Re-air: The Subscription Box Business Model

#102 - This week's episode of Subscription Box Basics, we are re-airing episode 2, The Subscription Box Business Model.

Before you start your subscription box business or add it to your existing business, it's important to understand how the subscription box business works. In this episode, Julie Ball dives into how the subscription box business model works, why people love subscription boxes, the types of shipping schedule, and wraps with some of her favorite boxes based on her "market research".

This episode is jam-packed with information that will be super helpful for you in deciding how to run your subscription box business. Plus, you will be inspired to hear some of Julie's Subscription Box Bootcamp students' boxes that are literally changing people's lives.

Links:

Sparkle Hustle Grow: https://www.sparklehustlegrow.com
Cratejoy: https://www.cratejoy.com
All Girl Shave Club: https://allgirlshaveclub.com
Stitch Fix: https://www.stitchfix.com
Simply AIP: https://simplyaip.com
Black Girl MATHgic: https://blackgirlmathgic.com
Subscription Box Bootcamp: https://www.subscriptionboxbootcamp.com

Transcript

Julie (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!

Julie (00:20):

Hey, everybody! Welcome back to Subscription Box Basics with Julie Ball. I'm your subscription box business coach. It is the end of November and it is go time. Like it is probably the busiest time of year for subscription box businesses. In case you missed it, we celebrated our 100th episode two weeks ago, and I decided because it's the busy time of year, and you know, just to celebrate that milestone, that I was going to take a little bit of time off the podcast so that I can work on Sparkle Hustle Grow the business so I can get organized for the new year, thinking about topics and episodes and like what, how I can serve you in the new year.

Julie (01:04):

So as a result of this, we are doing some re-airs of our most popular episodes of subscription box basics. If this is your first episode, go back one episode and listen to the sparkle, hustle, grow launch story. That's a great place to start. It'll allow you to get to know me better to get to know my business. And it will probably relate because if you're a new or aspiring subscription box business owner, it's so inspirational to hear other people's launch stories, to hear that they might have struggled with same as some of the things that you're struggling with right now. So go back and listen to that. Otherwise today's episode is a re-air of the subscription box business model. Now, this is important because the, the box business model is different than a lot of different business models. And so before you launch your own business, or if you're already starting your launch, you need to really understand how the business model works.

Julie (01:59):

So this short episode will help you understand that. Go ahead and listen to it. If you're enjoying it, then subscribe, rate, and review this podcast. It just helps with reaching more people, just like you, who need motivation, accountability, and inspiration to start your own subscription box business. And you don't have to do it alone. You have us, you have me and my team. You have all of the people who follow along. You can always follow us on Instagram or message us at Subscription Box Bootcamp. And if you're feeling inspired and you want to treat yourself to the best business expense ever, which is Sparkle Hustle Grow my subscription box, you can go to SparkleHustleGrow.com and use the code SBB podcast, and you'll get $10 off your first subscription. And it makes a great gift. You get to write the whole thing off because it is hashtag the best business expense ever. Okay. Without further ado, here is a re-air of episode two, the Subscription Box Business Model.

Julie (03:00):

Hey there, and welcome back to subscription box basics. This is episode two, where we're going to dive into the actual subscription box business model to understand how it works kind of important, right? So if you're considering starting a subscription box or adding it to your existing business, you really need to understand the nuts and bolts, how it works.

Julie (03:24):

In the last episode, episode number one, I told you the story of how I launched my subscription box business Sparkle Hustle Grow. If you haven't listened, check it out because I dished on details that will really inspire you like that. I started it on a $0 budget and funded my business with a pre-sale. I'll do an entire episode on the pre-sale concept very soon. So be sure to click subscribe. So you don't miss out.

Julie (03:49):

My goal is to keep these episodes short, but jam packed with usable information. I know we all have a ton of things to do on our to-do list. So let's get started working on the foundation. Before you actually start a subscription box, you really need to understand how the box model works. It's a lot different than other business models. We're going to get real basic here because I want to help you build a solid foundation before you invest anything into your new business. We're going to talk about what a subscription box is, why people love them, the types of shipping schedules, and then I'll wrap it up with a few of my favorite boxes based off of my market research. And I call it market research. But let's be honest, I just like getting happy mail.

