You’ve probably seen ads for the Dollar Shave Club. It’s that ubiquitous subscription box service that delivers quality razor blades for cheaper than the average retail price. Well, you might not know that in 2016, Unilever bought the Dollar Shave Club for $1 billion. And thus, an entirely new retail business model emerged: the subscription box business model.
Subscription box companies have been around since 2010, but their growth has been exponential in the past few years. In the US, 118 million people subscribed to subscription boxes in 2018. And, it’s estimated that subscriptions will grow to over 350 million by 2027.
If you’re reading this article, you’ve probably already caught on that subscription boxes are the retail model to bet on in the coming years. Perhaps you’re even looking for guidance on how to start a subscription box business of your own.
We’ve compiled a handy guide to getting your subscription box service started. It all begins with finding the right subscription box suppliers and product sources. But first, let’s start with the basics.
What is a Subscription Box?
A subscription box is the recurring, physical delivery of a package of products. Each box is usually designed for a specific market niche.
Subscription box services are part of a growing eCommerce segment known as “subscription commerce,” or “subcom.”
Retailers also describe this selling model as “assisted commerce” and SBRS, short for “Subscription Box Retail Services.”
How Do Subscription Boxes Make Money?
Subscription boxes make sellers money by locking customers into an automatically recurring (usually monthly) purchase. It’s an excellent option for retailers who may otherwise struggle to build that kind of customer loyalty.
Beware the churn, however! Churn rates for subscription box services are high, and the customers who do churn usually do so quickly.
As soon as they’re disappointed in their box (because they didn’t like a product, failed to be surprised, or were unimpressed with the packaging), they’ll cancel that subscription. We go in-depth into strategies for avoiding those pitfalls below.
Why Consumers Are Attracted to Subscription Box Companies
- Value – most subscription box companies pride themselves in filling their boxes with bespoke, high-quality items. An example would be the luxury subscription box Vices, which retails for $129.95 a month and contains top-shelf spirits and home accessories.
- Convenience – subscription boxes often contain items from many stores and sources. Ordering or shopping for each item piecemeal would be an all-day affair. Couple this with the fact that sellers ship boxes straight to consumers’ doorsteps, and the convenience factor is a tremendous value proposition.
- Curation – consumers are not only paying for great products. They’re also outsourcing the hard work of “decision anxiety” onto subscription box sellers. All products are picked out by someone else, so the user is simply left to be surprised and delighted.
- Exclusivity – thanks to the rise of subscription boxes as a viable business model, brands can offer products exclusively in their box service and nowhere else.
- Experience – remember the thrill of opening presents on Christmas morning as a kid? That’s the same experience consumers are chasing with subscription boxes.
Why Sellers Are Attracted to the Subscription Box Business Model
Subscription box businesses offer benefits unavailable to traditional commerce models. The three big draws for sellers are the following:
- The ability to reach new segments of consumers (millennials and Gen Z, primarily)
- The ability to efficiently market and test new products
- The ability to glean bountiful, high-value data from consumers
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How to Start a Subscription Box Company
The first step to create a subscription box is to decide what kind of subscription business you want to start.
You can approach this question from two different angles:
- The demographic-first approach targets a specific segment of consumers (say, “outdoorsy men aged 35-50”) and curates or creates products that appeal to that audience. Note that this approach will require extensive market research or deep knowledge of an existing market.
- The product-first approach involves creating a product (or utilizing an existing product) and merely using subscription boxes as a means to deliver that product to consumers (whatever demographic they may be).
Depending on your answer to the previous question, you’ll then want to decide what category of subscription box service to pursue. There are two main categories of subscription boxes:
- Replenishment subscription boxes deliver the same products in each box (that’s the Dollar Shave Club model we mentioned above).
- Curated subscription boxes surprise customers with new products in each box but are usually tailormade to suit their interests and desires.
Next, start crafting your subscription box business plan. You’ll want to consider the following questions, which are unique to the world of subscription boxes:
- Will you let your customer decide how often they want to get a new subscription box, or will you control the timing (replenishing the box once a month, for example)?
- Will you allow returns—and will that service be paid, or free?
- Will your products be a complete surprise to your subscriber, or will you let them communicate their preferences through questionnaires?
How to Get Products for Custom Subscription Boxes
By this point, your ideal subscription box should be taking shape in your mind. You should also have at least a basic subscription box business plan that details your fulfillment schedule, returns policy, and so forth.
Of course, a vital part of that plan is figuring out how to find products for your custom subscription boxes.
Studies show that the customers who are most predisposed to subscribe to a recurring box service are most attracted to:
- High-quality products
- Rare objects
- Custom-made products
- New and innovative products
- Different, unusual, highly unique products
But how are you supposed to get them?
This brings us to your next decision. Should you pay other vendors for the products in the subscription box you design, or should you try to acquire those products for free? Let’s consider the pros and cons of each route.
Free vs. Paid Subscription Box Products
For sellers first starting on their journey to creating a subscription box company, sourcing free products may seem like the way to go. After all, it dramatically reduces your overhead, thus increasing profits.
