The 4 Stages of Creating Online Membership Sites: Challenges You’ll Face (and How to Solve Them)

Micah Mitchell is the co-founder of Memberium, a WordPress membership site plugin that integrates with ActiveCampaign. Before founding Memberium in 2014, Micah spent 8 years running his own membership sites and consulting for small business owners.

Last week, Micah joined us in our Chicago office to share some of the challenges small businesses face when building membership sites.

Below, we put together some of the key takeaways from Micah’s talk.

We also sat down with Micah for a short Q&A (above), to get more insights on how to build a successful membership site.

Why create an online membership site?

The most common reason to create online membership sites is to switch from selling services to selling information. Business owners trying to get out a of “time for money” business model often want to switch to online membership sites.

There are a lot of benefits of creating a membership site.

  • Membership sites scale better than services, and help you break out of charging “X dollars per hour.” The cost of adding another member is relatively low.
  • Membership sites have good profit margins. Membership site upkeep is important—but creating your site and content is the biggest part of your investment.
  • Membership sites have more predictable revenue. Revenue that spikes and falls is stressful. Recurring revenue makes it easier to predict your business’s performance and growth.

At the same time…there are a lot of pitfalls.

When people say “I want to stop selling services and start selling information,” they’re rarely able to make the jump right away.

Why do online membership sites fail?

  • They try to deliver too much too soon.
  • Lack of marketing and sales
  • They can’t keep members long enough

And most of the time, these mistakes happen because entrepreneurs are trying to use tactics that aren’t a good fit for the stage of their business.

People feel like there are too many things they could do, but they don’t necessarily know what they should do.

That was the core of Micah’s talk at ActiveCampaign. He laid out the four stages of a membership business—and the strategies and challenges that are most common in those stages.

Stage 1 – Infancy

Every membership site starts in its infancy. How do you define the infancy of membership site?

Stage 1: When a membership site has 0-10 members billing each month (or an equivalent number of one-time purchases).

In the early stages of an online membership site, the focus is the fundamentals.

How do you create a membership site? How do you set up a sign-up form? How do you integrate your membership site with stripe (or another payment processor)? How do you process people who leave?

How do you get your first customers in the first place?

These are the types of questions that you’ll face in the early stages of building online membership sites.

Micah laid out the biggest problem areas, challenges, and opportunities for people in the infancy stages as well:

  • Problem: Don’t know what works and what doesn’t. Lots to learn.
  • Challenge: Building the site, creating a sales page, making an order form that works.
  • Opportunity: Validating product ideas with founding members.

Ways to grow a membership site (Stage 1)

One of the biggest mistakes that people make when they build their first membership site is trying to do too much too soon.

In Stage 1, you don’t need to build a community for your users (there aren’t enough of them anyway).

You don’t need a hugely complicated product with 537 videos (you don’t know if people will pay for it yet).

Stage 1 is about learning the ropes. It’s about proving that people are in fact willing to pay for what you produce. Because you don’t want to wind up creating 537 videos that nobody wants.

Micah suggested a few ways that you can validate your product—while also learning the key tech and systems you’ll need to create larger online courses in the future.

  • Start with a smaller online course. A 5-video course can test your idea before you invest in the complete 537-video version
  • Record and sell webinars. Learn to work live webinars, then sell the recordings.
  • Sell content from live events. If you’re speaking, record your sessions. Then sell them. This is the fastest way to produce content.
  • Test the idea using free content. Write a blog. Make YouTube videos. Release content for free and test it in front of a real audience.

See the theme? Stage 1 is all about testing and learning how online membership sites work.

Find an idea people are willing to pay for and get it out fast. You can focus on scale in the later stages.

Stage 2 – Childhood

What happens after you’ve created your online membership site? What happens after you’ve gotten your first few sales?

Stage 2: When a membership site has 10-100 members billing each month (or an equivalent number of one-time purchases).

Once a membership site exists, Stage 2 is sales.

Here are the problems, challenges, and opportunities that Micah presented.

  • Problem: Not having enough members. Need to see if this can become a business.
  • Challenge: Finding leads and converting them into customers.
  • Opportunity: Creating sales momentum to bring in more customers over time.

Stage 2 is all about building the processes that attract leads and turn them into customers.

A successful, mature membership business doesn’t go out and sell to each of their leads individually. That approach to sales doesn’t scale—part of the goal here is creating the systems that passively attract new leads.

That means putting in work on sales pages. Lead magnets. Nurture automations.

Micah recommends selling on the phone in this stage as well—even though that approach doesn’t scale, the insights from your sales call can later be translated into the sales pages and videos that do scale.

Ways to grow a membership site (Stage 2)

Stage 2 is an exciting stage, and your first opportunity to start scaling up. At the same time, Stage 2 has a lot of distractions.

At this stage, the membership site itself probably doesn’t look amazing. The idea for the site is validated (or close to validated), but the site itself is a little rough around the edges.

This is where a lot of people want to double down on creating a beautiful site. Or building a community.

Especially if you’re an expert in something specific, the idea of “selling” might make you uncomfortable.

Micah had some recommendations if you’re stuck on this stage:

  • Focus on sales sales sales. Community and a pretty site can come later. Right now you need more people to actually buy from you.
  • Sell on the phone to existing service clients. You’ll learn things that you can use later to create a more automated funnel. 
  • Use memberships as an upsell. A membership doesn’t always need to be a standalone product. Offer it as an upsell to make it easier to get sales.

Stage 2 is all about sales.

Stage 3 – Adolescence

You’ve got a validated product. You’ve got sales. It’s time to scale.

