As competition on online marketplaces becomes fiercer, sellers are looking for unique ways to reach ever more sophisticated buyers. A subscription box business is one way to reach new buyers. In this model, sellers put together a selection of products around a particular theme. Customers pay to receive the boxes automatically, every month.
Subscription boxes exist for a wide variety of products, from beauty and pet supplies to comics, food and drink. Customers can choose to receive a set selection of items each time, or have a surprise box, where the company chooses the items.
We spoke to ecommerce entrepreneur Sophie Howard about the subscription box business model. Sophie builds and sells her own brands, and is the founder of Blue Sky Amazon, where she coaches online business owners.
We talked about why the subscription business model is attractive, how to leverage leading platforms like Cratejoy and Amazon, and the unique challenges that subscription business owners have to overcome.
- What is the subscription box business model?
- What are some successful subscription box businesses?
- What makes the subscription business model so attractive?
- How can you use Amazon in a subscription business model?
- What platforms can you use to run a subscription box business?
- Alternative subscription box platforms
- What are the biggest challenges of running a subscription box business?
- What are the risks to consider with a subscription box business model?
- Is the subscription business model for you?
What is the subscription box business model?
The subscription box business model is where sellers send out parcels of products to their customers month after month, automatically.
With surprise boxes, the model is about more than just the physical products within the box. Whereas most of ecommerce is driven by convenience, speed and efficiency, surprise subscription boxes are driven by:
- The anticipation of the next package
- The unboxing experience
- Trying out the products in the box
Customers don’t sign up for these kinds of subscription boxes due to necessity. They sign up because they want to treat themselves (or a loved one). It gives them something to look forward to each month. They get excited to discover what the box contains, and they feel a sense of satisfaction that they are discovering and learning about new products. It’s like belonging to a club.
The possibilities for subscription boxes are pretty much endless. The contents could be:
- A complete surprise
- The basic items needed to discover a new niche
- New products in a niche that the subscriber is already into
- High quality items the customer uses regularly
Subscription box businesses don’t have one-off customers. Instead, they have subscribers who sign up to receive boxes on a recurring basis, most often monthly. The subscription-based business model creates an ongoing stream of revenue, rather than a one-time customer.
What are some successful subscription box businesses?
Anything consumable can make a really good subscription box business. This could be food, beauty products, or daily household products.
A classic example of a set subscription box, where customers receive the same products each time, is the Dollar Shave Club. This business became massive by selling razor blades and other shaving products. Something as seemingly simple as razor blades created a billion dollar business and a successful buy-out by one of the largest consumer products companies.
Surprise boxes can be equally successful, as businesses sometimes get the products for free from brands. Going further, those brands might even be willing to pay to have their products featured in the box. Getting paid by customers and suppliers – it doesn’t get much better than that!
What makes the subscription business model so attractive?
It is often said that a subscriber is a lot more valuable than a customer. They don’t have to think about making a purchase from you, but will automatically have their credit card charged each month. You keep making sales and your product keeps shipping, without even lifting a finger.
Subscription boxes are not only good at ensuring consistent cash flow, but they also help achieve a higher value when you sell your business. While a conventional ecommerce business might sell for three times annual profits, a subscription business might sell for 10-12 times annual profits. The value of subscription businesses is so much higher because future income is almost guaranteed.
Naturally, there will be some drop-off because you can’t keep 100 percent of your subscribers forever. But, regardless, it’s a great cash flow for someone else to inherit, as well as a business that grows quickly for you every month. Your focus is on adding more subscribers on top of those that you’ve already got, not just making one-off sales.
How can you use Amazon in a subscription business model?
There are two options for leveraging Amazon within a subscription business:
- Subscribe & Save is Amazon’s built-in subscription system, and is a good fit for automated repeat purchases of ordinary consumable items.
- You can sell one-off products on the Amazon marketplace, to help promote a related product that has recurring sales through a different sales channel.
With the Subscribe & Save option, you don’t really want to be competing for basic commodity products, as that can be really tough. Instead, you’re better off looking at products like tea, condiments and premium foods. Those kinds of products, with thoughtful and unique packaging, can attract premium prices.
The second option on Amazon, is to sell a product that doesn’t have subscription box potential by itself. But with it you can include a special discount or free trial for a related subscription box, information product or club membership.
One example is selling a barbecue product that comes with a free trial of a club for people that love grilling meat. It could provide different recipes and spice samples each month. In this scenario there are two different income streams: the conventional product sold on Amazon, and the repeat subscription business.
Many successful subscription box business plans incorporate an element of traditional sales. Birchbox earns approximately 35% of its revenue selling individual items outside of box subscriptions. This includes customers looking to purchase specific products introduced to them through their box.
What platforms can you use to run a subscription box business?
When it comes to subscription businesses, the best known ecommerce platform is Cratejoy.
Cratejoy is a complete technology platform custom-designed for subscription box businesses. It provides a lot of control with its custom website builder and also has a marketplace which you can sell subscriptions through.
Cratejoy has a real community of sellers who share their experiences and help each other out. The site also has a Subscription School where they teach you how to build a subscription box business and guide you through the whole process of starting one.
