The subscription box industry has experienced explosive growth over the past few years. According to data from Hitwise, “there were more than 21.4 million visits made to a custom category of leading subscription box sites in January 2016, compared to just 722,000 in 2013.” Consumers clearly love subscription boxes, and there is a lot for entrepreneurs to love, too.
Due to relatively low start up cost, there’s been thousands of niche companies entering the landscape. While many succeed and build great businesses, many also fail because of the competitive market. With that in mind, we reached out to leaders of successful subscription box companies and asked:
What is the #1 tip you wish someone had given you when starting a subscription box business?
As their answers rolled in, some common themes emerged:
Create an experience. Every month, your subscribers are looking forward to a new and exciting experience within each box. Consider in advance how you’ll do that (getting the right product and fulfillment partners are an important part of the puzzle). You also need to ensure the product and experience are not only high quality from day one, but also as you scale.
Use a subscription billing system. Recurring billing is complex; a best-of-breed recurring billing system like Chargify (shameless plug) is worth the investment and allows you to manage the entire customer lifecycle. Many of the subscription box founders below spoke to the importance of getting billing correct from the beginning and making sure the recurring billing solution can scale as your business grows. We cover this topic in more depth in our blog “7 Mistakes To Avoid When Starting A Subscription Business” (see point #7).
Fulfillment is key. There were differing opinions regarding whether fulfillment is best left in-house or outsourced, but agreement that fulfillment is mission critical to the success of a subscription box business. When starting your own subscription box business you’ll need to do research to determine which fulfillment option is best for your specific company.
Before we let the experts speak for themselves, we want to extend a big “thank you” to everyone who took the time to respond to our question and share their tips.
Serial Subscription Box Entrepreneur
When starting out, keep fulfillment in-house and under your control. For subscription box businesses, fulfillment isn’t just a means to an end, it’s literally the creation of the monthly experience your subscribers eagerly await. The level of quality control required to maintain a world-class ‘unboxing experience’ can only be achieved with a deep level of vested interest that most fulfillment companies fail to match. When you’ve finally outgrown your garage and your friends and family are sick of helping you out, find a fulfillment company that understands the unique needs of subscription box businesses. Look for a fulfillment partner that has experience with assembly and kitting. It’s also quite convenient if your fulfillment partner manufactures custom packaging under the same roof – it will save you a substantial amount of money by not having to freight your boxes from the manufacturer to the fulfillment center.
Co-Founder & CEO
Find mentors who have experience running a subscription retail business to bounce your idea off of and talk through the logistics of how to run a subscription business. From a distance it seems straightforward to run a subscription business, and it is at low volume, but the complexity as you scale can easily overwhelm you if you’re not ready for it. Also, these businesses are very different from traditional retail businesses – so finding someone who has done it before and can be a sounding board will help your confidence, your execution, and your bottom line.
Head of Subscriptions
My #1 tip is to always focus on building a brand around your service, and to showcase that brand in a consistent manner. If you’re not manufacturing your own products, chances are you’re sourcing your items from suppliers that are accessible to future competitors. Our service targeted a pretty niche market (Japanese snacks), but that didn’t prevent others from entering our space. We were able to maintain our presence and growth through our brand that centers around Japanese authenticity, and it is integrated into our marketing, aesthetics, customer service, and operations. Our brand continues to be our strongest ally, and it has helped us to stay on track by allaying competitor-related issues.
What’s inside the box is all that matters. Don’t skimp on the presentation and the curation—your customers are paying for an overall experience, not just a box of stuff!
The customer’s entire experience—from the first time they hear about you, to checking out on your website, to seeing it in the mailbox and ripping it open—is essential to map out and strategize around.
Founder & Managing Director
Research your payment gateway: Dunning and a subscription box business go hand in hand. Even a great dunning strategy can’t recoup the costs associated with transaction fees applied to each failed transaction. Most payment gateways are not clear about these fees.
Customer account self management: Ensure your customers can update and manage their own account easily. If your product or service allows for customisation, then allowing access will only increase customer satisfaction. If not, once your customer base grows your customer support team will be in overdrive.
Co-Founder & CEO
1. Make sure you’re different. Simply being a subscription box is not all that interesting (for you or your audience) and it’s not defensible either – you will be bored and out of business in 18 months. You need something meaningful and real to compete. In our case, it’s our product standards and the people behind them.
