As competition on online marketplaces has become fiercer, more and more sellers are looking for a way out of the ecommerce rat race. The big question is, “How?”
One way is to start a subscription box business. In this model, sellers put together a selection of products which customers pay to receive 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 items are chosen for them.
We spoke to ecommerce entrepreneur Sophie Howard about the subscription box business. 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 subscription boxes are an attractive business model, how to leverage leading platforms Cratejoy and Amazon, and the unique challenges that subscription business owners have to overcome.
- What is a subscription box business?
- 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?
- What are the biggest challenges of running a subscription box business?
- Is the subscription business model for you?
What is a subscription box business?
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 to these kind 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
Subscription box businesses don’t have one-off customers, they have subscribers who sign up to receive boxes on a recurring basis, most often monthly.
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 has become massive by selling razor blades and other shaving products.
Surprise boxes can be even more 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 come to sell your business. While a conventional ecommerce businesses 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 kind 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.
Watch our interview with Sophie here or read on below…
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 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 really 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.
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 when starting a subscription business 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.
2. Handling assembly and fulfillment
With a subscription box business, you don’t just have to handle fulfillment, you also have to assemble the boxes. This can get 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.
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 the subscription 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 come to 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 running 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.
If the time has come to escape from the ecommerce rat race of Amazon and eBay, it might just be right for you.