By Laura Gayle, Business Woman Guide
The subscription e-commerce market has grown dramatically over the last decade, from $57 million in 2011 to more than $2.9 billion today, creating an appealing opportunity for both retailers and consumers alike. Today, it’s possible to have a curated box of almost anything sent directly to your door, from cat toys to high-end whiskey. Approximately 5.7 million subscriptions are active in the United States, showing evidence of a compelling new way to shop – and sell.
Despite the exploding growth, scoring big with a subscription service isn’t as easy as it sounds. With so many options out there, getting started is now more challenging than it used to be. Almost every market already has a player, including niche industries like socks and razors. For those companies willing to put in the work, however, it’s possible to build or grow your e-commerce operations with help from subscription boxes.
Why the Model Works
Subscription models are beneficial for both retailers and consumers, offering a little something for everyone.
For consumers, the element of surprise is a main motivator. While not all subscription boxes operate on this principle – many meal-related boxes, for example, like Plated, allow users to choose a box’s contents – customers are largely entranced by the idea of secrets in the mail. There’s little legwork on their part with no need to shop and choose items, and the contents of a curated box can be exciting for those new to an industry or who enjoy trying new things. The fun side of subscription boxes – new items every month! – keeps things fresh, encouraging customers to keep a subscription active.
For retailers, the benefits are equally numerous. Subscription boxes are relatively low-cost to operate, particularly when fulfillment expenses are passed through to the consumer. Items included are often sample size, allowing for low purchase prices, or offer the opportunity to buy in bulk from vendors, reducing the per-unit rate retailers pay. Subscription boxes also allow the opportunity to unload slow-moving inventory. Adding items to a box that aren’t selling well can increase awareness and deplete stagnant inventory, freeing up shelf space and giving way to more successful merchandise.
Getting Off the Ground in the Subscription Space
When handled properly, subscription boxes can be a boon for your e-commerce operations, but building a customer base and making enough sales to cover the associated overhead requires a careful approach. Before jumping in with two feet, be sure to plan the road ahead as carefully as possible to maximize your chances of success.
Choosing a Concept
The best subscription boxes, like Ipsy’s beauty products, Blue Apron’s meal prep service, Dollar Shave Club’s razors, and Stich Fix’s custom wardrobe, have a set theme that caters to a specific market of customers. Ipsy, for example, is marketed toward young adult women and features desirable brands customers love to sample. Before advertising a box, decide what you want to sell and how you want to sell it. If possible, stick with a niche you already know; if your current e-commerce store sells jewelry and accessories, now is not the time to launch into the pet supply space.
Market analysis is important here as well; be sure you research who else is in the same space you are considering, the pros and cons of competitor performance, and the expected costs associated with the launch. Food boxes, for example, can be more expensive due to the use of perishables and demanding packaging, while beauty sample boxes can be managed at a lower cost.
The items you use in your subscription box will essentially drive your entire concept. Great products will keep customers coming back, while average, unappealing, or inexplicable products will ruin your reputation from the beginning.
When choosing products, consider a few things, including:
- What you personally as a consumer would like the see
- What your customers purchase from you most frequently
- What items are affordable enough to include in a low-cost box
- What items can be sourced easily and in bulk
Defining your average customer is key to success, so buyer personas can be important to proper preparation. Ask yourself who will be buying from you, including background and personal history, average income, lifestyle, and current product use, and plan accordingly.
Consider sourcing as well. Expensive items that can’t be bought at a discount may not be a good fit, so do your due diligence on how and where to shop before committing to ideas.
The price point for your subscription box will play a large role in your sales and repeat customers. Price too low and you’ll lose money, but price too high and no one will buy.
First, add up the total of the inventory you plan on including, like $6.50 in bulk samples. Then consider the cost of the box, packing, and shipping. You can go with a generic unbranded box, but it might be better to spend a bit extra for custom packaging with your name and logo on it to establish your brand and create a memorable “unboxing” experience. If each empty box costs between $.50 and $1 and shipping is $4.50 to $5, then you would need to make at least $12 to break even on direct costs alone. Overhead is a factor, too, so include labor and any extra storage fees for inventory that may be involved. As a rule of thumb, you should price your box with at least a 40% profit margin to build a sustainable business. That means in this example, you would need to charge at least $20 to stay afloat.
You will also need to decide if you want to offer price incentives. Some subscription box services offer a discount if people sign up for three, six, or 12 months at a time versus buying a single box, so keep these opportunities in mind as well.
Inventory is a central driver around the subscription box concept, so it’s essential to make sure you have enough items available at the right time to meet demand without dramatically exceeding actual purchases. A rough estimate can be done by incorporating current purchasers with average churn and projections on scaling.
For boxes that use a random assortment of goods that aren’t uniform across each order, like BirchBox, this can be easier. Inventory can be carried over month to month or divvied up among boxes, making it easier to maximize the merchandise available to you. In the early days, you may consider sending boxes out on the same day or week each month to better keep inventory organized as you grow. There are free economic order quantity (EOQ) calculators that can also help you.
Building a Community
For a subscription box to succeed, you need to branch out from your existing customer base, reaching new users and growing a reputation in the industry. In general, this means marketing aggressively in the communities that cater to your target demographic. For example, promoted ads on social media platforms like Instagram and Facebook can be an effective way to access millennials. With persistent marketing, you can plant the idea of a purchase in consumers’ heads, slowly bringing them around to the idea of participating.
In addition to marketing, focus on a place for those using your services to come together. This may mean a forum, a social media company page, or a Facebook group. By getting subscribers involved in the community, you can build loyalty and keep customers excited about what is to come.
Launching to Success
Launching your box will take significant planning and preparation. As the launch date draws closer, creating anticipation is essential; in order to ensure adequate sales, you need to make sure people are eager to purchase from you and share their purchases with others.
In the months leading up to your launch, work to build an audience that’s as large as possible. This serves two roles: increasing sales and attracting attention that will lead to positive reviews and reputation. While how you choose to build an audience can vary, options include:
- Promoted social media ads to a target audience
- Facebook groups to attract attention and survey potential purchasers
- Email campaigns with promotional pricing
- Discounts through funding avenues, like GoFundMe
- Preview of first box contents for subscribers
- Discounts to an e-commerce store with subscription box sign up
No matter your strategy, adequate attention for initial orders and solid growth potential is critical to get off the ground with ease.
The subscription box industry offers a big opportunity for those willing to take the leap. By carefully preparing for the road ahead, it’s possible to find successful footing with a subscription box of your own.