8 Steps to Start a Subscription Box Business
Although starting a business has plenty of risks, there’s a compelling reason why subscription box businesses may be worth your time. For one, there are 18.5 million subscription box shoppers in the U.S. alone, and the global industry is continuing to see growth.
Whether you’re interested in apparel, food, beauty products, toys, or something else entirely, you can build a subscription box for all kinds of unique niches. Keep reading to learn how to start a subscription box business of your own.
How to Start a Subscription Box Business in 8 Steps
Step 1: Pick a Niche
When you’re starting a subscription box business, the very first course of action to take is to pick a niche. Choosing a niche is tricky because you want to choose an area that doesn’t have a lot of competition but also aligns with what you’re passionate about. Once you’ve identified two to three areas you’re interested in pursuing, you should also consult with your target audience and ask them what problems they think your subscription box could potentially solve.
For example, if you’re obsessed with skincare, you could survey people who love skincare about what pain points they have with their skin and skincare products on the market today. To help define your niche, ask yourself these questions:
- Who is my target audience?
- What pain points can my product solve?
- Who are my competitors?
- How will I differentiate my business from others?
- Is my niche profitable?
The last question of figuring out whether your niche is profitable can be a little confusing to solve. One way to do this is to examine the number of sub-markets in a certain category. For example, within the cosmetics market industry, there are several sub-segments such as makeup, skincare, hair products, hygiene, etc. The more sub-markets in an industry, the more likely your niche is profitable.
Step 2: Find Suppliers
The next step to creating a stellar subscription box business is to find excellent suppliers. Finding good suppliers is arguably the most difficult part about starting a subscription business because you need to find suppliers that will sell you their products at a reasonable price to allow you to make a profit. Besides price, you also need to consider quality, shipping time, availability, and more.
If you’re struggling to get suppliers to sell you products at discounted prices, you can also try to let them know that you’ll take the time to promote their business with your subscription box. You can also try to purchase products at wholesale prices at smaller quantities on sites like Etsy wholesale.
There are a few approaches you can take to find a good supplier for your business: One is to find out which suppliers your competitors are using. However, to differentiate your business, you may want to look for other options, which an online search can help with. You may also want to consider private label products, which opens up other supplier options.
Step 3: Register Your Business
Before you start testing your subscription box business, you will need to choose a business entity and officially register your business with your local city and state. There are several types of business entities that you can register your subscription box business as, such as:
- Sole proprietorships
- General partnerships
- Limited partnership
- Limited liability company
But if you’re just starting your subscription box business, you’ll most likely register as either a sole proprietor or as a limited liability company (LLC). LLCs are actually the most common legal structure for subscription businesses because they have good tax benefits and have more liability protections than sole proprietors. If you plan on starting an LLC, you have to make sure that you have all the right licenses and permits, otherwise, you could end up paying serious fines. Contact your state’s secretary of state’s office to learn what the registration process entails.
Step 4: Build a Prototype Box
Before jumping into your business, you’ll want to test the appeal of your subscription box. Testing your subscription box idea is critical because you’ll be investing a lot of time and money into the success of this business. You can test your concept by creating a sample box and sending it to people who are willing to give you honest feedback. After you’ve gathered enough comments and criticisms, you can incorporate them into your first prototype.
With your first prototype ready, you can then survey a few dozen people from your target market and gather their thoughts and opinions on your box. Here are a few questions you can ask your prospective customers:
- What do you think about the design of the box?
- How is the unwrapping experience?
- What do you think about the items?
- Is there too much or too little product?
- What do you think is missing in the subscription box?
- How much would you pay for this box?
Be sure to thank your survey participants and provide some sort of incentive for their time, like a gift card.
Step 5: Determine Costs
Because a subscription box business doesn’t require a physical storefront or lots of pricey equipment, you don’t have to spend hundreds of thousands of dollars to start one. However, you could still spend a few thousand dollars to pay for the products, marketing, logistics, and shipping.
Another major cost is manufacturing your boxes, which usually starts at $1.25 to $5 per box. There are also fixed costs to account for, like accounting software and customer service platforms, which shouldn’t cost more than a few hundred dollars a month.
Once you’ve calculated all of your costs, we recommended that you aim for a profit margin of at least 30%. If you’re unsure about whether the price point for your box is too high, you can always test your prices to see how your target market responds.
Step 6: Fulfill Orders
Fulfillment is another challenge of operating a subscription box business. Most beginning subscription box businesses fulfill their orders in-house, and for good reason. When you fulfill the orders yourself, you can control the quality of your boxes and you’ll save money. But over time, you’ll find that fulfilling orders yourself can eat into the time it takes to run your business, because you’ll be invested in hiring more employees and having to manage inventory. So as your business continues to scale, you may want to outsource.
Of course, if you plan on outsourcing, you’ll definitely have to do your research. You’ll typically need a minimum order to start outsourcing fulfillment, which could be a few thousand boxes a month. Also, keep in mind that not all fulfillment centers can package boxes to your standards. Outsourcing can also get incredibly expensive because you’ll be paying for transportation and parcel costs.
Step 7: Create a Website
You’ve designed a beautiful box with killer products, and have tested your business idea. Now it’s time to make it official and create a website for your subscription box business.
There are several website builders and online marketplaces that you can use to set up your business website. For example, Cratejoy is specifically designed for subscription box businesses. It comes with built-in payment options and a subscription CRM to help you track your customer base.
Here are a few platforms that you can use to build your website:
Step 8: Start Marketing
The last and final step of setting up your subscription business is to start marketing your business. To draw more customers to your business, you might want to think about discounting your first box to gain more customers. You can also try investing in paid advertising like Facebook or Google ad campaigns. Facebook ads, in particular, can be pretty effective because they allow you to show your ads to targeted customers based on their interests and profile.
If you’re low on marketing funds, try developing a social media strategy and build an audience organically. This means you’ll need to set up business accounts on platforms like Instagram, Facebook, and Pinterest and post content regularly to build a following. The downside to social media marketing is that it can take more time to attract customers.
Once your business is matured and fully operational, you may want to start thinking about utilizing influencer marketing. Influencers have played a big role in the growth of subscription boxes and can give your business much-needed exposure and brand awareness. You don’t necessarily have to spend thousands of dollars on an influencer with millions of followers. Micro-influencers, or influencers with less than 10,000 followers, can be more effective because their followers tend to be more engaged.
The Bottom Line
Starting a subscription box business is an exciting and creative endeavor. But to really make it successful mostly depends on your niche and how you execute your business. Additionally, there are a lot of moving pieces when starting a subscription box business. As your business grows, you’ll have to find different ways to effectively scale your business, and at some point, you’ll most likely need to look into business loan options to help maintain your cash flow.
- Subta.com. “2019 State of the Subscription Commerce Economy.”