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How to Start a Subscription Box Business

More and more entrepreneurial-minded people are seeking ways to start online businesses, and subscription box services have become the perfect avenue for building sustainable income and a loyal customer base.

Just a decade ago, the first subscription boxes made their way to customers’ doorsteps, marking the beginning of an incredibly lucrative market. In 2015, subscription box businesses generated $2.6 billion. Today, the market is worth roughly over $18 billion.

According to a McKinsey study, the most popular type of subscription box is curation (55%), followed by replenishment boxes (32%) and access services (13%). With curated boxes in the lead, consumers are showing a preference for custom products and the surprise factor that comes with them.

With that said, starting a subscription box business requires time, research, and commitment. If you’re ready to launch your business, consider the following key steps to get off on the right foot.

Choose Your Niche

Many new entrepreneurs jump at the first idea that comes to their mind, but this prevents a strong understanding of your market. Choosing a niche requires market research to determine a) what products you are comfortable selling, and b) what products have a clear, identifiable market.

Choosing your niche is one part inspiration, two parts research. Finding a market that has yet to be tapped is ideal. You can create a subscription box business in a niche that is already saturated, but if so, you’ll need to be bold and stand out. This means being able to articulate your unique value proposition and leading with it in your marketing materials.

Research Product Suppliers

Identifying reliable and high-quality product suppliers is at the crux of how to start a successful subscription box business. Your supplies must be reasonably priced, not too generic, and able to meet the standards of your target demographic. Ask yourself what products your target already buys and loves. Compare available supplier products to see if they measure up. Part of reducing your churn (opt-out rate) is providing consistent value and thoughtful items each month. This means having a list of great suppliers ready to go.

Once you have your ideal list of suppliers, start reaching out to each of them to ask about bulk product purchasing. Keep an excel document of those you’ve gotten in touch with, their responses, price points, and any other critical information. Ensure that their shipping timeframe won’t hold up your schedule of shipments to customers. As you are finalizing your list of suppliers, create your prototype box to share online.

Price Your Box Appropriately 

An overpriced subscription box won’t attract subscribers, and an underpriced one won’t generate a profit. You’ll need to find the sweet spot in between. This is one of the most difficult aspects of starting a subscription box business.

Have these rough estimates calculated well before launching your box:

  • Box Price – How much would a customer be willing to pay? How are similar boxes in your niche priced?
  • Product Costs – How much can you afford to pay suppliers for products while still making a profit?
  • Average Lifetime Value – How much can you expect to make from one customer in your niche?
  • Customer Acquisition Cost – How much can you afford to spend gaining one new subscriber? Factor this into your overall marketing costs.

Remember to factor in shipping costs, packaging material costs, and any additional costs you’ll incur during the fulfillment process. You may choose to ship your boxes manually in the early phase of your business. But as your subscriber count grows, finding a fulfillment company to help with deliveries will be important.

Document Your Business

Business documentation is a key step to ensuring your business is legal from the start. It’s all too common for entrepreneurs to launch businesses without sufficient documentation, only to run into major issues or even closure within their first 5 years. Implementing systems from the start is the best way to avoid confusion and make tax season worry-free. Some examples of crucial business documents include:

  • Bank statements
  • Income statements
  • Receipt records
  • Profit/loss sheets
  • Tax forms

Choose a Payment Processor

Subscription box businesses need a payment processor that reliably handles auto-billing payments. This will ensure you always receive payments from subscribers on time and without exorbitant fees or mishaps. Since online businesses are typically considered ‘high risk,’ payment processors that are knowledgeable about high-risk credit card processing are crucial.

At LOLA POS, to provide one-on-one support and in-house risk and underwriting to keep your business safe. In a time when online businesses are losing billions of dollars a year to fraud, LOLA POS has partnered with Fraud Wrangler to offer business owners sophisticated around-the-clock account protection.

Create a Content Marketing Plan

Your content strategy is sacred—it is the driving force behind customer acquisition and sustainability. Conduct a brand audit to make sure your company’s messaging, goals, values, and market positioning are on point. This is a great time to get clear on how you will communicate your unique value proposition, use social media, and drive traffic to your website.

Remember that, unlike other products, your box is designed to establish long-term subscribers, not just one-time transactions. Consider ways to use email marketing to foster a community—or even just an ongoing conversation—around your products. Telling the story behind your company and the products you’ve carefully curated is a surefire way to win over new subscribers on your email list.

Announce Your Launch Date

Once you’ve legally established your business, found product suppliers, set up your website and marketing channels, and found a payment processor, it’s time for the exciting part: Launching your subscription box business. This is a vital time period that creates momentum and sparks the interest of prospective customers. This is the time to share teasers of the prototype you created, along with sample products and discount offers. Subscription School’s countdown calendar breaks down exactly what to do in the 12 weeks leading up to your launch date.

Streamline Your Customer Service Channels

Once you’ve launched, it’s important to keep improving customer service as you discover snags in how your business operates. In doing so, you can accept cancelations quickly and keep chargebacks low.

Chargebacks have quickly become the Achilles heel of e-commerce merchants, as 81% of online shoppers admit to conducting a chargeback simply for convenience. This amounts to huge losses for small businesses. 

By creating the best customer service possible on your website, through email, and even on social media, you give customers no reason to request a refund, make a complaint, or cancel their subscription.

Get Started Today

LOLA POS supports subscription box business owners in several ways. As high-risk payments experts, we help online business owners protect themselves from fraud and excessive chargebacks that can put them out of business. We’ll also help you customize payments to meet your unique business model and optimize your pricing for a more sustainable business.If you’re ready for a merchant account that works for you, learn more about subscription box payment processing with us. Simplify payments so you can focus solely on running a business you love.

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