How to Price a Membership Program to Inspire Brand Loyalty

Worried no one would join a paid membership for your brand? If there’s one thing we’ve learned from working on loyalty programs with hundreds of brands, it’s this: The only barrier to customers joining your membership program is the perception that it’s too expensive. Remove that barrier, and watch conversions and repeat purchase rates soar. 

Ideally, your membership program should be priced to balance your brand’s margins with the customer’s perceived value. Read on for Inveterate’s step-by-step guide to walking that line.

Step 1: Decide if you need a paid program

Before we walk you through determining the pricing for your brand’s membership model, let’s dispel some myths about paid memberships. First, most brands will benefit from offering a paid loyalty program — even brands with successful free programs. Second, we can help you decide between adding a paid model and sticking with a free model. Either way, Inveterate can help you build true loyalty. 

So let’s examine one of our most frequently asked questions: Should you offer a paid membership program in the first place? 

Here are three reasons why :

1. You want to supercharge engagement among your most loyal customers

While all loyalty journeys create some level of buy-in, paid memberships drill deep into the psychology of loss aversion to keep customers engaged. 

It works like this: Because members have invested in your program, they don’t want that investment to go to waste. In other words, their financial commitment:

• Drives retention: A high percentage of customers only shop at brands once, but the membership fee motivates them to return. 
• Creates excitement: Customers won’t shop with you if you’re not more exciting than your competitors. A paid membership allows you to offer higher-value gifts and perks to generate buzz. 
• Boosts LTV: A paid program paves the way for customers to return by rewarding purchases instead of rewarding non-revenue-driving behaviors. In addition, it can give high-spending customers exciting quarterly gifts and more to retain them. 

While all loyalty programs can produce these benefits, paid memberships create urgency in a way that most free models don’t.

2. You want to see immediate value from your loyalty program

If you offer a loyalty program already but aren’t seeing the desired returns, it might be your points-based rewards system. Only about 14% of customers actually redeem their points, making it nearly impossible for you to increase retention or LTV.

The best way to move the needle on these metrics is to offer a paid membership program with cashback rewards. Unlike points, the connection between purchases and rewards couldn’t be clearer, so cashback actually gets redeemed — at a rate of 70%. When Bambu Earth replaced their points-based legacy system with cashback, they increased incremental gross revenue by nearly $740,000 in just nine months.

Cashback creates a loyalty flywheel. When customers see an instantly recognizable benefit, like a cash reward from a purchase, they’re more likely to buy from you the next time. The more customers purchase and engage with your brand, the more interested they’re likely to be in the membership. And the cycle continues.

3. You want to incentivize purchases rather than passive behaviors

Traditional rewards programs celebrate routine behaviors like signups and social media posts. The problem is, these actions don’t drive revenue — because they don’t promote the behavior change that creates valuable customers. 

Instead, paid memberships provide valuable benefits, rewarding the thing that actually increases LTV: purchases. Unlike traditional loyalty systems, Inveterate uses pull-based strategies to motivate customers to change their behavior and turn to your brand more often.

For example, rewarding a new member with a $15 credit rather than discounting their membership pulls them back in for a quick purchase. From the moment they join, the credit gives them a reason to shop. Offer that same credit every month, and they keep coming back. That gives you instant incremental revenue instead of the delayed revenue from a customer that’s finally accrued enough points to make additional purchases — if they bother to redeem the points at all. 

Step 2: Determine the break-even threshold

If you’re ready to leave points behind and create a paid membership program, it’s time to start thinking about pricing. You want to find the sweet spot between charging enough to recoup some of your cost, but not so much that prospective members are dissuaded by the price tag. If your program is too expensive, customers won’t bite. If it’s underpriced, you won’t see the dividends you should. 

To calculate your break-even price, you’ll focus on balancing affordability and profitability using this formula: 

Break-Even Price=Membership/Price Savings per Average Order

For example, if your AOV is $100 and the customer receives a 10% discount or cashback, their savings per order is $10. If the average order frequency is 1.3, the customer would save $13 if their behavior does not shift. But you’re creating a loyalty program to shift it– so you’d price this membership at around $13 to gain the customer’s informal to purchase more than average. If the customer makes just three purchases, the $30 in savings is already worthwhile thanks to the increased revenue of the unexpected subsequent purchase. As a rule, the cost of membership should be about 10% of the average customer’s yearly spend (or less). This only changes if benefits have a high perceived value, which we get into below. 

Step 3: Price your program based on perceived value

Benefits like early access create a sense of exclusivity and savings to membership. A higher membership fee should seem like a good deal when compared to the perceived value of the perks. 

