Subscriptions aren’t just for newspapers and magazines anymore. Software and entertainment companies have transitioned customers out of a purchase or rental mindset. Now those products are often sold via a subscription business model. Users are more likely to pay an annual fee for updated software than buy a static license. We no longer buy DVDs or CDs. Instead, we pay a monthly subscription fee to services like Netflix and Spotify to stream movies or music. In fact, the subscription box business model is one of the fastest-growing sectors in eCommerce.
What is a Subscription Box?
The subscription box business model is one in which products are delivered on a regular (often monthly) basis. The eCommerce subscription model has benefits for both the consumer and the company. Consumers don’t have to scramble to shop for or place orders for products. Instead, subscription boxes arrive on a regular basis. Your business gets a steady and predictable revenue stream. That can allow you to manage production more efficiently and reduce your operating costs.
McKinsey reports that 15% of consumers have signed up for subscription boxes in the last 12 months. The McKinsey data showed that subscription eCommerce sales have doubled every year since 2013. Big companies like Albertsons (Plated) and Amazon (Amazon Subscribe & Save) have entered the subscription eCommerce business. However, there is still plenty of room for startups to thrive.
If you’re ready to start your own eCommerce business, subscription eCommerce is a great choice. Here’s a step-by-step guide to getting started with your own subscription box business.
Find Your Subscription Box Niche
With innovations in packaging and shipping, you can ship almost anything to customers. Meal kit companies like Blue Apron, Sun Basket, and Plated deliver fresh veggies to your door while keeping them cool. Quip sends you a replacement electric toothbrush every three months. Dollar Shave Club delivers custom boxes of men’s toiletries. It seems like there is almost no product category that can’t be turned into a subscription eCommerce business.
There are three hooks for successful subscription boxes:
Save me time. This category applies to subscriptions like Blue Apron, which simplifies healthy meal preparation.
Remember for me. Quip and Dollar Shave Club deliver replacements for necessary items customers use every day. No thought necessary.
Delight me. Some subscription eCommerce businesses focus more on delight than necessity. One company that delivers a monthly box that includes jewelry and candles is even called Delightful Life Box.
When you look for the right product for your eCommerce subscription business, follow your passion. If you are a practical person, then think practically. Create a subscription box for laundry supplies or car maintenance products. If you are an avid knitter, use your expertise to build your business. You might create a project-of-the-month box filled with yarn, needles, and a knitting pattern.
When you’re designing your eCommerce subscription model, think about what your business will ask of you each month. If you send a box of different art supplies every month, that gives you flexibility. You can include items that are on sale or closeout, which might increase your margins. However, you’ll also need to spend time every month sourcing new products.
On the other hand, you save time when you send your customers the same product every time. At the same time, you run the risk of a pricing or supply chain crunch, since you’re wedded to the same product or products. However, when your supply chain runs smoothly, you can devote more time to marketing and less to product sourcing.
The best choice for what to put in your subscription boxes is something you care about. Your inspiration and passion for what you do will help you sell your subscription boxes.
Design Your Ecommerce Subscription Business Model
You might be thrilled to receive a subscription box with a new bandana every month. However, that doesn’t mean that there are enough bandana enthusiasts to keep your subscription eCommerce business afloat. You’ll need to understand the bandana market and your bandana competition.
Market research is an opportunity to formulate your mission. Data about your market will help you get clear on why you started your business and where you see it going. By the time you finish, you’ll have a compelling story about how your subscription boxes help your customers.
Who needs your subscription box?
This is the question about how big your market is. For example, everyone uses a toothbrush (we hope!), but not everyone likes electric toothbrushes. Brand loyalty to established brands can be a market limiting factor, too, at least at first. These are the kinds of questions Quip needed to understand it launched its subscription eCommerce business.
What is your subscription cycle?
A common subscription cycle is monthly, but don’t get stuck on that shipping cycle. Quip sends a new toothbrush every three months, while Blue Apron sends meal kits weekly. If you create a knitting project box, you’ll need to gauge your cycle to the time it takes to complete your projects. You want a subscription box cycle that keeps your customers engaged but doesn’t make them feel pressured. If unused subscription boxes start to pile up at your customer’s home, you’ll increase churn.
Who are your competitors?
If you’re passionate about dental hygiene, the popularity of the Quip toothbrush could mean there’s no room in the market for your dental care subscription box. On the other hand, the success of that competing product could serve as proof of concept. Your competitor has demonstrated that there’s a demand for your eCommerce subscription model. Your job is to take some of that market share for your business.
If no one else sells subscription boxes in your product niche, it could mean that the market is wide open for you. However, you might also have to work harder to educate customers about your subscription box model.
Why is an eCommerce subscription model a good fit for your customers?
