If you've been thinking about starting an e-commerce business, you might want to consider the subscription box market. Subscription-based mail order businesses like Ipsy, Dollar Shave Club, Blue Apron, and Birchbox have been growing by leaps and bounds
According to Forbes, the subscription services e-commerce market has grown by more than 100 percent every year for the last five years. There are countless subscriptions available, from high-end niche products to deliveries that save customers a trip to the store for food, toilet paper, and razors. The typical subscriber has higher-than-average income but little free time, so convenience is a big part of the appeal. Novelty is also a big draw with boxes that provide everything from goodies for Star Wars fans to rare teas from around the world.
The costs vary widely. Some subscription boxes like Birchbox and Ipsy charge around $10 or less per box. Other services like Blue Apron, for example, have an average order value of $58. Stitch Fix deliveries tend to run upwards of $150 per box if consumers decide to purchase all of the curated items.
If you’re interested in learning how to start a subscription box as a new business or you’re thinking about offering this product for an existing business, keep reading below.
Start With a Winning Concept
Consumers flock to subscription services because they want special products that they couldn’t necessarily track down on their own. It’s important to have a clear niche and a very specific audience. Authenticity matters. Just as authors are encouraged to write what they know, entrepreneurs going into the subscription box space should sell what they know. You intimate familiarity with your niche will set you apart and lead to success.
A strong concept will be very specific – ex. gluten-free food, clothing and accessories for pug dogs, cruelty-free cosmetics for people with dry skin. It helps if your niche is not already saturated with rivals. You also need to consider feasibility. How much is your audience likely to be willing to pay, and can you make a profit at that price point?
Once you think you have a good idea, create a prototype box and get feedback.
Choose Your Packaging Wisely
Packaging is important. It’s the first impression consumers get of your product and it can help frame how they feel about your brand. Particularly if you are in the lifestyle or beauty niche, establishing a strong aesthetic is crucial. Appealing packaging can also help with your marketing. One of the least expensive and most-effective ways to spread the news about your products is to have delighted subscribers share their “unboxing experiences” on their social media pages. For this reason, most successful subscription businesses use custom print boxes with their logos displayed prominently.
For example, if your signature colors are red and yellow, custom print boxes with the brand logo and aesthetic, then match it with red and yellow tissue paper, tape and labeling. Most new players will want to go to one of two extremes. You'll either try to cut costs by using cheap packaging materials or go overboard and overspend on fancy packaging that doesn't add to your brand value.
Your best bet is to keep it simple. The more packaging you include, the higher the shipping cost will be. Try to strike a balance between an appealing (and share-worthy) brand aesthetic and the package contents. Ideally, you will want to price your box with a 40% profit margin to build a sustainable business.
Source New and Innovative Products
No matter how great your packaging is, the success of your business will depend on what’s inside the box. You need to build relationships with suppliers and source materials that will delight your customers while not costing you too much.
Work with businesses that are willing to give you a break. You might even be able to score free samples to put in your box. Partnerships with up-and-coming businesses that need exposure are among the most valuable you can form because you both are vested in the success of your business and they’ll be highly motivated to supply your goods on time. You'll be able to drive value without cost overruns.
Keep an Eye on Shipping Costs
Shipping is one of the top costs for subscription box e-commerce services. Be precise with measurements to avoid waste when you order boxes. The box must be large enough to hold the contents but not so large that you waste material and end up paying for extra packaging. In addition, large packaging can lead to damage as items move around in transit. This could lead to paying to ship the same product twice.
This gigantic line item impacts your bottom line, so be sure to constantly search for new ideas to save in this area. As shipping costs go up, you may have to increase the price of your subscription, which can cause sales to plummet. It's never too late, even if you've already launched your box, to look at shipping patterns and prevent overspending.
Use Good Inventory Management
One of the advantages of the subscription box model for merchants is recurring revenue and the ability to send boxes on a predetermined schedule. But subscribers can be fickle and churn can be a problem. To scale your business and ensure that you have enough to meet demand without overbuying, you’ll need an efficient way to estimate your order quantities and manage your inventory.
There's nothing like taking advantage of an expert. One quick way to decrease shipping costs and simplify fulfillment is to outsource it to a shipping company. Startups rarely have the time, resources, buying power, or the ability to handle their own shipping. Sometimes, it's not cost-effective to handle fulfillment in-house and hiring a third party is a no-brainer. Other times, this is one of the most difficult things to do since severed ties are hard to regain.
Go with the most advantageous fulfillment partner, preferably one with competitive shipping rates. Questions to ask your fulfillment partner include:
- What carrier options do they have?
- What are their rates? (They should be willing to add a bulk discount.)
- Can you purchase postage directly through them?
By gathering all the intel you can, you place your business in a much stronger position to succeed in the subscription box e-commerce space. Working with an outside shipping company helps you concentrate on growing your enterprise. Make sure to start off with enough products for the first few months of service.