From Amazon Prime to Sam's Club, membership business models calling for customers to pay recurring fees have proven powerful forces for growth. The membership model can:
- help encourage customers to shop first with businesses where they are members,
- help businesses manage sales fluctuations with revenues from stable recurring fees and
- help sellers develop valuable insight into customer behaviors and preferences.
Predictable revenue in the form of monthly or annual membership fees is one of the big benefits of membership business models. This can help businesses when it comes to managing cash flow and planning for the future, says Robbie Kellman Baxter, founder of Menlo Park, California, consulting firm Peninsula Strategies and author of The Membership Economy.
Another benefit of using membership business models is that they can strengthen a business's relationships with customers. Membership models can help customers learn more about their preferences and needs, and can help you design more compelling offerings. "Members can create value for other members through community," Baxter adds.
One thing membership businesses benefit from are reliably repeating payments from members, says Susan Boresow, president of Overland Park, Kansas-based Title Boxing Club. "First and foremost, there's the predictably of recurring revenue," Boresow says. Title Boxing Club members agree to have the business automatically collect $109 monthly or $1,199 yearly via electronic funds transfer.
"The money comes in regardless," Boresow says. "If there are holidays, if there's inclement weather, the money keeps coming in. The membership model is a beautiful thing."
—Susan Boresow, president, Title Boxing Club
When business owners can count on recurring membership revenues, they may be able to staff more efficiently, which may help keep the prices they offer their members lower, adds Lee Knowlton, a senior vice president at Scottsdale, Arizona-based franchiser Massage Envy. Members of the massage chain pay an average of $60 monthly and can book massages for around half the $100 to $150 other providers might charge, Knowlton says.
Each of Massage Envy's 1,165 locations has about 1,400 members, he says. That means each location's owner can count on no less than $84,000 or so in revenues every month, even if some members don't come in for massages or other services. Unlike other business owners, Massage Envy franchisees know they won't have employees on the clock without any revenues to make payroll.
"In the restaurant business when you open the drawer in the morning, it's empty," says Knowlton, who spent years working for restaurant companies before joining Massage Envy. "You haven't served any customers yet and you don't know how many you'll serve. In a membership model, when you open the cash register, it's full."
Making Membership Business Models Work
Despite its appeal, membership may not suit every business. Baxter says businesses that don't rely on sales and marketing to generate revenues are often poor fits. Those that operate in fixed markets or on the strength of regulatory or geographic advantages also may not do well as memberships.
And membership works best when it's designed with the members' interests in mind, Baxter adds. "Many organizations are optimized around the products they sell or the processes they use, instead of around the members," she says. Before moving to a membership model, you may want to change the corporate mindset and put members' needs first.
Membership can be a particularly good match with customer needs in the health and fitness businesses industry, says Boresow. Whether customers are looking for weight loss, toning or stress relief, it takes repeated visits over an extended period to get significant and lasting results, Boresow notes. That makes membership well-suited to serving customers of the company, which was founded in 2008 and has approximately 150 locations.
Pricing is a key concern for membership business models. Lower prices can be a major part of the appeal membership businesses offer their members. Reliable revenues, improved forecasting and better-informed customer relationships can make it possible for member businesses to price products or services below non-membership competitors. Boresow says pricing strategy should include a price gap for members and non-members to encourage joining and to give members a visible financial benefit for paying their dues.
Although they may have captured their members' loyalty and wallets, membership businesses can't rest on their accomplishments. It's important to keep adding new benefits to the member offering to help reassure members they are getting a good value.
"You want to make sure to continue to innovate your membership model," Boresow says. "Don't deviate from it, but continue to provide enhancements."
Since Massage Envy started in 2002, the company has added stretching as well as facials and other skin care products and services to its basic $60 massage offering. "You keep your members by adding new services," Knowlton says. "Even if a competitor comes in at $55, but all they do is massages, our members realize that they get more value at Massage Envy."
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