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The subscription box business took off seemingly overnight. In a span of only four years, from 2014 to 2018, the subscription box industry expanded by a whopping 890%. The rapid growth of the eCommerce market and widespread social media use are creating a gold rush for online entrepreneurs: the subscription box.
The subscription model is the economic success story of the 2010s and all indications point toward continued success in the decade ahead. Niche subscription boxes are novel and convenient options for hobbyists and consumers to indulge in their interests and explore new brands and products without having to shop. By having their box delivered to their doorstep on a recurring basis, subscribers can conveniently "set it and forget it," and thereby eliminate pain points commonly experienced by eCommerce shoppers.
The subscription box is revolutionizing how we do eCommerce. Luckily, with the right know-how and a targeted niche, you can get started building a successful subscription box, generating recurring revenue, and pursuing your passion while you’re at it. If you’re at a loss for where to start, we’ve got your back—in this guide, we’ll discuss everything you need to know about bootstrapping a subscription box service and how to start a subscription box.
Before we get ahead of ourselves, let’s back up a bit and first define a subscription box. A subscription box is generally defined as a physical delivery of niche or hobby-oriented products on a recurring basis that is packaged and marketed as a value-added experience. In other words, subscription boxes deliver products that appeal to fans and hobbyists in a way that adds value beyond the retail value of the products inside the box.
Although the definition above may sound long-winded, the concept is simple. Subscription boxes are about more than the sum of the contents inside the box. Rather, each delivery provides an unboxing experience, built around a sense of community and the thrill of not knowing what you’re going to get inside the box from month to month.
For example, die-hard fans of a TV series or a sports team might wait eagerly in anticipation for weeks until their box arrives. When it finally does arrive, they savor each moment during the unboxing experience, and discover the items, dubbed “loot.” The elements of surprise and uncertainty make subscription boxes fun and exciting for customers who are passionate about the box’s niche.
These days, subscription boxes are difficult to define because there are so many varieties of boxes and every year new subscription box companies innovate and push the boundaries of the industry. However, there are a few criteria that must be met for a delivered product to be considered a subscription box, including:
You can’t launch a subscription box business without first understanding what makes subscription boxes unique and appealing to a mass audience. Below, we’ve broken down the value proposition (i.e., the promise of value to be delivered) of the subscription box business model. Knowing how to start a subscription box begins with learning these basic principles. If you can master these essential elements, your subscription box is bound for success.
The anticipation of a subscription box arriving any day should make it fun and exciting to check the mailbox. Since subscription boxes are often oriented toward passionate fan bases and enthusiasts, most subscribers eagerly anticipate the surprise delivery of their box. When it finally shows up at their door, they can’t help but rush inside to open it up and check out the loot.
There’s also the second element of surprise with subscription boxes: the “reveal” of what’s inside. Most subscription boxes contain products that the subscriber cannot choose themselves. Instead, the company selects each box’s theme and products, which makes opening every box a thrill for the subscriber.
Not every subscription box has to totally shock or surprise its subscriber with unexpected products. There are plenty of subscription boxes that have found success by selling a “discovery” factor related to their niche. In other words, they allow fans and enthusiasts the opportunity to discover new products, gadgets, or collectibles that they otherwise never would have purchased.
The best subscription boxes are all about convenience and putting the customer first. Thanks to the subscription model, customers can input their information once and never have to worry about ordering new products or dealing with shipping costs and handling. Instead, subscription boxes offer the convenience of having their passion delivered to their doorstep with very little action required of the customer.
No matter how well you master the other elements of a successful subscription box, cost savings will always be top of mind for consumers and reviewers alike. Your customers are smart, and you should expect them to do their research on the total value of the products contained in each box. If they feel like they’re getting a worse value than they would get if they purchased each item individually, they will probably cancel their subscription.
Some of the most popular subscription boxes, such as Loot Crate and BirchBox, are those that personalize the contents of each box to the customer’s unique tastes and preferences. These subscription box companies let users select the types of products they like the most as well as the product types they dislike.