Julie (04:34):

So what is a subscription box? In its simplest form, it's a shipment, a recurring shipment that's usually a box, sometimes a mailer that includes an assortment of products that are based around a common theme, category or interest. Consumers use this as a kind of way to discover new products from brands they might not have heard of. Maybe brands that they love. Maybe there's a new product they're getting introduced to, but not all boxes are surprises. Some boxes like FabFitFun will actually give you a full spoiler alert so you know what you're getting before it actually arrives.

Julie (05:10):

If you look at the website Cratejoy.com, which is a marketplace for subscription boxes, think of like Etsy but its only lists subscription boxes. So in Cratejoy.com, you will see how many boxes and how many different interests there are. There's literally a box for every category out there. There's tons of book clubs and tea boxes, coffee boxes, craft clubs, boxes for pets, and a lot of beauty boxes. And so what you'll find is that most of them are delivered monthly. Some are delivered seasonally, but the majority of them are probably going to be delivered monthly. And what's really fun about this industry is that it's usually a box full of surprises. So at Sparkle Hustle Grow, we usually do one, maybe two spoiler alerts, but the rest of the products are actually a surprise. We tell everyone what the theme is, but the products are a surprise.

Julie (06:04):

So with different subscription boxes, as you can imagine, the prices are going to be varied based off of the size of the box and how many products are in there. Things like that if you're putting in sample size products versus full size items and the value of the items. And then on top of that you have to think about the experiential factors beyond what product is in there. So for example, if there's a community, if there are discounts, if you get digital downloads, there's really a variety of things that you can add above and beyond just the products to make your box more valuable. So that's in a nutshell what a subscription box is.

Julie (06:42):

So why do people even love subscription boxes? Let me tell you a few of the reasons I think they love them. So the first one is convenience. Once upon a time before the internet, we had to go to different stores or shop from catalogs and order over the phone. But now with the internet and the marketplaces that we can buy from, we can get literally anything, any product delivered to our door at a competitive price quickly. Now that people have no problem getting exactly what they want exactly when they need it, that's when retailers need to give them what they want without even asking. And that's kind of the nature of a subscription box when it comes to convenience. You gotta love the replenishment style boxes that ship the products that you love and need and they ship them automatically like shave clubs. Shout out to my box bestie, Jessica, who runs All Girl Shave Club, one of my favorites.

Julie (07:39):

And another recurring delivery box you guys probably know and love is Amazon Subscribe & Save, where maybe you use the same toothpaste every month and you know you need it every two months. It just becomes this automatic delivery that's super convenient and gets you what you want when you need it. So convenience is that first factor and people also love the experience of a subscription box. It's a surprise and it's like a gift to yourself with the experience of opening the box and discovering all the items inside or even if you know what it is, it's so fun to get.

Julie (08:13):

There's that element of surprise that people love about subscription boxes. It keeps them coming back for more. When you have a box full of surprise items, it's literally like Christmas morning or a birthday present. You don't know what you're going to get and it just delivers this really fun experience. And you know, as a box owner, we want to make sure that it's a curated experience, that these items really go well together.

Julie (08:38):

Another key reason that I think consumers are drawn to subscription boxes is product discovery. So maybe you're a beauty blogger or maybe you just really like makeup, subscribing to a makeup box. It's going to be a great way to learn about new products or new brands that you might not have found in your local stores or even online. Because sometimes these boxes are able to get exclusive products made just for them. And of course the last reason that I think people love subscription boxes is everyone loves getting mail. Am I right? Well, other than bills and jury duty, we love getting mail. It's such a fun experience.

Julie (09:18):

Next, let's talk about the two types of shipping schedules or what we call fulfillment. You kind of have to decide this upfront as you're thinking about your box idea and not only to plan out the rest of your operations, but you need to think about it to also set your customer expectations. They want to know when their box is shipping. There's two kinds. The first one is ongoing and then the second one is bulk or batch shipping. We'll talk about both of those. Ongoing shipping means that you will ship as new orders come in. So a new order comes in, you ship it immediately, that customer will then renew on the anniversary of their signup date.

Julie (10:01):

For example, say I ordered a box on November 1st. I will get my product within a few days depending on how it's shipped and my account will renew on December 1st on the 30-day anniversary of when I signed up or however long your sales cycle is. If you do it bi-monthly, then it would be 60 days.