Stage 3: When a membership site has 100-500 members billing each month (or an equivalent number of one-time purchases).

By Stage 3, you have a system in place that reliably attracts leads and turns them into customers.

Is it perfect? Probably not. But it’s worked well enough that you’ve been able to scale to 100 billings a month.

And at that volume, attracting new customers probably isn’t your biggest problem.

Here’s Micah’s breakdown of Stage 3:

  • Problem: Losing too many members (customer retention is low).
  • Challenge: Improve onboarding and customer experience to increase retention
  • Opportunity: Improve retention. Even one extra month of retention turns into a ton of extra revenue.

Once you’ve reached a certain volume of customers, it really is important to focus on things like making your site better. Or building a community.

Some quick math (simple, I promise) illustrates this point.

If you have 200 members paying you $20 per month, you’ve got $4000/month in revenue. Let’s say each member stays with you for 6 months—so every member you attract earns you $120 on average.

What happens if you can get them to stay for 7 months?

Your average customer lifetime value goes up to $140. You get another $4000.

But most importantly, you get more revenue as you scale. Your next 100 members will earn you $14000 instead of $12000. Your margins increase—and you can invest in marketing strategies that will help you scale even faster.

That’s why, once your idea is validated and you’ve got some revenue, it’s important to focus on retention.

Ways to grow a membership site (Stage 3)

As you might expect, Stage 3 is focused on onboarding and retentions. That’s why the tips Micah provided are mostly focused on strategies that get people coming back for more.

  • Onboarding. It’s much, much easier to improve the retention of new customers than it is to improve the customer retention for existing members. The quality of the onboarding experience is your best chance to improve retention.
  • Gamification. Badges. Points. Quizzes. Leaderboards. Certificates. Drip content. All of these gamification elements can help you keep people moving through your course at a good clip.
  • Community. Now that you have the people for it, add value to your membership site by creating a place for people to ask questions and connect to each other.

At this stage, anything you can do to increase customer retention is going to be a huge factor in growing your business.

Micah argued that onboarding is the most important factor to keeping customers.

When people first log in to your site, there’s a lot of stuff for them to do. Some simple steps can help you guide them through your content.

Here are some fast onboarding wins Micah suggested:

  • One time welcome video
  • Quickstart guide (1-3 fast wins)
  • Ask for feedback early
  • Get them to customize their experience

You don’t want to attract a whole bunch of customers…just to watch them leak out of the bottom of your funnel (by leaving).

Plug the holes first. Then expand.

Stage 4 – Maturity

You’ve done it. You’ve created a successful membership business. Of course there’s always work to do on sales and retention. But your funnel doesn’t leak. You’re ready for the next steps.

Stage 4: When a membership site has 500+ members billing each month (or an equivalent number of one-time purchases).

At this stage, you’re growing big enough to encounter new problems—and new opportunities. Here’s what Micah shared about the biggest factors in Stage 4.

  • Problem: Sales slow down due to channel saturation (or, churn is a big problem)
  • Challenge: Creating new products to sell to existing members
  • Opportunity: Learning to cross-sell new products to increase the lifetime value of customers

How have you been attracting customers so far?

A lot of online membership sites find that tried-and-true channels start to struggle at larger scales. It’s fine to attract 10, 20, 30 customers a month with Facebook Ads—but at 100, 200, and 300 customers a month, your customer acquisition cost starts to go up.

Maybe you used to get a lot of members from guest posting. That was fine at the early stages, but now it just doesn’t make sense to spend 15 hours writing a killer guest post that only gets you a handful of customers.

For mature online membership sites, the challenges are usually attracting customers through new channels—or dealing with persistent customer retention issues.

But there’s also a huge opportunity.

With a strong base of existing customers, you have a built-in audience for any new product.

Your existing customers are the people most likely to buy from you again. Now that you have a lot of them, you can start creating more products that they want.

Remember the customer lifetime value calculation from Stage 3? If you can sell products to existing customers, your lifetime value could double or more.

As each customer becomes more valuable, your margins go up. And you have more resources to explore new sales channels.

Ways to grow a membership site (Stage 4)

Stage 4 is all about scaling. The best opportunities in Stage 4 (outside of fixing any lingering retention problems) are related to cross-sells and new products.

Here are Micah’s suggestions for Stage 4:

  • Advanced content. Some of your members are ready to take the next step. They’ve consumed and benefited from your membership content—but they’re ready for something more advanced.
  • Group coaching/Mastermind. At a high price point, a mastermind can be a great way to give more to your most engaged customers.
  • New products. Can you solve problems that are related to your existing products—but not quite solved by them? Then you have a great opportunity to cross-sell.
  • Look for opportunities to cross-sell/upsell. Can you offer a cross-sell in your automated funnel? After your checkout page? Within your membership site? Each of these is a way to get more from your existing customers.

You’ve learned so much in getting to a Stage 4, mature membership website.

Now it’s time to take everything that you’ve learned and use it to create more, better products.

Conclusion: Staying in your stage

One of the biggest mistakes people make is trying to use tactics outside of their stage. When you consider the key challenges and opportunities of each stage of your membership site, you can avoid that problem.

In Stage 1, you don’t need a community. In Stage 4, you should already have worked on customer retention.

Here’s a recap of the priorities of each stage:

  • Stage 1: Build a site and validate a membership idea
  • Stage 2: Find leads and convert them into customers
  • Stage 3: Improve your onboarding and customer retention
  • Stage 4: Develop upsells and cross-sells to scale your business

Memberium is a WordPress membership plugin that integrates with ActiveCampaign. You can use it to build and scale a membership site—in each of the four stages.

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