For instance, a female subscriber to a Marvel Comics-related sub box might be a big fan of the character Captain America. The monthly subscription box company will then curate the products she receives so that there is a larger share of Captain America t-shirts, action figures, memorabilia, or collectibles.
The subscription eCommerce market is growing by about 100% every year. As the industry continues to expand and reach new audiences on Facebook, other social media, and web forums, more and more entrepreneurs have taken an interest in launching a box of their own. However, many are held back because they either don’t know where to start, or they’re afraid of the startup costs.
The good news is that starting a subscription box company is relatively inexpensive, even by e commerce standards. Plus, if you’re willing to carry a bit more of the load yourself without outsourcing tasks such as shipping and advertising to third-parties, you can save a lot of money on startup costs.
Unfortunately, there’s no fixed sum that you should set aside before starting a subscription box service. How much money you need to start a subscription box business depends on the value of the products you want to include in the box, your marketing strategy budget, and the quality of the box and its presentation that you want to achieve.
The average subscription box is sold for somewhere between $20 and $50, depending on the contents. In general, the subscription box industry has thin margins (the difference between the selling price and the cost of acquiring the product).
If you decide to price your standard box at $45 apiece with a gross margin of 50%, you should budget the cost of each box at approximately $22.50. However, be warned that your customers are shrewd and will search the value of each product they receive in your box. If the total MSRP value of your products is less than what they paid, they may cancel their subscription or write a negative review of your box.
Once you’ve discovered an estimate of your projected COGS, you can set a tentative price for each box. Using the above example, if you estimate your COGS to be $22.50, you should price your box at $45 if you want a 50% gross margin. To improve your margin and pad your bottom line against unforeseen losses or damages, refine your supply chain and seek out low-cost vendors who can provide box contents at a wholesale price.
Like any business, subscription box companies have one-time expenses that must be paid either at the outset when the business is created, or on a recurring basis. We’ve listed a few of the most common upfront expenses associated with creating a subscription box business below:
For reference, we’ve listed a few of the must-have expenses required to get a subscription box service off the ground. Note that the above list doesn’t include the cost of the boxes themselves (we’ll get to that later). In the meantime, this list represents the essentials that you must budget for before launching your subscription box company.
The largest upfront expense is the design of your company’s website. As an eCommerce venture, it’s crucial that you invest significant time and resources into the function and presentation of your website and online branding.
One of your first concerns when starting a subscription box is finding a suitable manufacturer for your custom boxes. Subscription box customers are highly sensitive to presentation and the quality of the product packaging. If you use a generic unmarked shoe box for your subscription box, your customers will likely be turned off by the amateurish box design.
To make a good first impression on your customers and to assert your company as a serious competitor in the industry, you should strongly consider sourcing custom boxes. There are a variety of reputable manufacturers on the market who can provide low-cost, custom-printed boxes with a printing plate and cutting die.
Many well-known box manufacturers sell each box between $1-2 using flexographic printing methods. Some premium box manufacturers use digital printing, which might make a better impression on your customers. Digital printing tends to create more vivid colors and images because this method directly deposits toner onto the cardboard surface. However, digitally printed boxes often cost between $4 and $5 apiece.
To cut back on costs, consider purchasing your first order of custom boxes in bulk. Most manufacturers offer discounted wholesale prices for orders of 1,000 or more. As a rough estimate, you can calculate the cost of your first print run of 1,000 boxes by multiplying that number by your $1.75 for a flexographic box or $4.50 for a digitally printed box—in this case, $1,750 for the former and $4,500 for the latter.
Now that you’re aware of the startup costs associated with starting a subscription box company, it’s important that you price your product wisely. You should never place all your focus on achieving a target margin or merely covering your COGS. Instead, you should be mindful of market psychology and what your customers are willing to pay for your product (and product experience).