Julie (10:19):

There's some pros and cons as you would imagine. Let's talk about that. The pros of ongoing shipping are that customers get their packages faster. That's a huge win. That can definitely result in a better experience because nobody likes to wait. We all expect our packages to arrive in lightning fast time because we're kind of used to Amazon Prime shipping. Another pro to ongoing shipping is that that better experience of them getting it very quickly and might lead to a better chance of return purchases. So maybe they won't cancel and your churn rate will be lower. Churn is the percentage of people that will not subscribe the next month so that they fall off.

Julie (10:59):

Quick example of churn. If you have a 10% churn and a hundred customers, you know, 10 of those customers won't renew. That's just a quick definition of churn. We'll cover it more in other episodes where we talk about retention, but my point is you might be able to improve your churn rate by shipping quickly.

Julie (11:16):

And lastly, you'll have a constant stream of revenue with the ongoing shipping model. So you're not waiting for your cash injection on renewal day. You'll be getting renewals coming in every single day based off of the anniversary of when your customers signed up. But the cons of ongoing shipping are that you have to pick, pack and ship those boxes constantly. But of course there's a way to manage it and you can balance it by designating shipping days throughout the week. Maybe you ship three times Monday, Wednesday, Friday, or maybe you ship twice a week, Tuesdays and Thursdays. It could just help to make it more manageable. And some subscription companies ship only once a week. This is still considered ongoing shipping versus batch shipping where you're going to ship everything at once.

Julie (12:05):

And then the other con is that inventory can be really tricky to manage when there's a constant flow of products coming in and going out the door. At some point you have to decide when you're moving onto the next months products or the next month's box assortment, but you might have excess inventory so it can be a harder balance to figure out.

Julie (12:25):

On the flip side, let's talk about bulk or what I like to call batch shipping. Batch shipping means that you will ship all new and renewed orders on the same date once a month. Every customer at that point moving forward, then they'll renew on the same date each month. And one of the ways that you can figure out if you want to do ongoing or batch shipping is try to figure out what it needs to be for your customers.

Julie (12:54):

And I'll give you a quick example. Sparkle Hustle Grow is actually a guided box experience for female entrepreneurs. So this guided box experience is time-sensitive. Those boxes need to get in my customer's hands quickly and all around the same time because we have a book study and we do online training and as a group our subscribers work through this together through the book study and through the training with the guidance of guest experts that come in to the private Facebook group. So it's really important for all of my subscribers to receive their box around the same time so we can all dive in together. As a quick example, Sparkle Hustle Grow ships on or around the 18th of every month and they arrived within two to three days to most of us addresses. We renew every single month on the 30th of the month. It's like clockwork every single month and it's almost as though I have to train the subscribers to know what to expect.

Julie (13:54):

So when you're thinking about ongoing shipping versus batch shipping, if you don't need all of your customers to receive everything at the same time, then ongoing shipping might be a really good option for you. But if you need them to arrive around the same time to guide them through an experience, then batch shipping might be better for you.

Julie (14:14):

Let's talk about the pros and cons of batch shipping. One of the best things is that you can pick, pack and ship in a batch, which is super efficient. You're going to basically pack all of the same things and all of the same boxes unless you have some variations, which could of course could be a little less efficient. But essentially you pack and ship during one time frame each month. So it's a lot easier to plan for. And to paint the picture, think about maybe you have a couple of days or a week you set aside where you set up a table, almost like assembly line style. You build the boxes in advance and then you walk down the table putting one of everything in that box. When you batch pack like that, it can be really, really efficient.

Julie (15:00):

Some more pros of batch shipping is that you have predictable cycles for your revenue. When renewal day hits on that same day every single month, you know when you're going to have your bank account replenished with that cashflow and that's so important and it's really easy to do projections that way and get in your monthly rhythm.

Julie (15:25):

And lastly you're able to plan customer service needs in line with your cycles really well when you do batch shipping. So for us, we know that we'll have increased customer service on a few very specific days of the month, like the day before or the day after our renewal day. We also have customer service ramp up on shipping day and then we have more customer service when the cart opens for the next month. Based off of those dates, our customer service team can really prepare accordingly.

Julie (15:55):

Some cons for batch shipping is that some customers have to wait a really long time or what feels like a really long time for their first package depending on when they ordered. So if they ordered on the first day of your sales cycle, they're going to wait about a month to get their box if you only ship once a month with that batch shipping. So of course this can lead to frustrated customers or higher churn, higher customer service with people contacting you saying, "Where's my box?"

