The subscription box model is essentially a personalized delivery of products delivered to customers on a recurring basis.
The subscription box industry is expected to grow at a CAGR of 18.3% from 2023 to 2027 and is expected to exceed $65 billion globally by 2027.
Startups and small businesses can effectively implement subscription models to create a reliable way to generate recurring revenue with great scalability options and high lifetime customer value.
This step-by-step process for developing a subscription box model will walk you through how to implement your concept, market research, branding, logistics and marketing strategies.
Key Takeaways:
- The the global subscription box market In 2023, it reached the value of 32.9 billion dollars.
- Demand for more personalized products is increasing.
- To grow and expand, you need more than a good idea…
- Storage is key. Acquiring new customers costs 7 times more than retaining new customers.
Stage 1: Concept Creation: Developing a unique Subscription Box idea
If you can find your niche and create unparalleled value for your customers, the growth opportunities in this market are exceptional.
Step 1 – Create a unique concept
A unique and well-defined concept is essential to distinguish your brand in a crowded market.
42% of subscription box customers say they subscribe to access unique or exclusive products that they cannot easily find elsewhere and 89% of consumers subscribe to more than one servicesuggesting that there is room for new entries in various 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 can also create prototypes and conduct focus groups for candid feedback before further development. Look for opportunities in underserved markets or gaps in unmet consumer demand – in essence, find your cash cow!
Step 3 – Source Products
Once you have your concept and USP, it’s time to think about how to get the products for your subscription. There is a wide range of unique products; you just need to find the right sellers for you!
Step 4 – Determine your price point
Pricing is critical if you want to be profitable and scalable for long-term success. As a rule of thumb, you should have one in your box 40% profit margin should be considered continuous.
Products and shipping are big costs, but so are credit card fees, packaging materials, custom box design, and marketing costs. Calculate your fixed monthly costs, consider your profit margin, and develop your pricing strategy based on projected subscriber volume. This will give you an approximate price point to start with.
55% of unsubscribes “low value for money,” to reinforce the need to understand your target market values and evaluate this right.
Step 5 – Create your subscription box model
BarkBox is one of the largest 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 are expanding their product offering. The tiered model increases customer lifetime value by encouraging upgrades to higher-tier plans and attracting a wider customer base without increasing costs on lower-tier boxes.
Once your concept, products, pricing and model are defined, it’s time for phase 2: marketing!
Phase 2: Marketing and Procurement
In such a growing market, you need to create a unique selling point, original marketing, customization options and a sexy packaging process (for your box).
Step 1 – Branding
Strong company values conveyed through your branding will help you reach your target market. Blue Apron Holdings is a meal kit delivery company.
Their unique value proposition is their commitment to reducing food waste by partnering with food banks to donate excess food, communicated in their marketing. What makes you unique? What are our morals and values? For more advice on brand authenticity, check out this post.
Step 2 – Targeting and Personalization
Don’t be afraid to get to know 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 by Deloitte shows this 36% of consumers are interested in individual productsthat is, customizable subscription boxes can significantly improve satisfaction and retention.
Step 3 – Build your community
Social media and influencer marketing mean that big players are partnering with content creators to promote their products. Take the loot box. This game-based subscription box got over 10 million views on a sponsored video with a 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 build massive brand awareness!
Phase 3: Transactions and Delivery
Be a comfortable operator! Efficient operations are critical to the success of your subscription box business.
Step 1 – Implementation Logistics
You must decide whether to perform the fulfillment in-house or at a fulfillment center. Notably, 94% of consumers say a poor delivery experience negatively affects their loyalty.
As your business grows, perhaps packing 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 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 are more likely to share a product on social media when they receive it. premium, branded packaging. So be sexy! I don’t mean to add a confetti ball, but if you can afford it, personalized notes, fancy boxes, or cool colors can go a long way.
Step 3 – Shipping
According to a survey conducted by Pitney Bowes, 74% of shoppers say free shipping options influence their purchasing decisions. Try to negotiate with shipping carriers for the best rates and delivery times – guarantee repeat business will earn you a discount, especially as your business grows!
Try to offer free or discounted shipping whenever possible to increase customer engagement.
Step 4 – Inventory Management
The good news is that the subscription model means you can accurately predict your inventory needs, helping you manage costs more efficiently and avoid inventory delays.
Remember, time is money, and the longer you wait for stock, the more likely your customers will look elsewhere.
Stage 4: Growth and scale
With the predicted year an annual increase of 18.3% From 2023 to 2027, ensuring your business has the right foundations and process in place to scale effectively is critical to growing your business.
Step 1 – Customer retention is key
FabFitFun has positioned itself not only as a beauty box, but also as a lifestyle box. With 300% year-over-year growth, CEO Michael Broukhim has built more than just a subscription box business, creating an exclusive members community and mobile app to maintain loyalty and generate FOMO!
Reducing churn improves long-term profitability, so ensure your subscribers are rewarded or receive exclusive offers to keep them coming back. Click here to read more on why catching is more important than causes.
Step 2 – Grow your customers
It can be hard to come by, but there are many ways to get your potential customer’s attention. Think of it as a peacock… Showcase the best your business has to offer. Maybe offer a half-price first box, refer to a friend scheme, promote user-generated content for some low-budget conversions, and try micro-influencer tactics.
Step 3 – Managing Costs for Scale
Options such as small business loans, venture capital or crowdfunding can raise capital for growth. With an additional investment, you can look at automation programs that save time, reduce human error, and increase efficiency.
As your business grows, these are all very important and can save you time and money! Leverage the power of technology for inventory management, order fulfillment and recurring billing to ensure smooth operations.
Launch your subscription box model with Foundr
Let’s summarize! 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 smooth and seamless ordering and delivery process.
Sounds easy, right? Well, if you want more business advice to accelerate your ideas with confidence, a Foundr+ member for a 14-day trial. For just $1, you’ll join a community of over 300,000 like-minded peers and turn to experts to support you and your business.
Frequently asked questions about how to start a subscription box business
How much money do I need to start a subscription box business?
Startup costs vary, but a typical subscription box business costs $10,000 to $50,000. Start with a small initial investment by sourcing smaller quantities of products and scaling up as demand grows.
How do I set a price for my subscription box?
Calculate the cost of goods sold, including product costs, packaging and shipping, to set a price. Then consider your additional costs, such as marketing. Check what your competitors are pricing to make sure your box offers competitive value!
How do I find reliable suppliers for my subscription box?
Explore online suppliers through platforms like Etsy for wholesale partnerships. You can also try trade shows or network with local producers and small businesses. Build strong relationships with suppliers by negotiating bulk discounts!