Your pricing and marketing strategy should reflect your target audience’s willingness to pay a premium for a higher quality product and brand. Ultimately, this process incorporates many qualitative factors that can be difficult, if not impossible, to calculate to find an optimal price point. Instead, subscription box entrepreneurs must analyze their market and make an intuitive judgment regarding what their demographic will pay for their product.
Today, most subscription boxes are, ahem, boxed into four pricing categories that most shoppers assign an instinctive quality assessment to. These categories include the following:
Knowing how to start a subscription box requires you to intimately understand your audience. If your topic or niche appeals to a more price-sensitive demographic, your COGS and price should reflect that pricing category.
Most subscription boxes in the United States sell for $19.95 per unit due to its popularity as a “impulse price.” For many shoppers, a subscription box priced less than $20 is an insignificant investment that is worth the risk of trying for the novelty of the experience. However, the buyer also expects a good return for their money, as opposed to a lower-priced box.
You shouldn’t price your subscription box at $28.34 just because your COGS is $14.17 and you want to hit a gross margin of 50%. Instead, you should consider bumping your price point up to $29.95.
A more expensive box can be priced at $39.95, another popular zone for impulse purchases. Prices set close to whole numbers divisible by 10 tend to sell the most in the subscription box industry, likely because they lend themselves well to impulsive purchasing.
Starting a subscription box begins with a valuable idea. Conduct some preliminary research on the subscription box industry to see whether there already is a subscription box service that offers a product similar to your idea. If there already is a successful box offering your hypothetical product, then you may want to reconsider whether your box idea is viable.
The subscription box industry is becoming increasingly saturated. Although market saturation shouldn’t discourage new players from entering the industry, it should serve as a barrier to poorly prepared entrepreneurs who haven’t fully thought out their product. Today’s subscription box industry requires innovation or improvement over competitors’ products to win over a consumer base faced with multiple options.
Step 1 is identifying a unique, new, or innovative subscription box idea. Then, you can move forward by identifying your target audience, desired price point, and potential for long-term growth. Subscription boxes based on fads or pop culture trends will likely generate significant attention at first, but will quickly fade over time.
One of your first priorities should be to identify what segment of the market you want your product to appeal to. For instance, you may want to market your box to a price-sensitive demographic in the $10-15 range. If you want to sell luxury cosmetics or makeup, you will likely be better off building an upscale brand with a product priced around $40-60.
You can’t build a successful ecommerce business on an idea alone. Once you’ve narrowed down your innovative product idea that fills a gap or deficiency in the market, you can move forward by creating a prototype box.
Creating a prototype box for your own use (i.e., not sold to a customer) will help you refine your marketing and sourcing processes, and will give you an opportunity to assess the look and feel of your product before you start taking orders.
Don’t be afraid to experiment with multiple product box design drafts, logos, printing options, and box dimensions during this stage in your product’s development. Many successful products require many drafts and variations before they reach their finished, market-ready state.
If you rush to the market and sell your subscription box before it’s perfected, you might turn off your critical early adopters and lose a large segment of your audience.
This phase of your launch process should be dedicated to experimentation and finding long-term suppliers for your boxes. Contact multiple vendors and inquire about wholesale pricing and try to establish a positive working relationship with each of them. As a starting point, you can contact vendors and sellers on these popular platforms:
The prototype stage should give you a general idea as to what you want to include in your box, as well as how the box should look and feel in your customer’s hands. You shouldn’t settle for anything less than a true and accurate representation of your vision. After you have refined your prototype box to a finalized version, take many photos of it under optimal lighting conditions.
You haven’t yet generated any revenue from your subscription box sales, but you will soon. Before you make your first sale, make sure to incorporate your business as a limited liability company (LLC) and pay the filing fee ($200-250) in the state in which your company primarily operates. There are many benefits associated with incorporation, including:
Most importantly, your bank will require you to present your business’s articles of incorporation when you apply to open a company bank account. Therefore, you must apply to incorporate before you set up a separate bank account for the business.
