A subscription box model is essentially a personalized delivery of products that get delivered to customers on a recurring basis.
The subscription box industry is expected to grow by 18.3% annually from 2023 to 2027, reaching over $65 billion globally by 2027.
Startups and small businesses can effectively implement subscription models to create a sure-fire way of generating recurring revenue with great scalability options and a high lifetime customer value.
This step-by-step process for developing a subscription box model will talk you through how to kick-start your concept, market research, branding, logistics, and marketing strategies.
Key Takeaways:
- The global subscription box market reached a value of $32.9 billion in 2023.
- There is a growing demand for more personalized products.
- In order to grow and scale, you need more than just a good idea…
- Retention is key. New customers cost up to 7 times more to acquire, than new customers are to retain.
Phase 1: Concept Creation: Crafting a Unique Subscription Box Idea
If you can find your niche and create unrivaled value for your customers, then the possibilities for growth in this market are exceptional.
Step 1 – Create a unique concept
In a crowded market, a unique and well-defined concept is essential to differentiate your brand.
42% of subscription box customers say they subscribe for access to unique or exclusive products that they can’t easily find elsewhere, and 89% of consumers subscribe to multiple services, suggesting there’s room for new entries in different niches.
Step 2 – Research the market
Identify popular trends or gaps in existing subscription box offerings and channel what you’re passionate about and interested in – are you a gamer who likes to knit scarves?
Or a cat owner who collects Marvel figurines? Use online tools like Google Trends, social media, and competitor research to understand your niche and what your value proposition is.
You could also build prototypes and hold focus groups for honest feedback before you develop further. Look for opportunities in under-served markets or gaps where consumer demand is unmet – essentially, find your cash cow!
Step 3 – Source Products
Once you have your concept and USP, it’s time to think about how you’re going to source products for your subscription. There is a wide range of unique products out there; you just have to find the right sellers for you!
Step 4 – Define your price point
Pricing is crucial if you want to be profitable and scaleable for long-term success. As a general rule, your box will need to have a 40% profit margin to be considered sustainable.
Products and shipping are the big expenses, but there are also credit card fees, packaging materials, custom box design, and marketing costs. Calculate your fixed monthly costs, factor in your profit margin, and work out your pricing strategy based on your predicted volume of subscribers. This will give you a rough price point from which to start.
55% of subscription cancellations are due to “low value for money,” reinforcing the need to understand your target market values and pricing this right.
Step 5 – Develop your subscription box model
BarkBox is one of the biggest subscription box companies in the world. Their model includes a range of subscription options, including monthly, six-month, and 12-month options.
They are also a great example of how they have expanded their product offerings. A tiered model increases customer lifetime value by encouraging upgrades to premium plans and attracting a broader customer base without raising costs on lower-tier boxes.
Once your concept, products, pricing and model is established, it’s time for phase 2: marketing!
Phase 2: Marketing and Acquisition
In such a booming market, you need to establish a unique selling point, authentic marketing, personalization options, and a sexy unpackaging process (for your box).
Step 1 – Branding
Strong company values communicated through your branding will help reach your target market. Blue Apron Holdings is a meal kit delivery company.
Their unique value proposition is their commitment to reducing food wastage partnering with food banks to donate excess food, which is communicated in their marketing. What makes you unique? What are our morals and values? If you want some more tips on brand authenticity, check out this post.
Step 2 – Targeting and Personalization
Don’t be afraid to get up close and personal with your customers. Think Tinder profiles but for your customers… How old are they, what are their interests, what are their dislikes, what problems can you help them solve?
Research from Deloitte shows that 36% of consumers are interested in personalized products, meaning customizable subscription boxes can significantly improve satisfaction and retention.
Step 3 – Build your community
Social media and influencer marketing mean that big players are collaborating with content creators to promote their products. Take Loot Crate. This gaming-based subscription box got over 10 million views on their sponsored video with popular Youtuber PewDiePie.