Julie (16:24):

There's some ways to combat this by setting expectations via your email marketing, your social media, and if you have a Facebook group. Basically communicating with your subscribers. We regularly post pics during shipping week to get our subscribers excited and of course we post a shipping day announcement and we also let them know via email and social media when their renewals are going to hit.

Julie (16:49):

Another way that you can combat this waiting period is if you have a welcome box or if you have something that you ship when they first sign up, even if they have to wait. So of course that adds a few more pieces to the puzzle, but just wanted to share some ways to combat that. Of course if you're making sure that your product is worth waiting for and they will get delighted when they see it, then you don't have to worry too much about it.

Julie (17:17):

At this point, a lot of our subscribers, they are really trained to know when the shipping day is, when those renewal days are. Another con of batch shipping is it can be a lot of work to pack all the shipments at one time, but I mentioned earlier it can be efficient. You just have to do some planning and set it up in a really well managed way. Things like planning ahead, making sure you've counted your products, that you have, all the supplies that you need, that you have the manpower you need.

Julie (17:51):

So based off of what we've already talked about, think about how often you're going to ship. Are you going to ship every day on an ongoing basis or are you going to ship in batches maybe monthly or even seasonally?

Julie (18:04):

So I feel like as a subscription box coach, it's kind of my duty to do a market research as I mentioned. In other words, I subscribe to a lot of boxes. Why? One, because I love it, but two, because I want to remind myself of the consumer experience when I get a new box and when I unbox it. I want to remember what that delight feels like when the box is amazing and I want to remember that feeling of disappointment when the box falls short. These experiences are super helpful as a business owner and I try to tap into those feelings when I'm curating Sparkle Hustle Grow.

Julie (18:39):

That being said, I want to share some of my favorite subscription boxes and I'd love to hear what boxes you subscribe to. What you love about them or what you don't love about the boxes you've received. So first All Girl Shave Club. This one is run by my box bestie, Jessica Principe and it brings luxury and so much fun to an otherwise boring self care chore of shaving. From the Rose gold diamond coated six blade, crazy cute shaving system to luxurious shave butter. And then I get the discovery pack so I get these product surprises. I just love when it arrives. It honestly never disappoints me. And while this service is technically a replenishment style box with the razors, it also has this surprise component. If you opt for the discovery products and they even have a kit called Shine, Girl! for your daughter's first shave, which I think is absolutely brilliant.

Julie (19:37):

Next, I love Stitch Fix. I'm going on a solid two years of fixes. So Stitch Fix, if you haven't heard of it, is a personal styling box for men, women and kids. They send clothing to your door with free shipping and returns. So this is how it works. After filling out a personal style quiz and then sending some notes to your stylist, including like a Pinterest board, you can give them for inspiration. Then on a monthly basis you'll get a box of five items curated for your style. So you get to try them on and you only keep what you want, which is super cool. Some months, I keep all of it, some, none of it, but on average I keep probably one to two pieces and it keeps my wardrobe fresh.

Julie (20:24):

And one of my favorite things about Stitch Fix is the app where I can kind of communicate with my stylist. I can send her notes. I can make purchases not only from that month's fix but also if I want more of the past items I bought. They offer them in different colors. And what's super fun about their app is they have a style shuffle quiz and it's kind of like Tinder for clothes. You basically indicate whether you like it or you don't like it and the data then helps your personal stylist when she chooses your pieces.

Julie (20:59):

To be honest guys, I've ordered a lot of boxes but none impressed me more than those from some of my Subscription Box Bootcamp students. The ideas they are launching into the world are changing lives. Like one girl inspired who delivers monthly inspiration to teen girls. Like Simply AIP, which delivers snacks and self care for those on the AIP diet, the autoimmune protocol diet. And Black Girl MATHgic, which was designed to increase math confidence and decrease math anxiety in girls on a third to eighth grade math level.

Julie (21:36):

I mean, come on! Talk about game changers, you guys. And I have no doubt that your subscription box idea is amazing too. Stick with me here in this podcast and watch your idea come to life.

Julie (21:49):

I really hope this episode was super helpful for you and how to grasp how the subscription box model works. I will be sure to cover how you actually make money with this model in a future episode. Spoiler alert, it has to do with how to buy your products at a massive discount. I cannot wait to dive into that, but if you want to get a head start on it now, head over to SubscriptionBoxBootcamp.com and download my free PDF on how to make money with a subscription box business.

Julie (22:21):

Thank you so much for spending this time with me and I will see you in the next episode.