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Subscription boxes are one of the biggest e-commerce trends of the past few years.
Sometimes the niche products inside the boxes are selected by the customer. Sometimes, they’re a surprise or mystery.
But either way, this business model, sometimes referred to as “subcom,” is booming. Revenue in the subscription e-commerce space has increased 100 percent every year for the past five years.
If you’re looking to start a business or you’re in an industry that doesn’t have a dominant subscription box competitor, it is worthwhile to consider creating one.
Subscription boxes have major advantages for manufacturers and startup entrepreneurs because they offer predictable recurring income from subscribers who want your product delivered on a regular basis.
This can take a lot of the guesswork out of sales and marketing, although retention is critical.
Here’s what you need to know about this lucrative business model.
Why You Should Start a Subscription Box Service
There are approximately 5.7 million “box” subscriptions active in the U.S. right now.
The typical mystery box subscriber is between 25 and 44 years old and earns between $50,000 and $100,000 a year, meeting the prime demographic sweet spot of most marketing and sales campaigns.
The market is growing at an astonishing rate, even though, at the time of this writing, it’s still concentrated in urban environments in the Northeast.
About 15 percent of online shoppers have at least one form of subscription delivered regularly.
Women make up 60 percent of subscribers, but men are more likely to have at least three active subscription boxes.
Let’s look at the types of box services currently available in the market.
Examples of a Subscription Boxes-based Businesses
The different box types appeal to the core reasons people love getting them.
Some subscribers want a monthly surprise, while others want to pick out each item for an uber-customized package.
- The mystery box delivers a surprise to subscribers every month. It includes products that are available on a regular basis and some limited-edition items. This creates a very rewarding experience for your customer, increases profits and helps move dead inventory.
- The build-a-box model lets customers pick items from a list. Many meal plan and food delivery services are based on this model and provide flexibility and variety for consumers.
- In the membership model, subscribers pay membership fees to access products or perks. COSTCO and Amazon Prime are based on such a model. They let people purchase items at a discount or qualify them for discounted shipping and other advantages. Membership models create customer loyalty and also create many opportunities to upsell items.
Tips to Build a Successful Subscription Box Service
This niche provides services and products in specific markets. Examples include fitness, food and makeup boxes.
Start with a great idea and your subscription box will surely take off. If you need help figuring out your niche, brainstorm but be as specific as you can.
Decide what service or need you want to fulfill. In the case of our examples, glamour, fitness and nutritious snacking could be the inspiration.
Research is a critical stage process. The more specific each box is, the easier it will be to target specific groups of buyers.
This creates a unique opportunity to maximize retention and optimize the customer experience.
What is Your Brand Aesthetic?
Your branded packaging should reflect what you want subscribers to say about your brand on social media and other outlets.
Eye-catching colors and memorable logos are the start of defining your aesthetic. You want your product to be easily recognized, and the intentional design of branding makes selecting your packaging easy.
Understand What Your Customers Want
Once you finalize the look and feel of your box, start writing the recipe for the types of items it will contain in each box.
Also, what does the online experience look like in a perfect world that will keep customers coming back?
For instance, an environmentally conscious brand should have recyclable packaging.
If your brand is sparse and minimalistic, your customers want to receive an elegant package with simple decorations.
Create a Great Unboxing Experience
If you find packaging that reflects the brand you’re building, borrow ideas from it. Just make sure to keep your own packaging unique, so it’s easily recognizable.
Instagram and YouTube are full of unboxing experiences from other companies and provide an excellent source of inspiration.
Identify Practical Products and Decide on Shipping Options
Balance practicality and enthusiasm when designing your unboxing experience. This will look different in various industries, but there are a few constants.
Your box arrives at the customer’s home with your logo, colorful tissue paper, customized labeling and elegant touches, such as Washi tape.
But be careful not to go overboard and drive up costs too much. Add your flourishes in moderation to ensure a great reaction from buyers and continued profitability for your venture.
Pricing Your Box
One of the most important decisions you’ll make is what to charge for your box. Maximizing your profits without alienating potential buyers is challenging.
As a rule of thumb, you should aim for at least a 40% profit margin after your labor, materials, and overhead costs.
When you are deciding where to source the materials, look for businesses that will give you discount prices for buying in bulk and promoting their products.
Your best bet is new items that are just being launched.
Inventory management is key to the success of your business, so make sure you have a reliable supply chain, use good tracking software, and order enough goods at the right times to keep up with demand.
Practice a “first in, first out” system for merchandise.
According to a recent survey by McKinsey, about 55 percent of current subscription boxes are curated, meaning the contents are chosen by the shopper.
However, you need to conduct market studies in the area and demographic you’re marketing to before making that decision.
You should watch your competitors and get feedback from your own subscribers.
As part of your product development strategy, consider new technologies that can improve your image and bottom line.
Netflix is a great example of a subscription-based service that constantly changes for continued growth.