Could a subscription box business model be a way to diversify your revenue and rely less on face-to-face interactions with customers? A recent study by Clutch.co found that 54% of consumers pay for a subscription box. If you’re looking for strategies to bring in new income and offer something unique to your audience, exploring a subscription box model might be a smart business move. Here’s what you need to know to determine if it’s right for your business.
What is a Subscription Box Business?
In the last decade, subscription boxes have rocketed to popularity in niches ranging from beauty to fitness to pets. Typically, customers sign up and pay a fee to get a box of products related to a specific niche interest or product type delivered to them. Common delivery intervals are monthly and quarterly. Depending on the experience you want to create for customers, there are different ways to tempt your clientele. Here are some appeals to consider:
- Savings: One reason people subscribe to boxes is to save money. For example, a beauty box might offer access to several full-size branded products at a discount. Another option for this type of subscription box model would be to give consumers sample sizes to try, and then offer an associated discount on full-size products.
- Curation: Curated boxes take a “best of” approach. To follow the beauty box analogy, a brand might offer different themes to each month’s package such as The Best of Korean Beauty Products or The Best Moisturizers for Winter.
- Convenience: Some boxed products are simply focused on increasing convenience, delivering beloved products to faithful users on a regular schedule.
- Surprise: Another take on the subscription box is offering surprises to customers. For example, a wine subscription box might try to introduce consumers to new brands, blends or regions they’re unlikely to have tried before. Novelty is part of the proposition.
How to Build a Subscription Box Plan
If this sounds good so far, there are steps you can take to make the most of a subscription box business strategy:
Decide on a Unique Theme
The subscription box space is crowded. Once you know the niche that you’re interested in — and typically this will be clear from your core business industry — it’s important to develop a unique twist. For example, in the beauty space, there are niche boxes like How to Be a Redhead, and The Beard Box.
Do Customer Research
One of the best indications that a subscription box model could be a good fit for you is if your current customers are interested. Consider conducting a survey or outreach to discuss the potential options with your customers and determine if they’re interested.
Assess the Competition
As mentioned, subscription boxes are a popular product type operating in a crowded space. Even with a unique angle and excited customers, it can be challenging. Understand the scope and scale of the competition; healthy competition can give you an idea of a market’s robustness. A competitive assessment can also provide insights into how big marketing budgets are, what yours should be, and whether you need to consider solutions such as a small business loan to get your venture started.
How to Maximize Profits
Subscription boxes have unique economics that are important to understand, so your business can take steps to maximize profits on subscription box models:
Run the Numbers
Subscription boxes offer predictable revenue each month (as long as people don’t cancel), and they also come with fixed costs. Sourcing products, packaging, and postage are just a few of the expenses to keep in mind. Determine the costs to deliver the subscription box experience that you’re creating, and that will provide your basis for determining pricing. Cratejoy suggests that a 30% net profit margin is a good target.
Look for Strategies to Reduce Spend
Every step that you can take to reduce the costs of goods sold can increase your profits on subscription boxes. Purchasing items at wholesale costs, partnering with other brands to include their products in exchange for exposure and negotiating bulk deals can all reduce product costs. Depending on the volume of shipping, it may be possible to get discounts on postage, packaging or box assembly, if you’re going to use a fulfillment center.
Prepare for Churn
People can and do cancel subscription boxes if they’re not a good fit for their needs or if they need to trim expenses. McKinsey estimates that half of consumers cancel subscriptions in the first six months. Building this into your financial projections is important. Not only will this help you keep expenses aligned, but it helps to identify how much you should be spending in areas such as engagement programming, advertising, and customer service to reduce attrition.
Create Ongoing Engagement
While churn is a challenge, smart brands work hard to create excitement, community, and engagement. Constantly be seeking feedback from customers through surveys, emails, and conversations to assess how you’re doing. Ensure that each month you’re offering something fresh. Build a community around your subscription box. For example, Allure supports its beauty box with email newsletters, digital events, and fun unboxing videos to get fans excited about the products. Here are some strategies to consider:
- Tease forthcoming products to get members excited.
- Create a newsletter or video that explains what each product is, its unique story and why it’s included.
- Supplement your box with exclusive digital events that relate to the theme. A pet-related box might offer a Q&A with a dog trainer, for example.
- Leverage communication channels such as a social media group, blog community or forum to encourage members to connect with one another.
Have Engagement and Retargeting Offers
Just because customers want to cancel doesn’t necessarily mean you’ll lose them for good. Consider developing engagement offers that can help bring customers back to your subscription box. For example, some brands will offer a half-off discount for an upcoming month or quarter if subscribers agree to stay. Investing in excellent customer service and having a variety of offers to entice would-be defectors can help keep your bottom line healthy.
Constantly Generate New Leads
Advertising and marketing are going to be a major expense underlying your business, but you’ll need them to attract new leads. Social media advertising, pay per click ads and partnerships can all help you gain access to new audiences. It’s also important to remind your own customers periodically that you have the box available. Offering discounts and incentives for first-time subscribers or affordable gift memberships can also help you generate leads.
As brands think about how to grow in the months ahead, diversifying revenue streams can be a smart way to stay thriving and profitable. If a subscription box business strategy is a good fit for your business, get creative to develop a unique theme and brand and then work to build a steady flow of potential subscribers.