The subscription box industry has exploded over the past few years. Consumers love the novelty of receiving a handpicked box of high-quality products. With over 7,000 different subscription box services available worldwide (and approximately 70% of those located in the US), you can find a subscription box for just about anything.
Subscription commerce, a business model where customers pay for goods or services on a subscription basis, is paying off for online sellers in the industry.
In 2015, the market brought in approximately $2.6 billion in revenue; that number has steadily grown as the subscription box market increased, now bringing in over $15 billion. From beauty supplies to pet toys to meal prep services, the sky’s the limit for the subscription box industry.
Before jumping into the pros and cons of starting your own service, you must understand the basics.
The Subscription Box Model
The subscription box is a fairly simple model where a business provides a product or service to customers for a predictable, recurring cost. The frequency at which charges occur to customers largely depends on how often products are sent out, though most subscription services are charged monthly or annually.
Magazine services are one of the earliest forms of subscription boxes, and the model has become increasingly popular with the rise of technology. If you’re on the fence about starting a subscription box business, here is a list of pros and cons to help you decide:
Subscription Box Model Pros
Selling subscription boxes allows for better forecasting and planning for your business. You‘ll have a better idea of how much stock is needed and easily predict the monthly revenue.
Increased Life Time Value:
When a customer signs up for a subscription box, they commit to a long-term relationship with the company, resulting in a higher LifeTime Value (LTV). A customer’s LTV is the predicted revenue that a specific customer is expected to bring into your business. Higher LTVs lead to higher income for your business, so determining your customer’s LTV is essential.
With automated monthly deliveries, you can spend less money on targeted advertising to retain customers.
Targeted Customer Base:
Subscription boxes are usually created for a particular type of person or group of people, essentially for an ecommerce niche.
For example, Ipsy is designed for those interested in the latest beauty trends, and Plated is intended for people with limited time who want healthy, easy meals. Having a niche is vital to your business’s success and can put you one step ahead of competitors.
While it may seem like a good idea to market to a broad audience, attempting to sell your product to every single person is a lot like shouting into a void. As a result, marketing to an audience that’s too broad can result in a drop in sales. It’s actually more beneficial to your business to have a target market. Designing the perfect niche product and marketing strategy is a much more straightforward process with a target market.
Need ideas? Here is a list of 6 creative subscription boxes to consider selling.
Better Customer Communication:
With monthly boxes going out to customers, you have more opportunities to receive feedback and collect data. Input from your existing customers will provide you with important information about your business from the buyer’s perspective. This data shows what aspects of your business are working and allows you to create better business strategies to quickly identify any part of the business your customer is unhappy with and improve it.
Subscription Box Model Cons
Retention will be a new aspect of your marketing strategy. For example, subscription boxes typically have a product category or theme, creating limitations for varying types of products to include each month. Customers may become bored with their deliveries leading them to unsubscribe.
You may deal with more customer interactions than with a standard ecommerce business model. You’ll also need to spend money on market research and email marketing to help retain your customers. When creating your business strategy, properly plan for these resources.
This business model targets a specific type of customer, one who likes the novelty of receiving a surprise each month and, inevitably, alienating others. If someone is looking for a product immediately, or only once, they will not be interested in subscribing for monthly delivery. You could diversify and offer stand-alone items to overcome this issue.
Decreased Value of Box:
Subscription boxes gain value from selling a bundle of products at a discounted price. Over time, it can be challenging to maintain the level of value you began with while diversifying the products you include from month to month. Product sourcing will be vital to ensure you stay profitable.
Selling subscription boxes is very competitive. Many niches, such as beauty and food, are already overly saturated markets. Creating a box in a saturated market will result in high competition for your product. Combat this by entering into a less saturated niche and producing a creative product offering.
Types of Subscription Boxes
Now that you know a little more about subscription box models and their benefits and drawbacks, you may be interested in learning about the different types of services available on the market today. Below are three common types of subscription box services commonly available.
First, you have replenishment services, which are popular as they save shoppers both time and money. These subscriptions simply replenish the same items a customer has previously purchased regularly. Replenishment subscription boxes typically include items that are commonly considered household commodities.
Next, access subscription services provide their subscribers with products or services that are considered exclusive. The most common access subscription offers customers apparel or food items and may include perks marketed as “VIP.”
Lastly, the most common type of subscription service is curated subscription boxes. Customers are offered a selection of different products based on the consumers’ wants. The customer then receives a box of items that they’ll be surprised by while still having their needs met. Most curated subscription box services sell food, apparel, or beauty products.
If you’re looking for a unique business opportunity that can yield high results, selling subscription boxes might be the venture for you. As the industry continues to branch out and grow, subscription boxes aren’t going anywhere anytime soon.
If you have a great idea for a box, weigh the pros and cons for your business, and don’t be afraid to take a chance on a unique niche. We’ve put together 5 tips for running a successful subscription box service to get you started.
Editor’s Note: This blog post was originally published August 2017 and was updated in May 2021 to reflect more accurate and relevant information.