In my previous installment, I tried to get a handle on the incoming revenue stream of Dawn's new site, but I had a feeling that I'm only at the beginning. Follow along as I contemplate pay site revenue models, and some of the basic numbers behind them; they just might apply to your own business plan:
You'll recall from the previous article that our goal was to get away from the "feel good" pricing model that left us with a $29.95 a month price point simply because "it's less than a dollar a day!" I call that "feel good" pricing, because to us, "a buck a day" is reasonable for just about anything like that, by which I mean other entertainment services, including cable TV, or a single beer from the local convenience store on our nightly walk along the beach. Fun that cost's only pennies to have, so why not go for it? That's "feel good" pricing.
For a more professional approach to pricing based on profits and production costs, we must look at gross and net membership revenues and then subtract some of the common costs involved in producing and delivering the product that we're charging for. Doing this is the easiest way to get closer to your actual income per member (your 'profit') which is definitely NOT $29.95 per month!
This is such an important part of the pay site game, yet many site owners (real amateur sites in particular) will tend to base their pricing "on what the other girls are charging" — thinking this is an acceptable way of running a business. Sure, competitive pricing models are found in most every industry, but choosing this strategy, just like the "feel good" model above (or any other), should be done only after analyzing the facts. Let's take a closer look at some numbers:
In the example above, we begin with the revenue generated per level of membership, projected out to 3 months for an initial look at the money flowing into the site, and its profit potential. Beginning with a basic 3 Day Trial Membership for $2.95 as well as a single month's full membership fee for $29.95 (that recurs monthly at $29.95)
I have charted the gross amount, then gross - ibill's 15% credit card processing fee, then finally minus ibill's 10% reserve holdback, which is refundable after 6 months. I wanted to include this additional "discount" up font in my calculations, because even though you should get the 10% holdback money back, it's half a year later, and so to be a little more "current" with our initial price modeling, we must base it on "today's" actual income. The member gave you a chance, but if you don't deliver, they don't stay.
Average Length of Stay
The chart also makes it easy to see that the longer a person stays a member, the more money you will make off of them. This is why retention is so vitally important for a pay site's success and profitability. Since this is a brand new, as yet to be fully launched site, no retention figures are available, so a three month average membership retention rate was chosen as "reasonable." Single model amateur sites, especially quality ones, tend to retain members longer than many other sites, and so the possibility of higher revenues certainly exists, and will be encouraged.
I also have no idea what the conversion ratio of 3-Day Trial to Monthly Membership is going to be. This has a dramatic effect on earnings, and is most influenced by the quality and content of the site's Member's Area. Beyond any role that procrastination plays in the cancellation process, having an easily navigable, easily accessible, and content filled site, will increase the number of members willing to extend their membership further.
If the number is low, than I know there's a problem with the site. After all, the member gave you a chance, but if you don't deliver, they don't stay — and that is the difference between a $2.25 sale, and a $71.00 sale: The number of course, can never be too high.
At this point, I'm willing to pull "around $70" out of thin air as an average member value we could be "expecting." But the more I look at the numbers, the more concerns I have. Stay tuned:
~ Stephen
