thinking to myself “man, wouldn’t it be cool if I had a site that brought in recurring passive income on a monthly basis?”

To many people it’s the holy grail of doing work online.

And it’s also the stupidest thing you can do if you’re serious about building a private community within your site.

In this post I’ll explain why I feel this way, and what to do instead to essentially get the same effect.

The Most Important Part of a Private Community

At this point all of the online communities and products I have online are a one time fee for lifetime access.

I get asked at least twice a week: why don’t you have a recurring monthly fee?  It’s almost as if people feel like I left that part out by mistake.

It’s certainly no mistake. If you’re looking to create a long standing private community, the last thing you want to do is charge a membership fee each month.

To explain why, I need to briefly go into the history of Location Rebel.

So my flagship course and community now has over 800 members in it. It launched just over 3 years ago with 20 people.

During the course of the 3 years every single person in there has worked on some level or another to build a business of their own. They’ve tried different strategies and tactics, failed and had successes.

There’s a certain percentage of people who have had massive success. These people are now located all over the world managing their mini-empires and doing great. 

If you have a private community, it’s these success stories that are your biggest asset.

Let’s say I have someone who joins Location Rebel, and within 12 months they’ve left their job, are working for themselves and have achieved everything they hoped to get from the course.

If I was charging them $50-100/month what’s going to happen? They’re going to leave! Maybe not right away, but eventually that person who now knows their stuff, and could potentially be sharing their knowledge with new members, is gone.

That makes no sense to me.

If you’re building a private community for the long haul, you never want people to leave. Every single success and failure becomes an experience the entire community can benefit from.

I’ve heard the average person stays in a paid private community for 3-4 months. We want people to still be around in 3-4 years. The odds are stacked against you if you’re charging them every month.

The Work Around

So now that I’ve established my thoughts on that. I will say, recurring income can be great! It can keep the person paying motivated to stay active, and it can add a level of predictability to your income that  can ease a lot of your entrepreneurial stress.

So how do you work it in?

Well 6 months ago I changed the pricing structure of Location Rebel.

It was a flat $497, and I added two more payment options.

The first is an entry level version for $297.

The second is a 4 payment option, where you pay $149/month for 4 months.

This has been a great way to bring in some recurring income each month, without kicking people out of the community when they stop paying.

About 20% of all members go this route, and even though in the end they pay about $100 more over time, it makes it less daunting to make the investment in the course.

Usually as one person as finished paying their 4 months, I’ve had at least one more person that joins to make up for that income stopping.

Now on top of normal sales, I make a couple thousand dollars a month in recurring revenue from these sales.

The Exception to the Rule

The key to figuring out the best pricing model for you is understanding what your goals are.

If you’re running a SaaS (Software as a Service) business, then a monthly recurring model is great. I have tools like Adobe Creative Suite that I gladly pay $50 a month for because I use them so much. I’m locked in.

However if you’re just charging for information, then you had better be coming up with a lot of new information each month if you want people to stick around.

Same goes for private communities. If you’re charging a monthly fee for a private community or forum, you had better have a really established group of diehards that you know are never going to leave.

If I were going to start something like this, I’d do what Dan did with the Dynamite Circle. Bring in 100 of the smartest and most influential people in your niche. Make the community free for them for life, and spend months building up the processes and content to make sure everything is firing on all cylinders. Then slowly start bringing in paying members.

You’ll always have that core of smart people in the community that others will gladly pay to be a part of.

So think about your goals for your membership site. Are you trying to build an exclusive community? Do you want the same people in there 5 years from now? If so, consider charging a one time fee. If you create a product that’s worth it’s salt (is that a saying?), you’ll have no problem bringing in sales on a regular basis.

Image Credit: Rain from Dollars

Dave August 18, 2014 at 8:45 am

I agree! One time payment or monthly installments are the way to go.

What are your thoughts on a yearly or quarterly type subscription plan for SaaS?

