#003 - In this episode, we are going to talk about how to make money with a subscription box business model! First, host Julie Ball will bust a few myths, then she’ll dish the secrets…like how to buy products at massive discounts. She'll walk through a sample scenario, explaining how to put together your product selection in a way that makes a profit.
Summary:
If you are ready to keep moving forward with your subscription box idea, you can get FREE access to Julie's basic training course. Just go to SubscriptionBoxBootcamp.com/basics and register for free!
Links
Sparkle Hustle Grow
Subscription Box Bootcamp
#003 - In this episode, we are going to talk about how to make money with a subscription box business model! First, host Julie Ball will bust a few myths, then she’ll dish the secrets…like how to buy products at massive discounts. She'll walk through a sample scenario, explaining how to put together your product selection in a way that makes a profit.
Summary:
If you are ready to keep moving forward with your subscription box idea, you can get FREE access to Julie's basic training course. Just go to SubscriptionBoxBootcamp.com/basics and register for free!
Links
Sparkle Hustle Grow
Subscription Box Bootcamp
(00:01): So you want to launch a subscription box and don't know where to start? Girl, you are in the right place. I'm Julie Ball, a subscription box coach and your host here at Subscription Box Basics, a podcast for new and aspiring subscription box entrepreneurs that want to avoid overwhelm. So grab a coffee, some pen and paper and let's have some fun!
(00:20): Hey and welcome back to Subscription Box Basics! I'm your host, Julie Ball. And as promised in a previous episode, today we are going to talk about how to make money, money, make money, money, money. Yep! Let's dive into how you actually can make money with the subscription box business model.
(00:42): So let me first bust a few myths and then I'll dish the secrets like how to buy products at massive discounts. The first myth is that subscription boxes are a get-rich-quick scheme. Nope, not true at all.
(00:58): Just like most businesses, you need to lay a firm foundation, spend time on growing your audience and provide serious value to your customers. Yes, like most product-based businesses, you can expect a bit of overhead, some expenses from the get-go, like boxes and box items. I'm sure that's no surprise. But where I find subscription box business owners hitting their stride and improving their bottom line actually making money is when they can capitalize on buying in bulk. You know, quantities of scale, you've probably heard this before. The more you buy, the more you save. And so the same holds true for the subscription box industry. It's like this buying power. When you buy larger quantities of items, you'll have more negotiating power, and I'll talk more about this later. But as you can imagine, that usually doesn't happen right out off the gate. So it is not a get-rich-quick scheme.
(01:51): The second myth is that you can get all of your box products for free. And that's not true either. And in fact the mentality around this myth really gives our industry a bad rep. So we were in New York city last February for the national stationery show. This is a show where we're able to source a lot of our paper and pen products for Sparkle Hustle Grow, which is my subscription box for female entrepreneurs. We get to meet with existing vendors, we meet new ones and that's a really great place to get deep discounts at events.
(02:23): I remember very specifically walking up to a new vendor that we were really excited about getting some pricing on one of their new products. I introduced myself and Renae, one of my team members that was with me and I showed him our Sparkle Hustle Grow box because I always take a box with me to events and as soon as I said we wrapped a subscription box he said, "We don't give away free product".
(02:46): What? I was really taken aback, so I said to him, "I didn't ask for any free product". We were going to ask for pricing for this product and I thought it was kind of rude for him to respond that way. But as I reflected back, I realized that he must have been asked for free stuff by subscription box owners enough times at that show or maybe in his day to day business that he felt like he needed to throw that out there so quickly in our first conversation. So I just want to bust that myth that you can get all your box products for free. Of course there are some box models that they fill their box with sample items and so that's another story for another episode. But for the most part, if you're trying to provide a ton of value and you want to provide full-size quality products, you are not going to get them for free.
(03:37): And the last myth I want to bust is that you will buy your products at retail stores. Nope, Nope, Nope! You will never make money if you buy your box items at retail stores. They have huge markups and so that's what I'm about to dive into next. The concept of wholesale buying so that you can build in a cushion in your finances, actually make money. You definitely want to make sure you understand this wholesale concept as you're building your business. But before I explain wholesale, let's talk about how a subscription box business makes money.
