Though subscription boxes are still a relatively new business model compared to some of the tried-and-true, they can still be a very profitable business to run.
But, how do subscription boxes make money actually?
In this article, we’re going to run through what you need to know about this business model: what subscription boxes are, how they make money, and how you can get started today.
Let’s get started.
What is a subscription box?
A subscription box is a system in which customers pay a recurring fee and receive products in exchange. Customers typically pay and receive the boxes either monthly or quarterly.
Once customers sign up, they either choose what is inside of the box or are surprised with products delivered. When customers subscribe to a box, it is typically in a niche, or category of items.
An example of this would be the Fab Fit Fun box. This box is designed to appeal to women with orders typically being in the fashion, fitness, beauty, wellness, and household categories.
Fab Fit Fun delivers a quarterly box (usually based on the season) at a rate of $49.99 USD per box. They also have a discount for paying annually instead of quarterly.
Another example to look at is the Lovevery Box. This box is designed to help babies develop their fine-motor and gross-motor skills, brain development, and more.
Each box is sent based on your baby’s current age, milestones, and brain development. Boxes for babies under a year old are shipped every two months at a price of $80 per play kit. At the age of one and above, boxes are delivered quarterly with a price of $120 per kit.
How much do they cost?
The cost per box varies between companies.
Subscription boxes can range from $10 to $40 per month. Typically, the more expensive subscriptions are billed quarterly.
Boxes with nicer or higher-end products can cost up to $100.
There are usually options for either one-time purchases, monthly, quarterly, or annually billing. A discount is typically given to those who purchase the annual subscription.
What type of subscription boxes are there?
While there are many types of subscriptions, boxes are used for physical products.
You can basically create a subscription box out of any product that can be sold and shipped.
This is great for someone who is looking to start a business and with this model the sky is the limit.
Here are some examples of categories for subscription boxes:
- Baby toys and educational items
- Pet toys, treats, and other supplies
- Custom clothing boxes
- Makeup and beauty items
- Customized craft boxes for toddlers and older children
- Household items (cleaning, cooking, organizing, and more)
- Food subscription (meat, vegetables, fruit, dry goods, healthy snacks, etc.)
- Complete meal kits with instructions
How do subscription boxes make money?
This varies based on what products are delivered, but most subscription boxes can profit anywhere from 40% to 60%. The profit is calculated by adding up the total cost of products and fulfillment and subtracting this number from your total income from customer payments.
There are two different main ways these services make money: one-time purchases and recurring subscriptions.
The recurring subscriptions are the main income for the business usually, but the one-time boxes are available to purchase to get other people interested.
The one-time box is usually marketed at a bit of a discounted price so that people will buy it, love it, and hopefully come back to purchase the subscription.
This marketing strategy is used to convert skeptics into full-blown subscription lovers.
Another option these services utilize to increase the amount paid per customer is tiered pricing. The company will offer multiple versions of each box with varying amounts of products in them based on value.
This allows each company to target customers who are willing to pay more or less for a subscription service. Targeting a wider audience usually allows for increased revenue and consistency in income!
Can I start a subscription box service?
You can absolutely start your own subscription box service! Before you get started, you should ask yourself a few questions:
- What category will I sell in? (Beauty, fitness, kid’s toys, dog toys, food services, etc.)
- Who are my competitors and why are they successful?
- Who is my ideal customer?
- What products will I sell?
- Will I charge and ship out monthly or quarterly?
- How will I ship these boxes?
- What will this cost me?
- How do I price my box?
- What will my profit margin be?
There is a little bit of planning to be done when starting any business.
You’ll have to answer several questions to get a clear vision of what you need to do.
If you need help pricing your boxes, check out this Subscription Box Pricing Guide.
How much does it cost to start a subscription box business?
Since subscription boxes are usually filled with physical products, there is a pretty hefty up-front investment.
The average cost to start this business type is about $17,000. The up-front cost includes having products manufactured, shipped, and stored in a warehouse (if not at your home).
Example expenses include software to manage the business (finances, inventory, etc.), rent, manufacturing and shipping, marketing, labor, etc.
Something else to consider is the number of products you will include per box. It’s generally a good practice to include five to ten items per box.
When considering how many items are in your box, you should find a number that makes your box valuable but still allows you to keep a profit margin of around 40%.
Keep in mind that having 10 or more items will increase the value of your box, but it will also increase the cost for you to make and ship it since it will inevitably weigh more.
Final thoughts on making money with a subscription box business
Subscription boxes require a bit of an up-front investment, just as any physical product business does.
If you’ve got the investment ready, then next you need to do some research.
Figure out your ideal customer, competitors, and the details of your box, and you’ll be ready for launch.
