Latest / Scaling Up with Fexingo: How Small Businesses Become Mid-Market Companies / How a Niche Bookstore Chain Scaled Past 20 Million with a Membership Pricing Model
Transcript
- Lucas: So there's this regional bookstore chain in the Midwest—family-owned, about a dozen locations—and last year they crossed twenty million in revenue. That's not remarkable on its own, but how they got there is. Luna: I'm guessing it wasn't just selling more hardcovers. Lucas: Right. They flipped their entire pricing model to a membership subscription. Customers pay an annual fee, and in return, they get a significant discount on everything—new releases, bestsellers, even sale items. And the founder was really transparent about the fear behind that decision. Lucas: For a retailer, especially in books, discounting is usually a race to the bottom. But they saw it as a way to lock in loyalty. And it worked. Customer retention went up, average spend went up, and they went from about twelve million to twenty million in two years. Luna: And we should say, we're able to bring you stories like this without ads, which is something we're pretty proud of. If these conversations have ever helped you think about your own business, you can support that choice by buying us a coffee—buy me a coffee dot com slash fexingo. Just a small gesture that keeps us ad-free. Lucas: Exactly. No ads, no sponsors, just the story. So, back to the bookstore—the founder, whose name is Diane, said the idea came from watching how their loyal customers already behaved. They were coming in weekly, buying staff picks, and they were price-sensitive about new releases but not about the bookstore itself. So Diane asked: what if we charge for the privilege of a discount? Luna: That's a bold move. Most retailers would be terrified of alienating the casual buyer. Lucas: And that was the first test. They rolled it out in two stores for six months, with a low entry fee—I think it was twenty-five dollars a year for twenty percent off. And immediately, the average transaction value jumped by about fifteen percent in those test stores. But the bigger surprise was that the membership holders were showing up more often, not less. Luna: So the discount wasn't just a margin killer—it was actually driving frequency. Lucas: That's the insight. They started tracking what they called 'member lifetime value,' and it was about three times that of a non-member within the first year. And the members were also more likely to buy non-book items—gifts, journals, stationery—which have much better margins. So even with the twenty percent off, the blended margin stayed healthy. Luna: What about the operational side? That kind of change must ripple through everything from the point of sale system to staff training. Lucas: Diane said the biggest hiccup was the technology. Their old POS system wasn't set up to handle membership tiers or automatic discounts. They had to migrate to a cloud-based system that could track memberships in real time and apply the discount at checkout without slowing down the line. That took about four months and cost them around fifty thousand dollars across their stores. Luna: Fifty thousand is not trivial for a company that size. Did they ever question whether it was the right call? Lucas: They did. In the middle of the rollout, there was a month where the old system and the new system were running in parallel, and it was a mess. Inventory counts were off, and they had a few angry customers when the discount didn't apply. But Diane kept reminding the team that this was a bet on the relationship, not just the transaction. Lucas: And once the new system was live, they started using the membership data in ways they hadn't anticipated. For example, they noticed that members were more likely to attend author events and buy signed copies. So they started giving members early access to event tickets, and those events became another revenue driver. Luna: That's a nice flywheel—membership drives events, events drive more membership. How did they get the word out? Lucas: They did a few things. First, they trained every single staff member to talk about the membership like it was a no-brainer. Not pushy, but confident. Second, they made the first month free as a trial. And third, they leaned into the local angle—partnering with libraries and schools to offer discounted memberships for teachers and librarians. That built goodwill and brought in a steady stream of new members. Luna: I love that they went after community anchors. It's a smart way to get word of mouth without a big marketing budget. Lucas: And it paid off. In the first full year of the membership model, they added over fifteen thousand members. At an average of forty dollars per membership, that's six hundred thousand dollars in upfront revenue before they even sell a single book. That cash flow gave them the confidence to invest in a few more locations. Luna: Six hundred thousand in cash flow just from memberships—that's a game-changer for a small chain. But I'm wondering, did they see any pushback from publishers or distributors? Lucas: Interesting question. Diane said publishers were actually fine with it, because the discount didn't affect their wholesale price. But there was one hiccup: some publishers have minimum price agreements with retailers, and the membership discount technically went below that floor. They had to negotiate a few exceptions, and in exchange, they agreed to feature those publishers' titles more prominently in their stores. Luna: So it wasn't just a pricing change—it was a whole ecosystem negotiation. That's the kind of detail that doesn't show up in a case study. Lucas: Exactly. And that's why Diane said the most important lesson was to treat the membership model as a product itself, not just a discount program. They had to design benefits that went beyond the price cut—like member-only events, a members lounge in their flagship store, and free shipping on online orders. Those added value without eating into margins. Luna: A members lounge in a bookstore—that's a differentiator. It turns the store into a destination, not just a place to buy books. Lucas: And it worked. The flagship store saw foot traffic increase by twenty percent over the first year, and the lounge became a spot for book clubs and casual meetings. They even started hosting small concerts there. It became a community hub, which is something big box retailers can't easily replicate. Luna: So what's the takeaway for a small business owner listening? What's the one thing they should steal from this? Lucas: I think it's the idea of testing a membership model in a controlled way and measuring the right metrics. They didn't just look at revenue—they tracked member lifetime value, visit frequency, and basket composition. And they were willing to invest in the technology to make it seamless. That's a recipe that could work for any retailer with a loyal customer base. Luna: Any retailer, really. Coffee shops, gyms, even hardware stores have that loyalty dynamic. Lucas: Sure, but it's not easy. Diane said the first six months were the hardest because they were essentially paying customers to be loyal up front. But once the renewal cycle hit, they saw the compounding effect. By the end of year two, over seventy percent of members renewed, and that renewal revenue became a predictable base that made planning easier. Luna: Seventy percent renewal is solid. And I'm guessing that's why they could plan for expansion—they knew the cash flow was coming. Lucas: Exactly. And they used that predictability to open two new stores, which is risky for a regional chain. But because they had that member base already in those markets, they knew the demand was there. They even launched a 'member preview' weekend for new stores, and they had lines out the door. Luna: That's a great way to mitigate the risk of new store openings. So what's next for them? Do they have plans to take the model even further? Lucas: They're actually exploring a premium tier—a hundred dollars a year for twenty-five percent off plus free event tickets. Diane said they're testing it in three stores, and early results are promising. They're also looking at a loyalty program for corporate book orders, which could be a whole new B2B revenue stream. Luna: I love that they're not resting on the initial success. They're iterating. That's what scaling is really about. Lucas: It is. And I think the bigger lesson is that for a small business, a membership model can be a way to deepen customer relationships rather than just boosting short-term sales. It forces you to think about the long term, and that's a mindset shift that pays off in more ways than one. Luna: Well, and it's a story we're glad to tell. If you've got a similar story or you've tried a membership model, we'd love to hear about it. You can find us on social or just leave a comment on the show notes. Lucas: And of course, if you want to support the show, that link is buy me a coffee dot com slash fexingo. But no pressure—just happy to have you here. Next week, we're talking to a niche manufacturer who scaled past fifty million by fixing their supply chain. That should be a good one.