(04:10): It's a really, really simple concept and stick with me here. I'm going to try and paint this picture. You as the subscription box owner charge subscribers a certain amount of money each month. That's your price--what the consumer pays. Then you curate, buy and ship a selection of products in the box for less than that, for less than what you charge. So then the difference between what you charge your customers and what it actually costs you, that's your profit. That's the money you make. Now of course there's other factors like if you hire contract workers or if you spend money on advertising, but I'm trying to keep this as simple as possible.
(04:48): Let's break this down into an actual example. Let's say you run a bath and body subscription box that you sell for $30 a month, including shipping. So $30 is what the customer pays. Your customers may not know this, but behind the scenes it costs you, in this example, $15 to cover the costs of products, packaging and postage -- what I like to call the big three. So that means you profit $15 per box because $30 minus $15 in costs equals $15 leftover. In this example, you have a 50% margin and ideally you want to shoot for 30 to 50% margin for your subscription box.
(05:30): It may start out lower than that and it may vary from month to month, but that's okay. You just want to start working on reaching that 30 to 50% margin because as you buy more products and as you get better at negotiating, your costs are going to go down per box.
(05:45): Now let's imagine that you sell a hundred boxes at $15 profit per box, like in the example we're using. A hundred times 15 is $1,500 in profit. That's what you get to keep. You're making money. So now just imagine when you grow your subscriber base to a thousand. A thousand times $15 a box is $15,000 total in profit. So that sounds really exciting, right? And that's a really, really simple example of how you can make money with a subscription box business. Now I know, I know $15,000 in profit at that point, when you're sending a thousand boxes, you can't do this on your own anymore. You probably will still need to take things out of it like taxes, software costs, marketing if you do Facebook ads, that type of thing. But at least now you know the basics of how you're going to make your money.
(06:41): Now let's talk about one thing that I feel you really have to master and that is the concept of wholesale buying. Basically companies or distributors will sell goods in large quantities to be resold by others. If you are the business owner and you buy a hundred bath bombs, you're going to get that at a better cost than you would if you went right to Target or CVS to buy that same bath bomb. Instead, you're going to get that wholesale price because you're buying direct.
(07:12): To demonstrate the impact of wholesale buying, let's just use 50% off as our typical wholesale rate. That's typically what you're going to get out of the gate when you go direct and you say, I'd like to buy these at wholesale. You could expect right around that 50% off mark, but we'll talk a little bit about it later, how you can get even better discounts. Let's look at that bath bomb we talked about earlier. If you can buy it for $5 at a big box store or other retail store, you might be able to buy it direct from the company at a wholesale rate for $2 and 50 cents. That's 50% off $2 and 50 cents.
(07:51): Here's what it might look like for your box. Write this down. If you're a visual person, we're still looking at that example where $15 is what it costs for our products, packaging and postage. So you'll take a bunch of these wholesale items and bundle them together for your box items. Let's just say we have a $9 budget for that. Then you're going to put them in the box, $9 assortment of bath bombs, soaps, lotions, whatever you decide to put in the box. And then let's say we'll use $2 as our packaging costs because we need to cover the costs of a box, whether you're getting a custom box or maybe you're just using a plain box with a sticker, maybe some filler, like crinkle cut tape, that type of thing. So we have $9 budget for products, $2 budget for packaging. And then for this example, we're gonna use $4 as your shipping rate, which is low, but these items don't weigh a whole lot, so you might be able to ship them first-class. So again, $9 in products plus $2 in packaging, plus $4 in postage equals $15. That's what it costs you to put together this box. And that's the idea of wholesale buying. Sounds really great, right? To save 50% on those products.
(09:08): Let's talk about how to get set up with a wholesale account. It's pretty easy to get set up as a wholesale account for most vendors out there. But there's a few strategies that I want to talk about because it's important. The first thing I want to talk about is to apply for a resale certificate in your state. Obviously we're talking about the United States here. But each state will allow you to apply for a resale certificate and this can save you a ton of money.
