E-commerce News and Insights
Aug 29, 2018

Subscription Boxes: Why They Work & How to Start Your Own

Even if you’re not a subscriber yourself, chances are you’ve heard of services like Hello Fresh, JustFAB, Ipsy, Dollar Shave Club, BarkBox, and the Hot Sauce of the Month Club. They’re some of the best-known players in the booming subscription box industry.

Subscription boxes have been one of the biggest e-commerce shipping trends of the past decade, delighting consumers with carefully-curated, niche products that arrive in attractive packaging every month. This business model is built on product sampling and is extremely profitable for merchants who harness the driving forces of novelty and convenience. In fact, if there’s no subscription box model in your market, the best way to think outside the box might be to put your products inside one.

Great Reasons To Start Your Own Subscription Box Service

The subscription box market has grown by 100 percent annually for the past five years. These prepackaged goodies are especially popular among 25 to 44-year-olds who earn $50,000 to $100,000 a year—the sweet spot not just for startups but for all retail businesses.

Women, who tend to make purchasing decisions in the home, account for 60 percent of subscribers. However, men are more likely to have three or more active subscriptions. With this pedigree, it’s a pretty smart risk as new ventures go. Let’s take a look at how to get started building your own subscription box service.

Six Steps to Build a Subscription Box Business

This niche provides curated products in customized packages, so the first thing you need is a suite of products to bundle. Examples include fitness, food, and makeup boxes. Start with a great idea you are passionate about and work your way through the following steps.

1. What Products Will You Include in Your Box?

The road to a building a business is steep and may be longer than you originally imagined. Stick with products that fascinate you and make sure you have enough passion to market and sell to other people. Pick products based on the aesthetic of your target market and carefully consider production cost, shipping cost, weight, and size.

2. Which Price is Right?

This involves more than setting a price, signing up customers, and waiting for the money to roll in. If you price items too low, people won’t respect the brand, thinking it’s too cheap. However, if you go too high, customers will walk away. Start with what your competitors are charging and find out if your products are better or worse than what they’re offering. This should help you determine a starting price. As a rule of thumb, you should price your box so that you make a profit of 40 percent.

3. Marketing

A subscription box business depends on customers who want to continually acquire your products. Familiarize yourself with market metrics that will help you measure your success. For example, the Cost per Customer Acquisition (CPA) measure what it costs to secure a client. You want to keep this low, so you can become profitable as quickly as possible. The best way to advertise cheaply is to encourage current subscribers to recruit their friends via shares and likes on social media. If you really want to generate huge volume, your marketing needs to focus on getting your box to go viral.

4. Operational Challenges

Online businesses face unique challenges. Good inventory management and order fulfillment processes are make-or-break for subscription box businesses. In a bundled product, sourcing from different manufacturers can increase the shipping and logistics cost. This is an important point when setting your price and in creating your budget.

Returns are much higher for online products, some estimates say up to 50 percent higher than physical storefronts. Some of your customers won’t be happy with all the products in the box and may try to return one or two items. Make your return policy clear up front and stick to it to avoid added costs in this area.

5. Packaging Matters

Your packaging should wow customers and create a memorable unboxing experience. It’s worthwhile to invest in customized boxes and labels in a cohesive palette to reinforce your brand’s aesthetic. Washi tape, ribbons, and metallic accents give off a high-end vibe, even if your box is modestly priced. The surprise of getting a box should not turn into a let down when customers test the products, but if your packaging is thoughtful and attractive, customers are likely to be more receptive to whatever the box reveals. This is another area where it pays to check out the competition. What areas do they excel in as far as the packaging goes? What can you do better?

6. Personalize Every Step of the Customer Journey

People who subscribe to highly-targeted, niche services expect personalized attention and care. Part of the appeal is imagining that there is a stylist or concierge at the company thoughtfully picking items just for you. It’s important for subscription box businesses to build a relationship with their customers through personalized marketing and communication at every step of their journey with your brand. This will aid in acquisition and retention, which are critical in a market that has a lot of churn.

The Takeaway

Customers love subscription boxes because they’re effortless after the initial sign-up and it’s like getting a gift every month. Merchants appreciate being able to source new and obscure products and cater to a niche audience. And of course, the recurring revenue and predictable fulfillment schedule are nice as well.

The subscription box space has become more crowded and competitive in recent years, but the stunning year-over-year growth suggests that consumers are happily supporting businesses that seem to understand their wants and needs. If you want to get in on the trend, follow the steps above and think through each one carefully. You’ll be well on your way to a successful subscription box service.

For more tips, check out the blog post on how to start an e-commerce business from scratch or tips for a positive post-purchase experience.

About the Author:

Laura Gayle is a full-time blogger who has ghostwritten more than 350 articles for major software companies, tech startups, and online retailers. Founder of Business Woman Guide, she created her site to be a trusted resource for women trying to start or grow businesses on their own terms. She has written about everything from crowdfunding and inventory management to product launches, cybersecurity trends, web analytics, and innovations in digital marketing.

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