This is where you begin to develop your brand story. The story is more important for the eCommerce subscription model than other eCommerce businesses. You have to convince your customers not only to buy your product. You also need them to sign up with you to get more of it on a regular basis. Your subscription eCommerce business will have a closer relationship with your customers than most eCommerce sites. You’ll need to clearly articulate the benefits of your subscription box to attract customers.
Prototype Your Box
Once you’ve figured out your subscription eCommerce niche, the next step is to create a sample of your box. Prototyping is critical for the eCommerce subscription model. Your box, your packaging, and the marketing materials inside the box are critical. They are as important to your success as the products inside the box.
For example, you might promise to delight your customers with surprises each month. If that’s your eCommerce subscription model, your packaging should make customers feel like they are opening a gift. For more practical products, minimal packaging is fine. However, consider including a card with helpful information relating to your product each month. Or add humor or a personal touch note.
The contents of your subscription box need to reflect the brand personality you are developing. Regular subscription boxes are a great way to develop a bond with your customers. If you include your personal touch and a brand voice in your boxes, you’re more likely to win their loyalty.
While you’re making your box appealing, don’t forget practicality. Your packaging should be sturdy enough to get your products to your customers in perfect condition. Determine what filler will go into the box itself. Ask yourself whether you need to ship your subscription box inside another box to keep it safe.
Your packaging design will also have an effect on your bottom line. Filler and over-boxing (putting your box inside a bigger box) can add to your shipping costs. This is particularly true if your products are large. Check to see if DIM weight pricing will increase your shipping costs. If it does, experiment with different box options to reduce your DIM weight.
If you decide to outsource the order fulfillment for your subscription eCommerce business, consult with your fulfillment warehouse about packaging. Their expert advice on packing and shipping could save you a lot of money in the long run.
Create Your Subscription Box Business Plan
Every business needs a business plan. Your subscription eCommerce business is no exception. Business plans are meant to change over time. However, starting with a solid and well-researched business plan increases your chances of success. In addition, you’ll need a good business plan if you need venture capital or bank loans to fund your startup.
Here are some of the elements to include in a killer subscription eCommerce business plan.
Brand voice and personality
As mentioned above, your brand voice and personality are crucial. This is even more true for subscription eCommerce businesses than for traditional eCommerce brands. For your business to succeed, you need customers to invite you into their homes and welcome you back every month. Your brand voice is what will get customers to give your subscription box a try. The quality of your products and your ability to deliver on time will win their loyalty.
Packaging design
How does the way your box is packed represent your brand? How does it ensure safe transit for your products? And how will you manage packaging costs?
Production Operations
Getting clear on your production timeline and requirements is essential. This clarity will guarantee the smooth operation of your subscription eCommerce business. You’ll need to be clear about lead times with your manufacturer. Production is an area where you will need to continually evolve as your business grows.
Fulfillment plan
Your fulfillment plan is the lynchpin of your successful eCommerce subscription company. At first, you might outsource your fulfillment to a 3PL provider or pack and ship in-house. In either case, you need to understand when and how your subscription boxes will ship to your customers. That will help you choose the best fulfillment option for your subscription eCommerce business.
There are two types of subscription eCommerce models, which require two different fulfillment plans. A company that sells toothbrushes, for example, can add subscribers on a rolling basis. Each subscription operates on its own cycle, with orders going out daily throughout the month.
If you send a monthly subscription box, you’ll need a set shipping window that’s the same each month. The most efficient way to ship to your customers is to pack and ship all your subscription boxes at the same time. Your shipping window also gives your subscribers predictability. They will know when to expect their delightful subscription box each month.
Customer billing
When a customer makes a one-time purchase in an eCommerce store, they put in their credit card information and, if the transaction is authorized, the merchant ships the order. With subscription boxes, you need to be able to bill every time you ship a box. You’ll need to set up a system for dealing with denied transactions and expired cards. Most importantly, you’ll need to make sure you can easily process recurring charges through your payment processor.
Subscription ECommerce Platform
You can, of course, create your own website (and you should). However, a sales platform with broad reach will give a huge boost to your startup subscription eCommerce business. ECommerce marketplaces are catching on to the popularity of the eCommerce subscription model. For example, Amazon has introduced a program that allows sellers to apply to sell subscription boxes.
There are a number of sales platforms designed just for subscription boxes. There, you can find tools to help you set up your business and marketplace listings to help grow it.
Cratejoy bills itself as “The All-in-One ECommerce Platform for Subscription Box Businesses.” You get a free listing in its marketplace, shipping discounts, and a dashboard to manage your subscribers with this app. Cratejoy’s offerings also include tools to help you build your website.
The Subbly subscription eCommerce platform helps you manage your signup, checkout, and billing. It also offers a website builder.
