Why I think lifetime pricing model rules for paid communities

Everybody thinks community is the next SaaS. But I think a one-time membership fee might be best for a paid community memberships. Atleast for a lot of them where there’s little marginal cost for serving each new customer.

Note: I’m not saying that recurring memberships don’t work. They do. What i’m saying is that you’re probably overestimating how easy they are and underestimating the benefits of a lifetime pricing model.

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Here’s how you think (i’m including myself because that’s how i thought until i interviewed Daniel Vassallo):

1. Create a group chat and invite your audience to it
2. Create an engagement strategy so members create value for each other
3. Slap on recurring payments of $30/month

BOOM!

You’ve built yourself a SaaS business. I'm here to tell you that you probably haven't thought enough about this pricing strategy.

Sure engagement won’t come for free but that’s just a fixed cost. Like the cost of building software for the SaaS. Once you get the ball rolling, you’ll have a neat flywheel:

Engagement → Members getting value → New members → Engagement

It’s the gold mine of SaaS but better - because humans have a natural tendency to invite their friends to a community.

Referral engine built-in baby!

Then, you notice that you have a churn problem.

You notice that a typical member stays for ~3 months and then bounces.

You organise some customer research calls where churned customers tell you:

• some version of how they’ve become too busy to participate in the community
• you ask them why they joined and they tell you that its to meet other interesting people and learn from them
• the highlight of their experience was being introduced to that one person who ended up becoming their mentor

Okay so you decide that you need to create more touch points. More ways for members to collide with other members.

Solution? Hire a Community Manager!

Their job is build more engagement programs. More live workshops, seed more conversations in Slack and do more of what’s working in other communities. So you hire one.

Guess what, you end up hiring a good one who knows their shit. And before you know it:

• You now have a calendar filled with min. 1 event each week
• Your Slack feels more lively - there’s a new conversation happening almost every day
• they have set up tools to automate onboarding DMs to members and introducing them to other members
• you have customers telling you what a great time they’ve been having

This pushes the average lifetime membership time from 3 to 5 months. But the churn problem didn’t go away. You still have a leaky bucket.

You calculate the lifetime value of an average customer and it hovers around ~$150.

So you decide..

Let’s switch off monthly payments!

Members need to stay in the community for a long enough time to experience the benefits. You don’t want them to evaluate the ROI of your community membership each month.

Smart move!

But annual pricing is a different beast.

1. Your conversion rate has dropped off a cliff because the sticker price just went from $30 to $300 (you’re giving 2 months free). That’s okay - you expected it. You’ll just offer some discounts on top to manage the demand.
2. You notice almost no one is renewing for the second year

But the worst is yet to come…

3. One of your close friends who is also a member of the community DMs you to talk about a conversation that he had with another customer in a virtual coffee chat. That customer is on month #10 of his membership and told him that he is marking it off as a bad investment. He used what community had to offer for 2 months but after that there was nothing for him. He even says that he’s warned people against buying the membership.

Woah!

What if other churned members are saying the same things? That’s the opposite of a referral. And here you thought that you would have a referral engine built-in.

Worst part, you can’t do anything to win them because they just aren’t ready to put in the time it takes to get value out of the community.

So essentially you have:

• about 30 customers who are your true fans and love the annual membership - that’s ~$9k ARR
• a growth problem that is made worse due to the anti-referral engine
• little to no recurring payments

Sure, you can try raising the prices to further weed out the low-intent customers or create a process to try to “win back” the churned customers.

But you always wonder:

“That is not the money making SaaS business that I signed up for! How far will it really scale?”

An alternate reality

Now what if i told you about a community biz that has been doing

• $400k/year
• with 5000 customers averaging ~$210 in customer lifetime value
• and gets multiple referrals per customer

That business exists and it’s called Small Bets. It’s a private community for indiehackers and bootstrapped entrepreneurs. They charge somewhere between $185 to $375 for a lifetime access to:

• 5-10 live classes per month with the who’s who of internet creators (check out their calendar)
• access to library of 150+ recordings of classes that have happened till date (crazy value in this library)
• access to a super active community of 5000+ members

I’ve been a member of this community for 2+ years now and I used to think that it’s founder has priced the community out of the goodness of his heart.

