Should I Discount My Membership?

Let's take a hypothetical look at the impact that pricing has on any given product if you were to discount.  Likewise, you can see the power of a price increase through this same example.

Let's say that you are running a sale on your membership because retention has dropped a little bit, and your team's reaction with a lack of strategy is to discount to get more people to sign up and make up for that lost revenue.

In this scenario, we haven’t run any projections or done any market research.  We’re making our best guess, like most associations will who lack a pricing and value strategy.

Let's say that the membership is $100 per year.  Knowing that the majority of memberships have a profit margin of about 30%, this means that $70 of every membership goes to direct and indirect costs, some fixed and some variable, and $30 of every membership goes to profits for reserves and expanding programming.

Now let's say that your organization has 1,000 members.

Your annual revenue would be $100,000 and your annual profit would be $30,000.

Let’s consider what discount might be provided.

If you consider what kind of a discount you would expect, most would agree that a normal discount range is 10%-50%.  Anything under 10% feels cheap and unnecessary, anything over 50% feels drastic, like the organization is closing.

If we consider 10% to be the lowest we can go while still being credible in offering a discount, let’s go with 10% and stick to being as conservative as we can be with our finances.

10% doesn’t sound like that much, right? Will members who we aren’t retaining even jump at that?  Will potential new members think this is the time to get off the fence and become a member?

But more importantly, let’s look at the math, even if we can justify this low 10% number.

When you offer any discount (or make a price increase), it is hitting your profit.

What we mean is, most would assume that if we discount 10%, we would need about 10% more members to make up for the profit lost in the discount.

What does the math say?

If our profit is 30%, that means we are making $30 per member.  When we discount by 10%, or $10, that is coming out of our $30 profit because we still need $70 to run the membership, per member.

This means we just lost 33% of our profits because they’ve dropped from $30 to $20 per member.

Worse, that means we need to increase our membership by 50% to make the same amount.

Seriously. 50%.

In order to hit the same $300,000 in profits from membership at a $20/member profit, that would equate to 1,500 members - 50% more than the 1,000 we had.

Now take a moment to imagine the power of even a 1% price increase - at $31 in profit on a $101 membership, your bottom line has gone up just over 3%.

“But what if our costs go down?  What if we remove some value from membership when we lower the price by 10%?”

That is not a discount - that is adjusting price based on value, which is exactly what a pricing and value strategy would have you do.

However, just discounting without removing value means you are strongly hurting your profitability.

Take a moment - this is shocking news to most association professionals.