You can’t have a successful eCommerce business without designing an attractive, intuitive website that appeals to your target audience. Consider hiring a professional web designer to create a visually appealing website that includes your branding, logo, and other intellectual property so that your customers have a central hub from which to order your product.
At this stage, you should also build your company’s Facebook and other social media channels. In the subscription box industry, it’s crucial that companies have an active Facebook, Instagram, and Twitter account to spark discussion of and engagement with your nascent brand.
Make sure to post daily to encourage more engagement with your audience and consider running a contest or giveaway to early adopters who share or repost your content, or use your custom hashtag.
You should also make sure that you use a custom email address for customer service inquiries. Don’t use a generic Gmail or Outlook email address. Instead, use a professional address that is linked to your custom domain. For example, if your company is named ABC Enterprises, you might want to use an address such as info@ABCEnterprises.com.
Designing and launching your company’s first marketing campaign is an essential first step in your business’s success. Without a comprehensive digital marketing campaign, you will miss out on many crucial initial sales which can devastate your bottom line during the early stages of your company’s development.
An effective digital marketing campaign for subscription boxes starts with running social media advertisements on the major social media platforms like Instagram and Facebook. Since fan-bases and hobbyists use these media platforms to form groups and communities based around common interests, it makes sense that you would leverage these resources to reach out to these niche audiences.
In addition to social media advertising, you should also consider investing in other digital marketing channels such as pay-per-click (PPC) advertising and influencer marketing. For subscription box companies, the latter, influencer marketing, is an invaluable resource for companies looking to tap into a dedicated and hyper-focused fan base.
To find an influencer in your niche, search YouTube and Instagram for individuals who have a high engagement rate (i.e., high ratio of likes and comment names per follower or subscriber) and send them a direct message asking if they would be interested in reviewing your product.
Offer the influencer a free subscription box, or possibly a cash incentive, in exchange for a fair and honest review.
It should go without saying that your subscription box business depends on the function of your eCommerce website. Before you make your first sale, you must make sure that your eCommerce platform is running reliably and that your website supports subscription payments. Place a test order through your website to gauge whether the following critical systems are up and running:
If each of the above systems is functioning as intended, you can officially launch your product and start soliciting orders from customers. Consult with your webmaster or web developer if any of these systems are down or are non-responsive and be sure to resolve these issues before going live.
After you have built a successful prototype that is profitable after covering the COGS, you can start fulfilling your first initial orders. If your digital marketing campaign is successful in reaching your target audience, you should attract a small sample of orders from your early adopters.
Your first batch of customers is taking a risk on your product because there are likely very few, if any, reviews of your service available online. You can assume, therefore, that these initial customers are likely very passionate about your niche and eagerly anticipate the arrival of your first box.
It’s important that you knock these first boxes out of the park and respond promptly to any customer service inquiries. If you make a good impression, these potential customers can become loyal subscribers who can generate critical recurring revenue and yield a high customer lifetime value.
One of the best aspects of starting your own subscription box business is that you’re given plenty of flexibility when it comes to refining your product and potentially changing its direction.
For example, you may find that your jewelry subscription box isn’t attracting a dedicated enough target audience. At this point, you can adapt to the circumstance by narrowing your product offerings to appeal to a narrower, more dedicated segment of the market.
In this case, you could choose to specialize in necklaces, or you could include only handcrafted jewelry in your box. Narrowing your product into a focused niche will help set your box apart from competitors.
As a subscription box business owner, you can also pivot into a different market entirely. If you find that a jewelry-oriented subscription box isn’t working for you, you can re-brand your box as a fashion-themed product. However, if you take this route, make sure to inform your subscribers well in advance of the change and give them the option to cancel their subscription.
If you want to know how to start a subscription box that will thrive in the long-term, one of your first priorities should be to collect customer data. The more you know about your customers and target demographic, the better you can target their interests and appeal to their wants and needs.
