How to Start a Subscription Box Business

In 2022, the global subscription box market boomed to almost $27 billion. In 2028, that figure is expected to hit $74.2 billion. So - why are subscription box businesses so popular? For shoppers, subscription boxes offer an easy way to get essentials and save hours on searching for new products. For sellers, they’re GREAT for securing repeat customers, lowering acquisition costs, and growing profit margins. Starting your own subscription box business is a brilliant idea.

And below, you’ll find out how to get started in just 8 steps…

Contents:

• What is a subscription box business?
• Types of subscription business model to choose from
• The benefits of starting your own subscription box business
• How to create a subscription box business in 8 steps
• Summary: Why building a subscription box business is worth it

What is a Subscription Box Business?

In a subscription box business model, customers pay a weekly or monthly fee for regular deliveries of certain products. HelloFresh is a great example of a company built on a subscription model. With HelloFresh, customers set up their plan, receive a weekly food delivery, and payment is taken automatically. An easy set-and-forget.

There are a vast range of subscription box companies out there with their own niche. From make-up and clothing boxes, to books and off-beat snacks. You name it - there’s a box for it!

Types of Subscription Business Model  

Replenishment

One of the most popular types of subscription box businesses is the replenishment model. This offers customers a simple way to stock-up on necessities like toiletries, pet food, or cleaning supplies. Deliveries of these household must-haves are automated on a weekly / monthly basis.

Customers love being able to get essential goods in such a convenient way. It saves them from spending a ton of time shopping. Plus, they'll always have a need for the items replenishment boxes offer. As a result, businesses who offer these boxes have a higher chance of retaining customers.

Curation

Curation boxes are less about must-have items, and more about introducing subscribers to exciting new products.

As the name suggests, businesses “curate” a range of items into one delightful box. The items are usually based on a theme or customer taste. For example, Trade Coffee delivers monthly coffee boxes tailored to buyers’ preferences and how much coffee they drink.  

As you can imagine, a personalized box of items shoppers love makes for an awesome unboxing experience. To add to that, it takes away the need for them to do hours of research. They can simply discover their new favorite beauty product, accessory, or item of clothing through their box.

Membership

One of the best illustrations of the membership model is Amazon Prime. For a set monthly or annual fee, subscribers get perks like discounted pricing and free shipping. As well as other benefits like more robust customer service.  

Offering a membership-style subscription is an excellent way to increase your AOV (Average Order Value) and cover the cost of free shipping. Plus, by giving a high quality and custom experience to members, you can foster brand loyalty.

Benefits of Starting a Subscription Box Business

Subscription boxes offer convenience for customers

Modern day consumers are people with a lot on their plate. They have to hold down full-time jobs, run a house, and remember a billion things. That’s why subscription boxes are a lifesaver.

Through the subscription model, customers can get household goods and groceries automatically delivered to their door. It takes almost no effort on their part.

Plus, curation boxes can expose shoppers to new products. Therefore, they won't have to spend hours hunting for them online or in-store. Ultimately, subscription boxes make the customer journey easier and shorter.  

Increased CLV

Curation subscription boxes can also boost CLV (Customer Lifetime Value). By selecting items that shoppers love, alongside new items, you can give them what they want AND get them excited about a new product. Then, if they become interested in new or higher value items, you increase CLV. Simples.

Repeat customers and reduced acquisition costs

Subscription models are based on maintaining repeat customers. As a result, this creates a recurring revenue stream. And it also means you’re not spending tons on getting new customers. Because you’re focused on the customers you already have.

It actually costs 5x more to acquire a new customer. So this model lends itself to keeping those acquisition costs down. Instead, you can rely on referrals from your subscribers, which is often more fruitful and much less costly.

Profit margins of 40-60%

By retaining customers and not forking out as much to acquire new customers, subscription box companies can increase their profits. In fact, for most subscription box businesses, profit margins are around 40-60%.

However, this can vary. Due to high competition, replenishment models tend to have lower profit margins. And although margins are often high for curation boxes, the novelty can wear off for some shoppers. So it’s vital to monitor if you’re meeting customer needs and giving them a great experience. Then, you can refine as require

Easier to predict monthly revenue

With a subscription box model, it’s easier to estimate your monthly revenue with greater precision. You know exactly when your subscribers are going to pay and what the amount will be. Consequently, this makes forward financial planning and budgeting a whole lot easier.

8 Steps to Start Your Subscription Box Business

Step 1 - Find your niche

Subscription boxes are increasing in popularity. On one hand, that’s great. However, increased demand for subscription box services means more competition.

So the first thing you need to do is find a niche. A great subscription box business starts with an excellent and SPECIFIC idea. If you’re just starting out, think of something you’re passionate about.

For example, you might love books. In that case, you may decide you want to ship out a monthly book subscription box. Awesome. But you need to make your idea more specific -  there’s already a ton of book subscription box businesses out there. Instead, you could choose pre-2000’s fantasy books for Young Adults.

Alternatively, you can use this list to spark your creativity. Once you’ve got your base ideas, use steps 2-4 in this guide to hone in on your offering.

Step 2 - Start researching other subscription box businesses that have a similar offering

After you’ve identified your niche, it’s time to check out your competitors. This will give you an insight into what they offer and help you refine your idea. It’ll also allow you to see what you could offer that they currently don’t.

Your research doesn’t need to be that complicated. Simply start with a Google search, using the keywords you would want your business to be found for. Alternatively, you could look on Cratejoy - a popular sales platform for subscription boxes.

Here, you’ll be able to see how competitive your niche is. As well as that, you can gauge how competitors have priced their boxes and what items they include. Try to look for their target audience by looking at their language and customer reviews. From here, you can form a basis of how you would improve on their offering.