2. If you want more than a lifestyle business, subscription revenue alone will not cut it. You need to have multiple sources of revenue that work together. For Bestowed, subscriptions represent a small percentage of our revenue. Our main source of revenue is our product certification and licensing program.
3. Choose your subscription management and logistics tech wisely. Subscriptions and mailing them out can be tricky business. If you have the right tech (like Chargify) you are good. Wrong tech = trouble + headache.
4. Lastly, outsource fulfillment ASAP. You will have more time to focus on marketing and sales and if you partner with the right people, you will be able to take advantage of group buying power…lowering your COGS and increasing profit.
Founder and CEO
While subscription box businesses are inherently about physical goods, it’s important to think about your software and adding automation whenever you can.
By working to automate my business, I’ve made my order fulfillment and customer service way more efficient, allowing me to dedicate more time to creating great products and growing the business. With software tools and automation, I can continue to run a streamlined profit-driven business, ready to scale up as needed.
I recommend trying to replace the two most annoying things you do each month with software. There are lots of specific tools out there I use, like Chargify for subscription management or Ruby Receptionists for answering our phones, but general tools like Zapier and Trello can also help you get a lot done. Don’t get so caught up in solving your physical problems you forget about the digital ones.
Founder & CEO
Make sure your charging system can handle what you are throwing at it.
We started with a “good for now” system 4 years ago, and after 2 years of growth, our recurring billing platform was bogging down, and eventually started to create orders without charging, or started charging without creating orders.
This created a big hassle of switching platforms and migrating platforms.
If I were to do it all over again, I would make sure the billing and subscription management system were top notch and very scalable from the beginning.
Always be thinking ahead — not just about product and operations, but about your target audience and their evolving tastes (no pun, promise). We create a thematic, educational cooking kit for kids every month. We owe it to our families to provide a variety of recipes, kitchen skills and educational angles as part of their membership while making the lessons accessible for different ages and skill levels. Long range content planning ensures that each kit generates a “wow” moment when it’s opened. Ultimately, we’re creating a new product from scratch every month, and have to be forward thinking to line up acquisition, design, and fulfillment efforts…because as soon as we’ve shipped one month, the next one is around the corner!
Director of Operations
The number 1 tip we wish we would’ve received when starting a chocolate subscription is to integrate a number of different plan options that cater to different types of customers and increase the likelihood of customer acquisition and retention. For example, we offer customers the choice of receiving 3 chocolate bars a month or 2 chocolate bars a month as well as the same plans on a bimonthly or quarterly basis.
Don’t underestimate how long it takes to reach your membership milestones. When I first started Shirts on Tap I thought I would have 1,000 members in the first month. It took over a year. Growing your subscription base will always be two steps forward and one step back no matter how great your product is. Make realistic goals, work hard, and eventually you will get there.
It’s important to know exactly who the right type of customer is for your service.
When we first started we spent a lot of time giving discounts. It turned out that the customers who got large discounts would churn quickly. Mostly because they were looking for another deal somewhere else.
Co-Founder & CTO
If I had the opportunity to send only one message to my younger self, I would advise the following: partner with companies that will adapt to your business needs instead of the other way around.
There are plenty of companies out there that will want your business. Many of them have developed their own business models that work very well for particular scenarios. However, you’ll find that the issues you encounter with your startup will be unique to you, and that a one-size-fits-all approach isn’t always going to work for your situation. The ideal partners are flexible enough to customize and adapt to your business strategy.
It is a constant battle to differentiate your business from your competitors and provide unique products or services. If your hands are tied because your strategy is limited by the capabilities of those you rely on, then it will be easier for your competition to mimic or out-maneuver you. This is the main reason why we selected Chargify to be our backend for our subscription billing. While other billing companies had compelling offers, ultimately we found that they were limited by very strict rules as to what they could or would not do. Chargify offered us the most flexibility; they allowed us to start with a very basic strategy, build upon it as we learned what worked for us, and then scale it to keep up with our growth.
Now it’s your turn: if you’ve also experienced building a subscription box, please share (in the comments below) the #1 tip you wish someone had shared when you were starting your subscription business.