At a basic level, a good way to improve customer retention is to build an email list. Your mailing list can be used to pitch new sales to potential customers and promote deals and limited-time offers. To build a mailing list, consider adding a pop-up message on your website’s landing page encouraging visitors to input their email to stay in the loop about upcoming promotions.
As you amass email contacts over time, your mailing list will accrue value and can become one of your company’s most valuable assets. However, you must be compliant with anti-spam legislation. Therefore, you should always provide an opt-out option in every outgoing email and never send unsolicited promotional material directly or through third-parties.
Your company mailing list is merely a starting point in building out a network of contacts. Knowing how to start a subscription box requires you to become somewhat of an expert in consumer research. Today more than ever, successful eCommerce entrepreneurs are those who can derive insights from market trends to determine what their customers want.
In eCommerce, customer data drives conversions. For instance, knowing the geographical location of your customers can help you forecast shipping and handling costs for future sales.
To gather your customers’ and prospects’ geographical data, consider asking your website visitors on your landing page or using Google Analytics to discover more in-depth location data, including each visitor’s city and state of residence.
Demographic data is also a powerful tool for driving sales and projecting future sales. For example, you can analyze demographic data to find out the average household income of your prospective customers, what gender they are, how educated they are, and whether they’re married or single. Insights such as these can help you tailor your product for this market segment and can help you advertise and price your product more effectively.
Lastly, you can get a better sense of what your customers want if you know their purchase history. Knowing your customers’ purchase history can help you differentiate between high and low-value customers, help you decide what to include in your boxes, and can help you create bundle deals for products that complement each other.
The difficult part is finding out how to gather customer data in an ethical way. A good starting point is to use reputable services such as Google Analytics and IBM Digital Analytics to gather top-level data on customer demographics. However, more in-depth data must be derived by voluntary submission. If you want to collect better, more valuable customer data, consider these options:
The subscription box business model is simple: you pay for the box and its contents and sell them on a recurring basis to customers at a profit. In the subscription box industry, gross margins tend to be small and therefore business owners don’t start making a lot of money until at least a year or more into their business’s operation.
Alternatively, subscription boxes do not necessarily have to be paid for by the business owner. Instead, you can ask suppliers and vendors for free samples types of products. Over time, you can forge partnerships with these third-party vendors so that you receive a continual supply of sample-sized goods that you can include in your subscription box.
This method is the least expensive way to build a subscription box product with high margins, but boxes that contain mostly free sample products may not appeal to a wide commercial audience.
How much money your subscription box generates in profit will depend on how many sales you can generate and how you can cut back on the COGS. The cheaper each box is to produce, fulfill, and ship, the more profit each sale will generate.
If you’re looking to improve your margins and pad your bottom line, here are a few steps you can take:
It’s worth noting that including free sample products in your boxes likely isn’t a sustainable long-term option. Often, free samples are given out for underselling products that have limited demand, which is sometimes indicative of poor product quality.
Many free samples end up being repeat products that are shipped out month after month. If your potential customers receive repeat products or consider your offerings to be cheap, then they may cancel their subscription.
The subscription boxes business is saturated with vendors and newcomers to the industry who, unfortunately, end up failing within their first year of operation. The upside for you, however, is that you know what sets apart a successful subscription box empire from a dud. To summarize what we discussed above, review the following critical ingredients for a successful subscription box:
The leading subscription boxes by market share, such as BirchBox, Loot Crate, and Blue Apron, have all mastered the essentials of sub box success listed above. If you too can check off these boxes, you can be confident that you’ve found a solid foundation on which to build a thriving subscription box business.
When learning how to start a subscription box business, your primary focus should be on creating the best experience possible for your target audience. Now that you know how to start a subscription box, you can throw your hat in the ring and test out your idea—who knows, you might just have the next million-dollar subscription box venture on your hands.