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Sean August 18, 2014 at 12:11 pm

I think for SaaS products it’s a totally different ballgame. If you use something religiously and add it to your daily workflow, then people will gladly pay the monthly fee. For those cases, I think thats the preferred method.

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Sergio Sala August 18, 2014 at 10:07 am

Man, this is interesting and you have valid points there. I remember seen your one-payment fee and other like Fizzle with monthly that I’ve always been curious about it.

I have not much to add because I don’t have a membership… but I want to have one someday soon. It’s a little bit like yours, but for the spanish community.

I’d love to hear the comments from others and I think this a great debate we could ask other “top” bloggers!

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Sean August 18, 2014 at 12:11 pm

I’m not saying that it can’t work (Fizzle being a great example of it done right), but in most cases it’s more effective to have a one time fee. Especially if community is your main focus.

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Ryan August 18, 2014 at 12:24 pm

It’s good that you pointed out the difference between a site that offers the same information and gradually adds more as their industry changes. However, for a site that offers new service/products on a weekly or daily basis, the monthly charge is the way to go. Once the members reach a certain goal, say in fitness, then they want to keep their level of success and want to stay part of the community that got them their and keeps them their. Especially if the members are social on the site.

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Arman Assadi August 18, 2014 at 12:25 pm

Hey Sean,

Great post and thoughts, I feel exactly the same way. Product creators are missing the point: it’s about building community, not recurring income. The community itself has so much more value, and will lead to additional opportunities.

I think you nailed it and this needed to be said. Another way I’ve found that accomplishes both is to offer a membership to a higher level community/mastermind, or done for you solution. This can be offered on the backend as an upsell, which can be a recurring monthly charge.

This way you retain the community through lifetime memberships, increase the average customer value through the upsell, and provide a new recurring revenue model for your business.

Thanks and keep up the great work!

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Donmonique August 18, 2014 at 12:25 pm

I was literally just talking to someone about starting a subscription site like 15mins ago! Talk about timely.

I’m thinking about adding a monthly subscription for premium content on a site I’m building. I was considering giving them access to a community forum, premium articles and (perhaps) courses later on down the line as a part of the subscription. I’m am thinking of it as more of an interactive online magazine. For access I plan on charging $11.11/month, which I think is reasonable and something most people can afford. I couldn’t imagine charging a large upfront fee.

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Xavier Cobos August 18, 2014 at 12:30 pm

Really interesting article. I just got started offering virtual personal training for bodyweight fitness enthusiasts at a monthly fee of $60+. Clients get customized routines and exercise videos delivered to their smart phone. I’m curious what other pricing models I could explore? Bit different since there is no community component, but I’m eager to test things like a quaterly or annual price at a discount.

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Barbara August 18, 2014 at 1:20 pm

Very interesting article Sean, just when I was looking at my own pricing structure! I see what you mean – actually the only community I pay regularly to be a part of is the Dynamite Circle, because I feel it fulfills a long term need for me. In other communities, I may stick around long enough to see what’s going on and get a feel for it, but if my needs are met and there’s no further opportunity for growth, then I’m gone.

I think I’ll be looking at my own community in a different light, which is great! Thanks!

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Matt Kohn August 18, 2014 at 1:24 pm

Great post. Great argument as well. I myself was a part of Fizzle (where I paid a monthly fee) and was very impressed with the community. I did end up canceling my subscription though (because I was a student at the time with little $) but I will likely return to it because I believe it is an exception to the rule in that there are truly some invaluable members and a vast amount of great information on the site as well. Again though, I do believe it is essential to first establish yourself over a period of several years before charging a recurring fee.

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Vagabond Elmer August 18, 2014 at 1:24 pm

Totally Agree. The key is what kind of value does it represent for your community on a monthly basis and secondly, are they willing to pay. I’ve tried many different models and you are absolutely right, every model has it very own unique set of circumstances. Even if you provide tons of content on a monthly basis, that doesn’t mean that your community will be happy paying you monthly installments.