This is a prime example of how you can tap into niche communities and create low-budget content that will resonate with your target market and drive mass brand awareness!
Phase 3: Operations and Delivery
Become a smooth operator! Efficient operations are crucial to the success of your subscription box business.
Step 1 – Logistics of Fulfillment
You need to decide whether you’ll handle fulfillment in-house or outsource to a fulfillment center. Notably, 94% of consumers say poor delivery experiences negatively impact their loyalty.
As your business grows, perhaps packaging your boxes in the garage is no longer an option… Research shows that 44% of small business owners find managing logistics and fulfillment their biggest operational challenge.
Streamlining the processes can reduce churn and improve customer retention. If you need more advice on this, click here for more tips!
Step 2 – Packaging: 40% of consumers say they’re more likely to share a product on social media if it arrives in premium, branded packaging. So, make it sexy! I don’t mean add a confetti cannon but if you have the capacity, a personalized note, snazzy boxes or cool colors can go a long way.
Step 3 – Shipping
According to a survey by Pitney Bowes, 74% of shoppers say that free shipping options impact their purchasing decisions. Try and negotiate with shipping carriers for the best rates and delivery times – especially as your business grows, guaranteeing repeat business could earn you a discount!
Try offering free or discounted shipping where possible to increase customer acquisition.
Step 4 – Inventory Management
The good news is, a subscription model means you can accurately predict your inventory needs, helping you manage costs more efficiently and avoid stock delays.
Remember, time is money, and the longer you’re waiting for stock, the more likely your customers will look elsewhere.
Phase 4: Growth and Scale
With a predicted growth of 18.3% annually from 2023 to 2027, ensuring your business has the right foundations and process to scale-up efficiently, is vital to growing your business.
Step 1 – Customer Retention is Key
FabFitFun has positioned itself not just as a beauty box, but a lifestyle box. With a growth of 300% year-on-year, CEO Michael Broukhim has built more than a subscription box business, he has created an exclusive members community and mobile app to retain loyalty and create FOMO!
Reducing churn improves long-term profitability, so ensure your subscribers get rewarded or receive exclusive offers to keep them coming back. Click here to read more on why retention is more important than leads.
Step 2 – Growing your customers
Acquisition can be tricky but there are plenty of ways to get the attention of your potential customer. Think of it like peacocking… Show off the best your business has to offer. Maybe offer a half-price first box, refer a friend scheme, encourage user-generated content for some low-budget conversions and try micro-influencer tactics.
Step 3 – Managing Costs for Scale
Options like small business loans, venture capital, or crowdfunding can raise capital for growth. With the added investment, you could look at automation software that saves time, reduces human error, and improves efficiency.
This is all crucial as your business grows, and can save you time and money! Utilize the power of technology for inventory management, order fulfillment, and recurring billing to ensure smooth operations.
Launch your subscription box model with the help of Foundr
Let’s recap! To build a successful subscription box business, you need to find your niche, create value for money, get to know your customers and offer them a slick and smooth order and delivery process.
Sounds easy right? Well, if you want more business advice to fast-track your ideas confidently, become a Foundr+ member for a 14 day trial. For only $1, you will join a community of over 300,000+ like-minded peers and access experts to help support you and your business.
Frequently Asked Questions About How to Build a Subscription Box Business
How much money do I need to start a subscription box business?
Start-up costs vary, but a typical subscription box business requires $10,000–$50,000. Start with a small initial investment by sourcing products in smaller quantities and scaling as demand increases.
How do I set the price for my subscription box?
To set a price, calculate your cost of goods sold, including product costs, packaging, and shipping. Then, factor in your overheads like marketing. Check what your competitors are priced at to ensure your box offers competitive value!
How do I find reliable suppliers for my subscription box?
Research suppliers online through platforms like Etsy for wholesale partnerships. You could also try trade shows or connect with local makers and small businesses. Build strong relationships with suppliers by negotiating bulk discounts!
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