Home Based Business Adviser

I am on a lot of different lists. Some are good and some, well, not so good but that’s ok because I am on them for 2 reasons. One is to keep up with what is going on and what is being launched in the internet marketing world. The second reason is so that I can see what other marketers are doing in their marketing efforts. You know, things like emails, frequency, hardness of their sale, their ideas, presentation, etc.

One thing I have noticed recently is the onslaught of “membership marketing” information. It is all the buzz lately. The model itself is beautiful and can create very successful websites. Regardless of what you sell online, from ebooks, to software or anything else for that matter, the membership site system can deliver your products in the most effective and profitable way.

The problem with successful membership site systems is that there is a turnover rate, or as it is properly called, the attrition rate. The attrition rate is the amount of time that a person stays a member in your membership site before opting out. Many “gurus” don’t talk to much about this. What it means to you is that you need to keep your customer as a “member” in your membership site if you want to make money. It’s great to get 100 people to sign up for your $37 a month membership site, but if 90 of them quit in 30 days then it’s going to be hard to make a living with this model.

With a membership site system you must continually be able to add new customers and maximize the revenue of each customer you already have. So what I am talking about is the backend, and the marketing funnel you have in place.

With a subscription membership model – where you have a recurring billing system in place – the backend is the recurring fee itself. The issue becomes keeping people as members of your membership sites.

Let’s see examine how this plays out in the context of three popular business models:

Traditional Product Sales

Let’s first consider the traditional Internet marketing (publishing and sales) model, which is used by most online business owners. In this model, you create a product and a sales page, drive traffic to that page, and hope the traffic converts into sales. The average for that conversion rate is somewhere around 1% to 2%.

Assuming you have a $37 product at a 2% conversion rate, it means that for every hundred people you send to that page you’re going to sell two of those products at $37 ($74 total), and you’ll have a visitor value for each of those 100 people of $0.74.

Recurring Membership

The average conversion rate for a recurring membership site is often less than the traditional one product sale model; it’s generally 1% or less. So let’s now assume now that you’re going to charge $17 per month, rather than the original $37 product price point. But we start to encounter turnover with monthly billing. Experience and statistics show that the average membership stick rate is between three and five months.

So for every 100 visitors, you get one membership sale, and that customer can be expected to stick around for approximately four months. That means you’re going to generate $68 in revenue from that one signup (four x $17 = $68). That gives you an average visitor value of $0.68. When you use the membership model, you can also put backend offers in place. So once you already have a paid member, you can assume additional backend sales and commissions from that member – around $5 per month.

Now you have that one member, and they’re paid the $17 for the first month – will likely do so for about four months – and they’re also worth an additional $5 per month over that same period of time. So now you have $88 from that signup, and the average visitor value for the 100 visitors is $0.88.

Single-Payment Membership

The next structure is a paid membership with a single payment. Your conversion rate will increase because you’re asking people to make less of a commitment, and a membership generally has a higher perceived value than a simple product sale. You can expect a conversion rate of 2.5% to 3%.

Because there is less commitment, you can charge more still keep the conversion rate up. So let’s assume a one-time fee of $37 instead of that $17 recurring. Now your turnover goes way down. The customers have already paid, so very few of them will actually terminate their membership. You’d be safe in calculating an average stay of 12 months.

So the calculation is as follows: You’re going to see a 3% conversion rate, and the total one-time fees are going to be 3 x $37 = $111. Factoring in the backend offers ($5 a month per paid member), and over 12 months you’re looking at $180 in backend sales and commissions, for total revenue of $291. This brings your visitor value up to $2.91.

But there’s an alternative model that blows all three of these out of the water when it comes to down to making money for you – the Freemium model.

The Freemium Model.

The Freemium model is basically a free membership with an upgrade offer. It works like this: you put a “free” offer in place on the front end of the site (in a later article we’ll discuss how to make this free offer not appear to be “free” – and why you’ll want to do so), and you’re likely to see a front end conversion rate around 35%.

If you then place a compelling offer on the backend, you’ll see a conversion rate between 5% to 10% on that offer. It’s often much higher, so let’s use 10% for our analysis.

This means that for every 100 visitors – you’re going to get 35 free members, and then a 10% conversion rate on these 35 members on the backend. So what you end up with on average is 31.5 free members and 3.5 paid members.

On your front end that’s 3.5 x $37 = $129.50. The paid member back-end value is $5 x 12 Months x 3.5 People = $210. The free member back-end value is $1.50 x 12 Months x 31.5 People = $567. Adding these amounts and you have $129.50 + $210 + $567 = $906.50, so your average visitor value is $9.06.

That’s a big difference from the more “traditional” models I have discussed above (and more than 10 times higher the most common product sale model)!

Hopefully you can see that the Freemium model is a very profitable model. Here is an offer for 5 complete membership sites that you can begin using immediately. Everything is done and created for you. One of the best offers of the year in my opinion Click on “Membership Sites” to get started now.

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