Several eCommerce sales platforms offer support for subscription eCommerce businesses as well. You can manage your sales and subscribers on WooCommerce, Magento, and Shopify, among others.
Many eCommerce platforms offer free trials. Try out at least three different options before you settle on a subscription eCommerce platform. Make sure the one you choose integrates with your other eCommerce software and has a dashboard that you find easy to use.
Set Financial Benchmarks
An important part of your initial business plan is benchmarks that will guide you on the road to financial success. Calculate all your expenses and figure out how many subscribers you need to break even. How many will it take for you to turn a profit and pay yourself a salary?
In addition, figure out your float. How much money do you have to put into your subscription eCommerce business? How many months can your investment carry the business before it needs to break even or turn a profit?
Getting clear on your finances will help you understand the potential risks and payoffs as you start your business. One advantage of the eCommerce subscription model is that revenue per subscriber is predictable. Set goals for subscriber acquisition and retention that will keep your subscription eCommerce business fiscally sound.
Get Your First Subscription ECommerce Business Customers
Now that you’ve designed your box and put your plan in place, the next thing you have to do is find subscribers.
Build awareness for your subscription eCommerce business
A subscription is a bigger ask than a one-time purchase. It’s a commitment. A subscription means your customers will get a box every month unless they remember to cancel. This flips the buying decision on its head.
Therefore, you need to make a strong case for the utility or allure of your products. That isn’t enough, though: You also need to convince subscribers that you’re trustworthy. They need to believe that you will deliver on your promise, not just once but month after month.
Here are some techniques to generate excitement and attract your first customers.
Sample subscription boxes
Create a few prototype boxes and send them to people who can talk them up, such as journalists and bloggers.
Social media engagement
Create your social media accounts on day one. Use Instagram, Facebook, YouTube, and other platforms to spread the message. Social media is a great place to connect with potential customers. It also lets you establish the persona and voice of your brand.
Influencers
Social media influencers give you access to thousands or millions of followers. If you can’t afford a Kardashian to endorse your product, don’t write off influencer marketing. There are plenty of less well known influencers who still have large followings. They can help you get your message out to people who will be excited about your subscription boxes.
Advertising
Consider using Google AdWords, Facebook ads, or other paid social media to boost your brand.
Crowdfunding
Crowdfunding is a great way to get the word out while you also sign on your first subscribers. If you need a threshold number of subscribers before you can afford to send your first box, you’ll need pre-sales. A platform like Kickstarter or Indiegogo could be the perfect place to launch your subscription eCommerce business.
Website
You’ll need other avenues to drive potential customers to your website. However, don’t discount the value of your website as a sales funnel. Make sure your site takes potential customers on a journey from skeptical to subscriber.
Send Your First Subscription Box
Set a launch date when you will send the first batch of subscription boxes to your pre-order customers. Make sure you stay in touch with those customers in the days and weeks leading up to your launch. Their engagement and excitement will help build buzz around your brand.
Don’t let glitches in your first shipment get you down. Every new business will experience hiccups. View mistakes as an opportunity to engage with your customers on a personal level. The way you connect with your customers to correct mistakes may be more important than the error itself. Use humor and great customer service to keep your initial subscribers happy, even when things go wrong.
Congratulations! Your subscription eCommerce business is off and running. Your next job is to improve your operations and grow your subscriber base.
Refine Your ECommerce Subscription Model
As you grow your subscription eCommerce business, growing pains are bound to happen. You’ll have plenty of chances to learn and hone your eCommerce subscription model. A sustainable subscription eCommerce business needs to operate smoothly, both for you and your subscribers.
Make notes about what you learn during your launch and initial shipments. Improve your processes each month.
Learn from your churn
Churn is an unavoidable part of the eCommerce subscription model. Of course, your goal is to reduce subscriber turnover. The higher your churn rate, the greater your marketing costs.
However, subscribers who leave can be a great resource as you grow your business. Create a short exit survey to find out the reasons when someone cancels. If even a few subscribers take the time to answer your survey, you win. The information on what didn’t work for them can show you the path to improvement. In addition, you may find that your subscription boxes consistently disappoint a certain type of customer. This can help you focus your marketing efforts on the customer profile that fits your most loyal subscribers.
Streamline your operations
Document where your supply chain and eCommerce fulfillment run smoothly and where problems arise. You might handle your fulfillment in-house at first, when you were small. Consider whether a professional 3PL provider could provide better service for your subscribers as you grow.
Sell More Subscription Boxes Through Referrals
As your subscription eCommerce business grows, referrals are the best way to grow your subscriber base. The person most likely to convince someone of the value of your products is a friend who already loves them.
Send regular emails to current and past subscribers. Offer them rewards for referrals that turn into subscribers. Then watch your profits grow!
