Why Membership Sites are So Damn Profitable (and hard)
Over the last two years, I have been working day and night to build Copyblogger Academy, and I have learned so much from the process.
One of the biggest lesson’s I’ve learned is how long it takes to hit the point of scalability and profitability. But also, I’ve learned once you do hit that point, you reach a critical velocity where the profit margins grow exponentially, because your revenues grow without adding on new expenses.
I’ll give you an example …
To run Copyblogger Academy, it costs about $10,000 a month. This $10,000 a month has been very consistent for the last two years. I have to pay for a full time employee, a part time customer service rep, my EMS, my membership platform, stripe and PayPal fees and other expenses.
For the last two years, all the new sales and memberships I sold have been getting me closer and closer to my breakeven point. Once I hit that point, there is no more money to spend, because I am already spending the money I need to run the membership and provide my customers with an amazing product. Which means, every new membership I sell past the point of break even is money that goes directly in my pocket.
This is one of the very exciting aspects of membership sites, and why they can be so damn profitable.
If you do it right, the customer service, the product fulfilment, and the marketing are already baked into the costs. So if you’re building a membership site, your primary focus in the beginning should be to …
Know what your break even number is
Focus all your efforts to grow your revenues to the point of break even
As soon as you hit break even, and assuming you continue to sell new memberships, you will see a huge influx of profits that doesn’t exist in different business models. Because other business models demand you take on additional expenses as you take on additional revenue.
That’s the power of digital products, but it is also the weakness of them. The huge flaw in membership sites is that they require you to survive long enough to reap the rewards of compounding.
You inherently take on much greater risk, because all your expenses accrue before you start to become profitable. But if you can stick it out long enough, you get to a point where every new sale is adding to your profits.
I’m thinking a lot about ways that you can cushion the blow and the lower the initial risk so you can increase the probability of surviving long enough to get you to that break even point.