But it’s important to understand how that works before making a decision. Even if you’re a scrappy, cash-strapped entrepreneur, going the free route may not be worth it in the end. Let’s take a closer look.
How to source free products for your subscription box
To get free products, you’ve got to network aggressively. This takes real salesmanship. You need to identify makers, artisans, or brands that you want to align with and make a compelling pitch to convince them to give you free products (usually, samples of new items) to sell.
Manufacturers may be more willing to do this than you’d think. Remember those subscription box statistics we enumerated at the beginning of this article?
Well, they’re aware of those numbers, too. They know that if they can get their new products in the hands of the right subscribers, that’s a virtually free marketing campaign as those subscribers excitedly share their new items on social media or through word-of-mouth.
They can also penetrate new markets through subscription services with minimal effort.
Pros of procuring free products for your subscription box
- Higher profit margins
- Ability to set lower price points, thus attracting more consumers
- Lower startup costs
Cons of procuring free products for your subscription box
- A significant investment in time to pitch all those manufacturers and requires salesmanship skills
- Logistical challenges of dealing with multiple vendors
- Less control over your supply chain—vendors may not prioritize getting their products to you if you’re not paying
- Less curatorial control over your box—you’re at the mercy of what manufacturers are willing to give you for free, as opposed to being able to pick the items you think your consumers would like best. (And remember—lower-quality or less-appealing items equal fast and high churn rates, which, as we saw above, is a subscription box company’s Achilles’ heel.)
How to source paid subscription box products
A more traditional route would be to pay for the items you’re planning to package up and sell. We’ll go into detail on what that entails in a second, but your options here include:
- Buying products wholesale
- Striking licensing deals with specific brands
- Buying products directly from a manufacturer, artist, or artisan
- Online shopping
- Shopping in brick-and-mortar stores
If you decide to incorporate paying for products into your subscription box business plan, take a word of advice from Cratejoy (the premier web destination for connecting consumers with thousands of subscription box services.)
Cratejoy recommends not spending more than 20-30% of your average revenue, per user, on your subscription box products.
Pros of procuring paid subscription box products
- Total curatorial control over your subscription box offerings
- Faster, easier negotiations with vendors; simplified logistics
- More secure supply chain
Cons of procuring paid subscription box products
- Could necessitate significant startup capital
- Investment in product could eat into profit margins
- May necessitate setting higher price points for customers
The following are some common places to source products for your subscription boxes:
- Etsy or Amazon Handmade
- Flea markets
- Brick-and-mortar stores
- Niche wholesalers
Dropshipping Custom Subscription Boxes
The term “dropshipping” refers to a retail fulfillment method where a seller purchases a product from a third party (like a manufacturer or a wholesaler).
That third party then ships it directly to the consumer. In this process, the retailer never actually handles the product itself. They maintain no inventory and thus don’t have to worry about warehousing, shipping, or processing.
Suppose you don’t want to assume the risks associated with sourcing free products for your subscription boxes, but you’re still worried about overhead and profit margins. In that case, dropshipping may be your subscription box fulfillment solution.
Pros of dropshipping subscription boxes
- You don’t have to pay for products upfront, but only when they’re sold. This could be attractive for retailers with lower startup capital
- Drastically reduced overhead from savings on storage
- No risk of losing your investment on unsold inventory
- Logistically, dropshipping also saves time and hassle in that the third party handles fulfillment and shipping.
Cons of dropshipping subscription boxes
- You’ll pay more for your subscription box products than if you were to pay for them upfront and fulfill orders yourself. This could translate to lower profit margins.
- You have less control over packaging and fulfillment, which are two areas that are crucial to the subscription box user-end experience.
Types of Subscription Box Suppliers
So, we’ve reviewed sourcing free products for your subscription box, as well as why dropshipping subscription boxes might be right for your fledgling company.
But for those who decide their business should buy products directly, then it’s time to hone in on the three main types of subscription box suppliers.
Wholesalers will sell you bulk quantities of product at a much lower cost than MSRP — as much as 40% lower or more.
Buying wholesale usually works best for replenishment subscription boxes, where you’re selling the same product month after month (like razor blades or haircare products).
Pros of buying wholesale:
The obvious benefit here is cost, but there’s also this: if you build relationships with multiple distributors, you can protect your supply chain and avoid backorders, which is a major logistical benefit.
Cons of buying wholesale:
You’re probably not going to be able to buy those unique, novel, one-of-a-kind objects that subscribers long for in bulk. If you’re interested in designing a curated subscription box, read on for better-suited solutions.
Suppose you want to tap into that market for unique, one-of-a-kind items (which, as we saw above, is a proven winning formula for subscription box companies). In that case, purchasing handmade or custom-made products from an artisan or artist could be the way to go.
The maker route is an excellent choice if you’re going for that “unicorn” factor, and are willing to put in the time researching and networking with makers who fabricate the kind of items you’d like to sell.
Pros of sourcing subscription box products from makers:
You acquire some exclusive items that your customers wouldn’t be able to get elsewhere. And since you’re dealing with individuals, not big companies, you may be able to strike some good deals (especially if you buy in bulk).
Cons of sourcing subscription box products from makers:
The downside of working with small and micro businesses, on the other hand, is that they face a variety of challenges that can threaten your supply chain.