Here is another thing that I find interesting, most of these folks that have membership sites and charge, they don’t pay attention to their blogs and their content sucks. For me that is a great example of what I expect to find inside their premium membership site.

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Scott Asai August 18, 2014 at 2:07 pm

Really interesting insight. Thanks for the info! Making me think!

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little woo August 18, 2014 at 2:21 pm

Thanks so much for your great article Sean! I’m really appreciating the generous spirit and value of your content. I’m going to be building my online programs this year and feel that the pay once model is best suited to my community as well. Building life-long communities is priceless legacy work… Do you use BuddyPress or facebook private group for the members of your Location Rebel community? xox

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Chas August 19, 2014 at 3:38 am

I guess it depends on what the site is about. One size doesn’t fit all. I think $5.00 a month to join Posthaven, for example, is more than a bargain, and it seems to be working for them.
https://posthaven.com/our_pledge

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Jessey August 19, 2014 at 9:17 am

Very interesting post.

I wonder if this applies to content being released within the subscription that is ‘time sensitive’. I run a subscription site that makes it unique because it brings the ‘latest’ and most ‘current’ styles (in the makeup/fashion industry). Times are changing and its a site to keep up with ‘the times’.

I do also think ‘one size does not fit all’, but this article has got me thinking of how to structure my payment options. Currently with a monthly, quarterly, and yearly.

Perhaps something like rewarding members who have stuck around for a year or ‘x’ amount of months gives them a ‘lifetime’ membership.

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Stu McLaren August 19, 2014 at 10:51 am

Sean I like you and appreciate the content you provide but I think a generalized statement of “charging a monthly fee for an online community is stupid” can be very misleading.

I agree, if you are offering a “course”, then yes, a one-time fee is definitely the most appropriate pricing model (although I would also think about having a yearly upgrade for existing members if you update the course content and they want access to the updates).

But here’s the most important takeaway regarding membership sites:

There Are MANY Different Membership Models

It’s important to understand the difference between them because each one involves a different approach and pricing strategy. That’s why a generalized statement (like this post title) is tremendously misleading.

Different membership models have evolved over the years but here’s a 10 min video we did a few years ago explaining some of them:

http://youtu.be/eoE7MJzF9PU

The two most popular ones are:

1) The “Modular Course”
2) “Publisher Model”

I’d say Location Rebel falls into the “Modular Course” – which makes total sense to charge a one-time fee (primarily because it’s a course which has a start and an end). That’s what people are essentially paying for and the ongoing “community” aspect is a bonus. Plus, maintaining a modular course beyond the initial upfront development costs is minimal because you’re not having to create anything new. So providing the ongoing community for free can be easily justified.

However, the “Publisher Model” (which is where you deliver new content on a regular basis and members pay a recurring monthly fee for ongoing access) is a totally different business model.

With this model, charging a “one-time” fee would quickly put the business in jeopardy. If you’re delivering new content on a regular basis, then a monthly fee is the only model that can viably sustain the continued investment of creating and delivering content for the community.

Here’s another way to look at this…

The more money you have coming in on a regular basis, the more money you have to invest in creating better content, a better community, or a better learning environment.

If you don’t have that baseline income coming in on a regular basis, it’s very difficult to plan how to invest back into the community or membership. And if you’re only charging a one-time fee, any investment you do make, is a much bigger risk because you’re depending on future sales from new customers (which is harder to predict than recurring monthly subscriptions). With a recurring monthly subscription, the sales are much more predictable and reliable – therefore making it easier to plan how you will invest in, and scale the site.

Remember, a business model that is centered around a “one-time” fee means you have to continually look for NEW customers in order to generate ongoing income. That means you end up spending less and less time with existing members and more and more time trying to attract new members – especially if you’re looking to grow your business. But if you’re trying to build a tight knit community, wouldn’t you want it to be the other way around and spend more time serving your existing members?

Again, every membership model is different which is why the “one rule of thumb” approach to this post just doesn’t work.

