Why They’re So Popular and 11 Steps to Start Your Own
By Laura Gayle, Business Woman Guide
The subscription box phenomenon has taken e-commerce by storm over the past decade, with sales surging from $57 million in 2011 to more than $2.9 billion today. A full 15 percent of online shoppers currently have subscriptions to some kind of mail delivery service.
Men and women alike save on monthly shaving items through Dollar Shave Club. Food lovers make their meal preparation easier with Blue Apron. Fitness enthusiasts get new workout gear with Fabletics. More than 600,000 pet owners get treats and toys for their dogs each month from BarkBox.
What’s behind the stunning popularity of subscription boxes?
The Rise of the Subscription Box
The subscription box concept isn’t new. Book and fruit of the month clubs began in the 1920s, followed by curated cigar and wine deliveries. And do you remember BMG music subscriptions in the 1980s?
The difference with modern boxes is the intense level of personalization. Today’s subscription boxes provide an uber-personalized monthly shopping experience for consumers featuring pre-vetted products based on their preferences. Whether it’s the mystery box or build-a-box model, buyers love them because they are convenient and provide niche items that usually hit the mark. Businesses love having recurring monthly orders that produce regular income. And as a business model, it’s remarkably efficient. Merchants can buy box items in bulk, knowing that they have a specific number of pre-orders to fill.
So how can you cash in on this lucrative trend?
Steps to Starting a Subscription Box
Starting a box business seems simple enough, but there are some key steps to ensure success. As the subscription marketplace gets more crowded, it’s more important than ever to have a strong concept and fulfillment plan:
- Define your niche. The more specialized you can make your market and still turn a profit, the better. Rather than makeup, specialize in false eyelashes. Instead of books, specializing in mysteries with strong female leads.
- Research your competitors. With a multi-billion dollar market comes fierce competition. Like beginning any other business, conduct a full competition analysis. Not every product and service is suited to this model.
- Research your customers. Identify your target audience. Research their buying preferences and habits. Find out where they congregate online and use social listening to understand their needs and wants.
- Source your products. Producing your own goods gives you the most control over costs, but that can make it difficult to scale your business. One common method of obtaining box products is bulk purchase. Another is contracting the production of items.
- Create your prototype box. This means building your initial box with its debut items and putting together the prototype packaging. Use custom packaging to create a memorable – and potentially shareable – “unboxing” experience.
- Price your box. One of the most important decisions is how much to charge for your box. You need to price it low enough to be within reach of shoppers in your niche, but high enough to make a profit. As a rule of thumb, you want to be able to price your box so you make a profit of at least 40%.
- Conduct pre-sales for your box. To succeed, you need to find the type of items that your target buyers will love and want to keep receiving. Run focus groups. Partner with a few brand ambassadors who receive a free box in exchange for social media posts hawking it will help. Their Instagram, Facebook and Twitter posts of unboxing and their items help sell your boxes.
- Conduct your pre-launch phase. Pre-launch includes debuting your website, ordering mechanism and assembling the boxes.
- Launch your box. Send them out into the world. Contract with a shipping company to ensure prompt delivery. Have customers share their unboxing or how they’re using their monthly items on social media, using a custom hashtag.
- Use customer feedback to improve your box model. Providing opportunities for customer feedback at every step nurtures your relationship with your audience, helps you constantly improve your offerings, and improves the odds of keeping existing customers as well as landing new ones.
- Pay attention to inventory management. 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. Use a “first in, first out” method to ensure good inventory turnover.
Hitting the Target
If you have an existing business that caters to 25- to 44-year-old urban residents of the Northeastern U.S. with incomes of $50,000 to $100,000, you’re in luck! That’s the most likely group to sign up for a subscription box service.
A study by McKinsey & Company found that the average active subscriber holds two memberships, but nearly 35 percent have three or more. Women are more likely to sign up for subscription boxes, but men are more likely to have three or more active subscriptions.
Picking the right niche really provides the success key. Find an area that no one serves and serve it with style. Make each month’s box feel like opening Christmas presents and you’ll thrill customers into sharing their experience. That ensures free advertising through social media. Retain those customers by continuing to delight them with carefully curated niche products month after month, and you’ll be set to rake in the profits from this astonishingly lucrative business model.