Step 3 - Create a profile for your ideal buyer

Next, create a profile for your ideal customer - just as you would when starting any other kind of business.

You should already have a rough idea of what your target customer looks like. But by creating an ideal customer profile (or buyer persona), you start to construct a more detailed image.

Start with generic details like age range, profession, relationship status, and income. Then, from this base, start by creating 3 buyer profiles. The more specific the better. Give your ideal customers actual names and a back story.

To provide a framework, ask yourself these questions:

• What kind of lifestyle do they lead?
• What do they like and dislike?
• What are they passionate about?
• What are their motivations and core beliefs?

And if you need a more concrete picture of your ideal buyer - look at your competitors' customers. Sneak onto their Instagram and find people who engage with their posts. It’s ok if it’s purely for research!

Step 4 - Source products and develop a pilot box

You’ve decided on your niche, conducted competitor research, and created buyer profiles - amazing. At this point, you can start sourcing your products to create a pilot box.

This will give you a feel for the products you want to include in your subscription box and help you identify suppliers you’d like to work with. It’ll also give you an idea of the cost of the products you want to use, which will help you price your boxes.  

To source products for your pilot box, you have a few options:

1. Use wholesalers
2. Buy goods from online marketplaces like Etsy
3. Visit local stores

Of course, you can use a mix of all 3. Buying wholesale items will help you keep costs low, while sourcing from Etsy or local, physical stores may allow you to access more unique products.  

Once you’ve got your products, it’s time to get some pretty packaging for your pilot box. You want packaging that stands out and is the right fit for your subscription box offering.

Companies like Arka offer awesome custom boxes and inserts (they’re all eco-friendly too). And The Packaging Company has a large range of custom boxes and packaging materials.

When you’ve got all your materials, set up and arrange your prototype box. Then take some quality images for your social media and online store. Remember, these need to portray your offer as accurately as possible.

Step 5 - Price your subscription box and decide on shipping frequency

Deciding on a subscription box price and how often you’ll ship your products out can be difficult. So let’s break it down and make it easy.

Here’s what you need to think about when deciding how often you’ll ship your boxes:

• How often do your buyers NEED your products? This will differ if you’re using the replenishment model (delivering must-haves) or the curation model (non-essentials).
• Can you afford to ship products often? Take into account costs involved with shipping, products, packaging, and software subscriptions.
• How often do you need to ship to keep customers engaged?

And here’s what you need to do when setting your price:

1. Calculate cost of goods sold

This is the total cost it takes to produce your box and get it to your customer. It includes the cost of the products, packaging materials, shipping, and fulfillment costs.

2. Work out your costs for customer acquisition

Now, you need to work out how much you have (or will) spend on marketing to get new customers. Once you’ve got repeat customers and you're gaining referrals, customer acquisition costs will dip. So you will want to reassess your price further down the line.

3. Set your price

Using your costs, you can now work out a cost that will allow you to be profitable and sustainable. Try for around a 40% profit margin.

Step 6 - Set up your online store

When it comes to setting up your online store, you can either use an eCommerce site builder or an online marketplace.

eCommerce website builders like Shopify or Wix eCommerce are easy to customize. So they’re great for building a brand and giving your customer a personalized experience. That being said, it does require extra effort to set up your store. And unlike a marketplace, there’s not an instantly available customer base.

Marketplaces such as Etsy or Cratejoy, allow you to start selling instantly. Plus, there’s already an audience ready and waiting. As a result, you don’t have to put as much work into promoting your subscription boxes. However, there are a lot of other sellers and competition is high.

If you want to start selling quickly with no fuss, go with Etsy or Cratejoy. But if you want to build a personalized site and offer a unique, branded experience - use an eCommerce site builder.

Step 7 - Nail down a shipping strategy

If you’re just starting your subscription box business, it’s best to begin by shipping from home. You won’t have a ton of customers to ship out to, so it’ll be easy to manage. Plus, it’ll help you save money, as you won’t be paying to outsource your fulfillment.

To reduce your shipping costs even more, use software like Ship.com. With Ship.com, eCommerce stores can access up to 78% UPS Ground and 84% off USPS Retail prices. And the platform has superb order management features.

All in all, this will give you more margin to price your boxes at a competitive rate and it’ll keep your shipping streamlined and simple.

Step 8 - Promote your subscription box business and start selling

Time for the exciting part - promoting and selling your subscription boxes!

Ensure that you’ve built a solid following across your social media channels. Once you have, use your product photos of your pilot box across these channels, as well as on your website and email marketing. This will help create a buzz around your box.

Include your social handles on your product packaging and leave a message encouraging buyers to share an unboxing pic or video on their socials. And don’t forget to remind them to tag your business! Social shares will expose your business to a larger audience and boost engagement.

It’s also important to make sure you’re getting buyers to leave reviews on your store. Testimonials are a hugely impactful marketing tactic, and they increase trust in your brand. Plus, you can reuse customer reviews in future email marketing campaigns.

One other strategy you could use is influencer marketing. And no - it doesn’t have to be someone as big as Kendall Jenner. Carry out a Google Search for influencers in your niche, then reach out and offer a free box for a review. Or even better, an unboxing video on their social channels.

You don’t have to do all of the above. Just choose a mix of strategies appropriate for your target audience.

Summary - Starting a Subscription Box Business is Worth the Reward!

Starting a subscription box business, like any other business, takes a bit of work and dedication. However, the reward is worth the effort. Subscription boxes are in demand and can be highly profitable. Remember - finding a niche that appeals to a specific target audience is key.

Once you’ve started up, don’t be afraid to refine your offer. Listen to customer feedback and reviews, keep a keen eye on your sales, and adjust accordingly. And always keep your buyers informed along the way. Involving them and being transparent will breed trust in your brand.