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RE: Length of Time Someone Stays

The average length of time someone stays in a ongoing membership or community has very little to do with the “model” and has everything to do with the nature of the content and how it’s delivered.

You’re right in that if people aren’t getting ongoing value from your content, they will leave – especially if they are being charged every month. But isn’t that the ultimate way to measure the quality of your content?

Also, realize this…

The number of FREE members in a community does NOT indicate the strength of the community. Engagement and retention (% of people that remain paying members) are the metrics I’m more interested in. And with a free community, you can’t really measure “retention”. When you have a monthly fee, you definitely can.

So why do people leave a paying membership?

Three reasons:

1) People aren’t seeing the value in what you’re providing (your content needs to improve)
2) People aren’t consuming your content (your user experience needs to improve)
3) People’s expectations are misaligned (your sales messaging needs to improve)

The good news is that you can implement a variety of strategies to improve all three of these areas. Don’t give in to the “people only stay for 3-4 months” jargon. It’s not a forgone conclusion. Spend time improving the three areas I outlined above and your retention for a recurring membership site will be MUCH better than 3-4 months (at least that’s been my experience with the membership sites we run).

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At the end of the day, I share all of this because I think blanket statements like the title of this post can be dangerous to take at face value. There is a much bigger story when selling paid content and if you’re thinking about starting a paid membership site, research all the models first before making any conclusions.

All the best.

Stu

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Sean August 20, 2014 at 7:41 am

Stu,

First off, I really appreciate you taking the time to giving such a detailed response – you bring up some excellent points, and I completely agree with most of them

In the article I tried to make it clear that I made the blanket statement as it relates to a specific type of membership model (which isn’t entirely clear in the headline).

With that being said, I don’t necessarily view the community in Location Rebel or any similar modular product a bonus. I think with most membership sites, information products, and the like, that the community can (and usually is) just as valuable as any of the content thats created.

What I’ve found in my experiences is that with most (certainly not all) communities that have a monthly fee associated, there gets to be a point where the new content just isn’t as relevant anymore, even if you are diligent about putting it out on a regular basis.

Usually a course/community is going to cover one or two levels of skill sets. Either the course is for beginners, intermediate, or advanced. The paid communities that provide compelling content, at each of those levels on a regular basis are very few and far between.

My point being, if someone joins at a beginner level, eventually they are going to outgrow the purpose of the course which is to take people an intermediate level, and stop paying. This isn’t to say you couldn’t create more advanced content but I feel that at that point you just create a new product and do a better job with it.

With a one time fee the community can still provide an opportunity for those more advanced conversations, while also helping to facilitate mentorship from the seasoned members.

I do think that I did a poor job in this post of reiterating that there are other ways to do it that can be much more profitable and appropriate depending on the chosen business model. You did a great job of bringing some of those points up, and made the content on this page much better because of it.

I appreciate all of the work you do, and as someone who has been using your product for a number of years, definitely respect your opinion :)

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Joseph Jameson August 19, 2014 at 11:17 am

You know, this is the sort of business model any kind of business should take to heart. Having people pay a one time fee, or even splitting that into payments that are easier to budget is the best way to create loyalty by not causing them to hemorrhage money every month.

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David Anderson August 19, 2014 at 9:18 pm

Sean, great model that you’ve stuck by!

I started to feel comfortable enough with my online business about 6 months after joining your community. Admittedly, I stopped being active for months at a time once I branched off with a mastermind (which I started from your community) and figured things out on my own.

But even now, I’ll get the urge to dive back in and help others… just like when people helped me. I know I’ll stick around for the next few years because I’m already “in” the group. It’s been so damn exciting in just the one year I’ve been a part of your community.

Excited to see how the next year goes!

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Sebastian Aiden Daniels August 20, 2014 at 4:54 pm

I think you make a valid point. Why should someone stick around and keep paying if they already have what they need?

I personally will not pay a dime for any online community, but I think this post will be helpful for those considering it. I’m glad places like the Warrior Forums are free.

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