(09:39): If you're a US-based reseller and a reseller just means you're reselling someone else's product, you will not be required to pay the sales tax for the product when you purchase it from the wholesaler. That's what the resale certificate does at the time of this recording. Instead that sales tax will be gathered at your checkout if it's applicable to the end customer. For example, I sell in North Carolina and the North Carolina rules that I have to charge sales tax on my product purchases that are made in North Carolina. So if I'm going to ship there, if it's purchased and shipped to North Carolina and there are some changes in the laws coming up soon, I anticipate that that might change where we're going to have to collect sales tax on all e-commerce products. But you definitely want to talk to an accountant about what your particular state requires for you.
(10:30): A resale certificate can sometimes be called a reseller's permit, a reseller's license, resale license, sales tax ID or sales tax permit. You want to check with an accountant or a local tax office, maybe even a lawyer and they can provide you with details on how you can apply it for your specific state.
(10:51): But I will tell you that nine times out of 10 when I apply for a wholesale account with a new vendor, they ask me for that resale certificate. If they don't, then I pointed out to them and I say, "I have a resale certificate in the state of North Carolina. Do you need my resale certificate number so that you don't have to charge me tax on my purpose?" So that's a really big early step to get that resell certificate.
(11:13): Let's talk more about some buying tips, some wholesale buying tips. So you want to check the product vendor's website. Many times they'll have a link right to their wholesale program, right to a wholesale application. If not, then they might have a contact form or maybe even an email address. Just email them and ask them about their wholesale or bulk pricing. Sometimes I even do this via Facebook messenger or Instagram private messages, but I really like to get a contact person so that we can take that conversation to email and I can introduce Sparkle Hustle Grow to them, what I'm looking for, the types of quantities, the types of products that I'm looking for.
(11:55): Be aware that many wholesalers will have a minimum buy so they might not do business with you unless you spend a certain amount of money and that can be really difficult at first when you're just starting out. But usually what I've found is that those minimum buys are right around that $250 or $500 mark. So if you aren't quite there yet where you can spend $250 on one product, you can kind of get strategic and figure out how to get there. Maybe you look to see if they have a second product that you can buy and the combined order will be $250 or hitting that minimum level. Or maybe you can find a colleague or someone else that has an online store that would be willing to go in with you on a buy together. You just got to get strategic, try to figure out how to get there.
(12:44): I plan out about three to sometimes even six boxes at a time and it gives me a really good big picture of what I'm going to need and a lot of times I will combine multiple products from that same vendor and I will get some better pricing. When you're negotiating with a wholesale vendor, I encourage you to ask for a better deal. Why not? Maybe they'll give you 40 to 50% out of the gate, but it can't hurt to ask for something like free shipping. Or maybe you just ask them and say, "Hey, can you do any better on that price?" I'm really looking for 60% off. You just ask. You never know what they might be willing to do for you.
(13:23): Another thing that can help is if you create a media kit and show them where you're going to provide them value. Maybe you offer them a chance to put a bounce back coupon in your box to drive traffic back to their website. That's a huge value. Maybe you will feature them on your Facebook page. Another way to provide them value. There's all kinds of other ways that you can promote that company and bring them additional value. Think about it this way. You may have the audience that that company is looking to promote to, to get in front of and you're going to put one of their products in the box. Maybe even with a discount postcard. That's a ton of additional value for that vendor and I like to call it activating the feature that you feature their product and you're going to activate it by featuring them on social media or in emails and other places. We can talk about creating a media kit in another episode, but it's definitely valuable when it comes to negotiating and trying to get leverage for an additional discount on your wholesale buying.
(14:26): I hope this episode was able to provide some clarity on how to make money with a subscription box business. Be sure to subscribe so you don't miss out on future episodes because soon I'll be talking about product sourcing, one of the topics I get asked about the most and we're going to talk about where I find my products, how I reach out to the vendors and exactly what to say.
(14:49): If you're ready to keep moving forward with your business idea, your box idea, I'd like to offer you free access to my basic training course. If you just go to SubscriptionBoxBootcamp.com/basics and that's where you can sign up for my free basic training course.
(15:11): Thank you so much for spending this time with me and I'll see you in the next episode.