Cratejoy is also great for product research, as you can see competitor listings, as well as how they have packaged and presented their products. There are also suppliers of boxes and packaging on there, and companies who can assemble the boxes and handle subscription box fulfillment for you.
Alternative subscription box platforms
As an alternative to Cratejoy, Subbly provides all the tech needed to run a subscription business. It lacks the marketplace but otherwise has a full set of design, marketing and order management features.
You can also use conventional shopping carts like Shopify and WooCommerce. You’ll need additional apps like Bold for Shopify or Subscriptions for WooCommerce, and overall it’s a more complex setup than the subscription-focused services above.
These types of services can help with creating custom-designed boxes. Or companies like Bulu help to create white label or private label subscription boxes. They build boxes around a particular theme and place your logo on the box.
For a new business focusing exclusively on subscriptions, a one-stop shop like Cratejoy or Subbly is probably the best choice. For an existing ecommerce business adding subscriptions to conventional products, Shopify or WooCommerce might make more sense.
What are the biggest challenges of running a subscription box business?
1. Getting the presentation right
The biggest challenge to selling subscription boxes is making your box stand out from the crowd. Right from the start, you need to think about how you’re going to present the product and make it appear gift-worthy.
Remember, a lot of the appeal is in the unboxing and overall experience of receiving a surprise each month, even if the subscriber bought it for themselves. So, what will the box look like? How will you select the products? What standard of finish will it have? How big will it be?
The goal should be to match the packaging to the standard of the products inside. Basic products can be sent in a cheap box that’s going to incur low postage costs. High-end products with larger margins need a premium box that reflects that, and gives a high-quality unboxing experience.
Both the box and the contents needs to withstand the rigors of shipping and arrive looking like it did when it left the warehouse. It’s also more important than ever to ensure as much of the packaging and materials are sustainable and plastic-free.
2. Handling assembly and subscription box fulfillment
With a subscription box business, you don’t just have to handle fulfillment, you also have to assemble the boxes. This can be time-consuming and expensive. Third-party logistics (3PL) companies might be able to handle custom assembly for you, but will charge for all the extra touches that premium boxes tend to include like stickers, straw, ribbons and tissue paper.
To combat these costs, and make sure that the box is still profitable, some sellers go for a minimalist approach and just focus on the products inside. Whichever way you go, the best plan is to have a cost in mind and try different suppliers to see what level of finish you can achieve.
3. Keeping postage costs under control
If you can create a subscription box that is compact enough to fit through mail boxes and meet standard dimensions for the USPS (or Royal Mail etc.), then you’re onto a winner, as it keeps the costs down. Postage costs aren’t linear, and if the product doesn’t go through a mailbox, the price can jump up very quickly.
So, think about ways to make your box as flat as possible, for instance by packaging items in pouches instead of tins. It’s important to make sure that this doesn’t take away from the experience though, as the presentation and unboxing is hugely important to customers.
It’s about striking the balance between manageable costs and creating an attractive box, full of quality products.
4. Standing out in a crowded market
Analysts wonder whether the sparkle is fading from this business model. When it comes to how to sell subscription boxes the most important thing might not be logistics but creativity. Creativity is required not only in curating the box in the right niche, but also in how it is marketed, how you manage customer service and feedback, and how you continue to sell to the customer.
Subscription box companies are relying a lot more on influencer marketing than before, which requires a targeted marketing strategy. Subscribers are increasingly more sophisticated and expect ever more personalized boxes as well as prompt and efficient customer service. Growth may come from finding additional ways to sell products beyond the box subscription. This includes making it easy for subscribers to purchase one-off items they loved.
Each of these elements helps subscription box businesses stand out in a crowded box marketplace.
What are the risks to consider with a subscription box business model?
When putting together a subscription model business plan, there are certain risks to consider. It’s an industry with rapid growth, but high volatility. Although companies like Blue Apron found initial success, they started to flounder after their IPO as they faced increased competition. This places pressure on subscription box business ideas to be increasingly creative.
Other subscription business examples highlight the risks in this type of business. For every Dollar Shave Club, there are ten more companies struggling to scale. It’s important to look at recent trends and to understand what niches are already saturated. Focus on quality over quantity, personalization, and stellar customer service.
Is the subscription business model for you?
The subscription box business is driven by creativity and brand-building. It allows you to build repeat sales and add value to your products, so you don’t have to compete on price.
There are certainly unique challenges that come with starting a subscription box business. The key is to make sure you’re proactive. If you are going for a basic consumable product, ask Amazon to be approved for Subscribe & Save from day one.
For surprise boxes, don’t be afraid to try different types of packaging, or methods for assembling and fulfilling orders, to keep quality high and costs low.
Remember, from day one you should build your business as if you’re going to sell it. It’s good business practice, and when you do sell you will be in a much better position. Make sure that you have transferable agreements with suppliers, and build revenue streams on multiple channels.
Ultimately, by starting a subscription box business, you can build something special for your customers. It’s a model that assures your cash flow in the short-term, while increasing the value of your business in the long-term.