The most obvious type of supplier for subscription box products, of course, is the traditional retail store, whether brick-and-mortar or an online shop/ecommerce platform.
You can get good discounts on items from big-box discount stores like Costco or BJs, as well as eCommerce giants like Amazon or Alibaba. Smaller, local retail stores may offer unique products (especially if they sell their own branded items) and tailormade deals.
This could be a good option for designers of replenishment subscription boxes, or if you live in an area where it’s difficult to connect with makers of unique handmade goods.
Pros of sourcing subscription box products from retailers:
There’s a good possibility of finding cost-saving deals that will let you set a higher markup for the products you pack in your subscription box. There may also be demand for specific branded products from local retailers that aren’t available elsewhere in the country.
Cons of sourcing subscription box products from retailers:
You’re dependent on the deals you can find at these stores, which means you may not always be able to procure the same items for the same price. In addition, shopping at brick-and-mortar stores could prove time- and labor-intensive.
Remember: you may end up procuring your products from a mix of different types of suppliers. This can entail some logistical difficulties in terms of keeping track of purchase orders, managing inventory, and so forth.
Make sure you get off on the right foot by investing in a robust inventory management platform like SkuVault to avoid common logistical pitfalls.
Developing a Stellar Subscription Box Design
We’ve taken an in-depth look at subscription box product suppliers, but there’s another element to your business that also deserves careful consideration: the subscription box packaging itself.
Strategically deciding how your products are wrapped and boxed should be a core part of your subscription box business plan. “Unboxing” is one of the most enjoyable parts of the consumer experience. From the moment the box arrives all the way to when the products are actually used, your brand and aesthetic should be consistent.
The unboxing process also offers an excellent opportunity for free marketing. Unboxing videos have now become a web mainstay. Many customers record the entire experience on social media platforms or YouTube.
You should think of your box as a product in and of itself. Put as much thought and research into finding suppliers for the boxing and packaging as you do for sourcing your items.
Make sure you know exactly what products are going inside the subscription box before you make any decisions about packaging so that you ensure you have the appropriate dimensions. Don’t forget to take weight into account, so that you can choose a box that’s sturdy enough to contain your items.
It’s also critical to hire a graphic designer to craft a compelling visual identity for your packaging. Many companies that provide wholesale subscription boxes will provide custom printing as well.
Product Sourcing Strategies for Subscription Boxes
Now that we’ve gone over the basics of how to start a custom subscription box, let’s review four top strategies for sourcing your subscription box products.
Build Mutually Exclusive Deals with Brands
A highly effective way to attract (and keep) customers to your custom subscription box is to offer them exclusive products from brands that they already know and trust.
Reach out to brands whose products and messaging align with the goals of your own subscription business, and invite them to explore a partnership.
As we discussed above, brands will often be open to striking a deal in the hopes of leveraging the marketing potential of your subscription box service. If you can secure an exclusive deal for certain items, that would make your service even more valuable in consumers’ eyes.
Niche Down as Soon as Possible
When you’re getting into the subscription box business, remember that you’re not out to please everyone. Hone in on one specific niche market and services the target demographic to the best of your ability, whether you decide to offer discount razor blades or handmade scented candles.
Or even better: bee-friendly handmade scented candles—the more specific your offering, the stronger your business. It may seem counterintuitive since you’re targeting a smaller client base, but it’s a strategy that keeps that client base loyal and coming back for more.
Differentiate Yourself from Traditional Commerce Channels
Above, we discussed sourcing your subscription box products from suppliers like wholesalers and already-existing retailers. But even if you go that route, don’t forget the element of surprise!
Subscribers don’t want to unbox items that they see for themselves at the store every week. Be creative, and seek out special and exclusive items. To the extent possible given your subscription box business model, try to strike special deals with brands and makers to provide your customers with one-of-a-kind products that they can’t find anywhere else.
Build an Inbound System to Attract Vendors
Here’s the good news: as your subscription box business grows, you won’t have to keep doing all the legwork of cold-calling other companies.
Brands and makers already know the big rewards they can reap by affiliating themselves with subscription box services (remember those stats we looked at in the beginning of the article?).
On your ecommerce subscription box site, set up an option that allows vendors to get in touch with you. Establish a presence on social media and other online communities where vendors can reach out to you, as well.
Become a “thought leader” in your particular niche, and brands will soon see the value in partnering with you. This creates a snowball effect of value for your consumer (and your growing bottom line).
Build On a Solid Foundation of Inventory Management
The steps to start a subscription box company can be daunting, but remember that you don’t have to do everything by yourself.
A core part of your business plan should be establishing a scalable inventory management strategy. When profits are rolling in and brands are calling, the last thing you’ll want to be dealing with is manual inventory management or lost business due to stock-outs.
SkuVault is specifically designed to aid ecommerce businesses in managing their inventory, fulfillment, shipping, and more.
We’d love to show you firsthand how SkuVault can take many of the headaches out of managing your subscription box (or other ecommerce) inventory. Reach out to our team for a live demo today.[/vc_column_text][/vc_column][/vc_row]