For this program pricing “calculation,” you’ll start with your break-even price and adjust from there based on AOV and available perks. Generally, there are two AOV categories that will affect membership fees: 

1. For an AOV over $150: Your customers spend more per transaction, so they will be willing to pay a slightly higher membership price. To justify the cost, however, customers will expect elite benefits like a free gift with sign-up, early access to product drops, expedited shipping, and other exclusives.
2. For an AOV less than $150: Your customers will expect lower-priced memberships to feel that joining is worthwhile. However, the value of the membership should be reflected in the perks. Consider monthly cashback credits, free shipping on all orders, and a discount on their first order.

If your AOV falls outside these ranges, you can do more testing to determine the right membership fees for your brand. Regardless of AOV, customers should see a path toward recouping the membership fee in three orders or less. In that timeframe, it’s easy to calculate the value in a way that feels achievable. Meanwhile, you see the LTV bump from the customer returning three or more times.

How Flamingo Estate doubled member orders with paid memberships

Luxury household essentials brand Flamingo Estate offers a membership program called “The Estate” at a cost of $96 per year. While this may seem like a pricier loyalty program, for $8 per month, members get four high-end seasonal gifts per year (perceived value of greater than $40/gift), early access to product drops, and luxe members-only products. Compared to Flamingo Estate’s product pricing, which includes a $42 soap, and their $100 AOV, the perceived value of the membership is very high. 

As a result, Flamingo Estate has seen significant positive outcomes following its membership program launch, including: 

• 200% over annual sign-up goal in just 90 days
• 2X value of members vs. non-members
• 16% higher AOV for members
• 2X increase in member orders
• 32% of member sign-ups in the first 30 days were net-new

Their strategy works because the perks have high perceived value. The four gifts easily exceed the annual price of the membership program, and additional discounts, free shipping, and priority concierge service make its value clear. 

Step 4: Test your membership pricing

To find out if you’ve hit the sweet spot of balancing cost with perceived value, it’s time to test your V1 price. We recommend an initial price that’s generally less than 10% of the average customer’s yearly spend but above your break-even threshold.

Then, start collecting customer feedback and data on program adoption rates, LTV, and AOV. If you aren’t seeing the profitability you expected, continue adjusting your price accordingly until you hit the sweet spot. 

Keep in mind that there are some situations where brands may need to set the membership price below the sum of its benefits or offer a free tier: 

• Sales volume: If your business is high volume and you have a large product catalog, a free loyalty tier can be a smart way to capture information and engage 30% to 40% of shoppers (since they’re essentially first-time buyers). 
• Existing loyalty: That being said, pairing that free tier with a more valuable paid tier is a great way to reward committed customers. In general, spend-based programs should be complemented with a free program. 

Step 5: Create a bespoke membership program with Inveterate 

If you’re ready to create a paid membership, we’ve got good news: You don’t need to have a big brand name to have loyal customers. You just need to use one of Inveterate’s five foundational loyalty programs: 

1. Subscription Alternative programs offer similar perks as subscriptions, like preferred pricing, without the burden of receiving products on a set cadence. Customers only receive product when they need it and remain committed to your brand. 
2. Repeat Purchase programs utilize pull-based rewards to ensure customers return after their first purchase. These programs incentivize behavior that contributes to LTV and ROI by rewarding transactions.
3. Exclusivity programs generate a sense of urgency around purchasing from your brand. Members-only perks and a strong sense of community encourage long-term loyalty. Premium incentives often include early access to inventory, exclusive members-only items, priority customer support, and special gifts. 
4. High-Consumption programs can help reinforce high-volume purchasing with special benefits. This strategy unlocks recurring revenue by encouraging frequent purchases. Rewards often include perks like free shipping, members-only pricing, or dynamic discounts.
5. D2C Shift programs help broadly distributed brands increase website purchases. By leveraging the awareness and new customer acquisition that wholesale generates, brands guide customers to their highest margin channel: DTC. This prevents customers from jumping to other brands in your category. 

Inveterate ensures you have the right program, merchandising, and marketing to supercharge your loyalty experience. From there, we can sharpen the program by dragging and dropping perks and features from other programs to create a custom program your customers are sure to love. 

We know it works because we’ve customized these foundational plans for hundreds of brands. Inveterate loyalty members shop more often and spend more than nonmembers, driving results like: 

• 125% increase in purchase frequency
• 15% lift in AOV
• 2.5% increase in monthly revenue from increase in member spend
• 158% increase in spend per member
• 10% attach rate

Sound like the loyalty boost your brand needs? 

Book a demo today!

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