I mean he’s basically leaving money on the table, right?

WRONG.

After I interviewed him on Beginner Maps, I realised that it’s just great business sense on his part. Here’s how he thinks:

• Overdelivering is a great business marketing strategy.
• Look at Average Revenue Per Customer and you’ll clearly see how this model is superior to any other that he could choose
• Churned customers in a community membership almost always leave with a bitter taste in their mouth. This means, best case scenario, they won’t refer other members to you but worst case - they’ll actively dissuade their friends from joining it. Lifetime membership gives him the opposite experience.

And it all started making complete sense.

Take me as an example

I’ve been a member of this community for 2+ years. I joined it when Daniel just launched it in April 2022. A bit of an impulse buy.

But then for ~2 years, I barely used it.

I would log in to their chat but never participate. I never went to any of their live classes nor watched any recordings. That’s because I had just started a life in a new city and a new consulting business that was taking all of my time.

I almost marked it off as a bad investment. But then over the past 2 months, as I’ve been building my SaaS business, this community has become an asset. I’ve received useful answers to my questions in their chat and even helped another member who was asking for help.

As a result, I count this is as one of my best investments in personal growth. So much that I have referred atleast 2 of my friends to it and here I am writing this long-ass article singing praises of them.

If this was a recurring annual membership, Daniel would have lost me as an unhappy customer a long time ago. But it wasn’t. So he had an opportunity to win me back. Even after 2 years.

That’s the power of a lifetime membership.

I know you probably have concerns:

“i already warn my customers that they have to invest time to take advantage of the membership”

Good. A community membership is like a gym membership - you only get what you put in. So, it’s a great idea to clarify this expectation before they make the purchase.

But what if life gets in the way? Relocation? New job? New kid? Something medical?

The only way to get around is to have a way for customers to “pause” their community membership until they are able to take full advantage of it. Otherwise, you have no way to ensure that they won’t feel bitter about not being able to use your community and still paying for it (they feel guilty enough already about their gym membership).

“this model only works if you have a big audience”

That may be true. If you are small, then it might be easier to convince 50 customers to keep paying you a recurring fee than to convince 50 new customers each year.

Actually even that sounds implausible as i type it. But let’s accept it for argument’s sake.

Daniel Vassallo already had 50k+ followers on Twitter when he started Small Bets. So a lot of the first thousands of customers came from there.

But there are 2 caveats:

• He also started a community membership before this and it didn’t work. Suggesting that having an audience is not enough.
• He told me in our interview that over the last few months he might have exhausted the limits of his Twitter audience. But he is still getting 100s of new customers every month, a lot of who don’t even follow him on Twitter. So he suspects word-of-mouth referrals are a big source.

So I think we generally overemphasise the importance of a big audience. Tatiana has taught me that you can build a good community business without a big audience.

“I don’t want to be on the always-on treadmill of growth”

This one is a legit concern.

There has to be a natural limit to how many people you can convince to buy your community membership even with a lifetime deal. Even though that number is probably higher than you think (Daniel has sold 5000+ memberships and there seems to be no signs of slowdown at the 2-year mark), there is a long-term concern.

I do think that there is a natural limit to how big your community can get depending upon how big the market is.

But the thing is, when you approach that point, you should already have a huge asset - a large number of happy paying customers who engage with your work regularly. So you will have a lot of potential to learn their pains and upsell solutions.

For example, at the time of writing, Daniel is experimenting with a high-touch 6-week cohort based course experience that costs 5-10x his lifetime membership.

Other ideas include organising an in-person conference, niche job boards or even an actual SaaS!

What’s important is that at this point, you will have an asset that will become your competitive advantage no matter where you decide to go.

There’s more where that came from!

We’ve written more playbooks covering “magic sauce” of top community businesses. Get them all in your inbox.

Okay monologue over.

TLDR; Lifetime payment plans might be the natural way for a lot of community businesses. You should consider it for your business. It can unlock a new level of growth.

To balance the scales, here’s my interviews with operators of great community businesses with recurring pricing: