3 Types of Subscription Business Models and How to Start One

3 Types of Subscription Business Models and How to Start One


Convenience is so important to consumers today. So it makes sense that 15% of Americans have signed up for a subscription box. Now, ever since subscription box became popular in the early two thousands, they really showed no signs of slowing down. By 2025 this industry should reach $473 billion. That’s billion with a B. So if you’re on the fence, maybe you’re not a hundred percent sure if you actually want to start a subscription box of your own. I’m here to tell you that there’s definitely still a market for it. And it could be a potentially very lucrative business to get into. It might sound easy, you know, just throw a couple things in a box and send them off to your consumers. But between product sourcing, um, getting your customers to actually sign up for your subscription box, there is a lot to keep track of. So in this video, I’m going to share the top three subscription box models and how you’re going to actually run your business. All right. So let’s get into it. There are three types of overarching subscription box models. We have curation, replenishment and access. Now, depending on what you’re selling and what phase of your business you’re in, throughout this video, it’s going to become clear which model is going to make sense for you.

Curation Business Model

The curation business model is by far the most common. So Birchbox is a really good example of a business that uses the curation model. If you’re not familiar with Birchbox, basically what they do is they take beauty products from existing brands, and then they bundle them into a very personalized package for their customers. The point of curation subscription boxes is to really surprise your customers by giving them products that you know, that they’re going to love. So you can find out more about your customers by getting them to fill out a quiz before they sign up. And this model also aims to introduce customers to new items they might not have otherwise known about. So the curation business model is all about surprise and delight. If you choose to go with this model, there’s a lot of benefits that you could potentially reap. So first of all, um, there’s a very high profit potential. So customers can pay anywhere from $15 to $100 a month. And if you think about that compounded monthly, that’s a lot of profit that can scale very quickly. Now on top of that, they might also promote the discovery of new products that you carry. For example, Birchbox. Um, if a customer discovers a product that they love in their box, they can buy it again directly through Birchbox and earn a discount. So offering this type of service can really help you diversify your revenue streams and increase your total profit. So the biggest risk here is high churn. So what tends to happen is that customers get really excited and they sign up for their box, but then eventually the novelty wears off and then they’ll end up unsubscribing.

Curation Business Model
Curation Business Model

Now what happens for you as a business owner? This basically means that acquiring new customers is going to be expensive since the average lifetime of each customer is not that long. Plus since these products are typically non-essentials, subscription boxes are really going to thrive when the economy is doing well. But you know, as soon as we hit a recession, these are typically the first to go. Another thing to note is that they are quite complex operationally so coordinating brands to curate your subscription boxes is definitely a hurdle that you’re going to have to overcome. Um, and then the cost of packaging and branding and shipping is considerably high with subscription boxes. So that being said, who is this model right for? Well, it’s pretty typical for businesses in beauty, clothing and food to really hop on the curated subscription box model. But if you’re not in any of those industries, that’s also fine. There has been a lot of uptake across a multitude of industries for this model and it’s just expanding every year. If you have brand connections within a specific industry, then you’re going to have the right connections to start getting products to actually go into your box. So in that case, a curated subscription box might be right for you. It’s also right for the type of entrepreneur who already has a niche contact list. Having a contact list is going to make it so much easier to start marketing your new business and start reaching out to new potential customers. Now, if you don’t fall into any of those categories, then no worries. This model is also right for an entrepreneur that is just starting out and starting from scratch. But if you do have a preexisting business, um, and you’re wanting to use the subscription box to support that business, then the next model that we’re going to talk about might be right for you. If you’re here looking to get started building an online business, but maybe you’re not sure what to sell and you need help finding a product. Then I definitely want you guys to make sure that you’re checking out our free 40 minute webinar. That’s going to teach you how to find winning product ideas, how to validate those ideas and then how to get started. So I will leave a link for the webinar for you guys in the description box. Um, and if you’re wanting to get started, you can click that link and get started with this free training right now.

Replenishment Business Model

The replenishment business model is going to be all about convenience and cost savings. So the way that this works is a consumer will choose to automate the purchase of essential items. And then this will usually come at a discount to them. Now, most products don’t need to be replenished regularly. So the type of products that you’re actually selling will have to make sense for this business model to work. So you’ll need to be selling, um, consumable items for sure and convenience items.

So think about, you know, like razors, diapers, pet foods, those are the type of items that would be a good fit for the replenishment model. So Amazon, for example, they have a program called subscribe and save and the way it works is you get free shipping. You might also get a discount if you sign up for auto deliveries of essential products, like toilet paper and that kind of a thing. So these programs are definitely floating around and it’s something that you can replicate as well.

Access Business Model

The main benefit of this model is that you’re going to have higher retention rates. Because your products are actually fulfilling a real need, customers are just going to stick around for longer versus the other model that we just talked about. It’s been shown that 45% of customers stick around for at least a year. With this business model you might have thin margins. You’re going to have to compete on price and you’re going to have to offer some pretty generous discounts. So if you do want to make this model work, you’re going to have to really keep your costs low, just operationally. And you’re going to have to focus on operating at scale. So you’re going to have to sell a lot of boxes to make this profitable. So who is this business model right for? Well, if you already have an existing business and maybe you’re just looking to find a way to keep customers coming back for more, then this model can really help increase your retention rates and it can help increase your total. Also, if you’re thinking of starting a drop shipping business, you can definitely use this business model. Um, really just start slow, start with a single item, and that will just help you hit the ground running.

Access Business Model

Access subscribers pay a monthly fee, and then they get access to lower prices or membership perks. So it’s kind of like Costco or kind of like Sam’s club, but in subscription box form. So I’m not sure if you’ve heard of JustFab, but JustFab is an e-commerce site and it offers members discounts on their shoes and purses that mimic high fashion styles. So members pay a monthly fee and then they get access to these styles. So the access subscription model is basically going to offer a sense of price exclusivity to their customers. With this model, you can really play up the exclusivity card. So you can really entice customers to sign up and really stay with you because you know that your brand can offer products that no one else is offering, or you can offer discounts that no one else can. So whether that’s, you know, your product selection or your price offering, you really want to make sure that your marketing is surrounding the idea of exclusivity. The one issue with this is that it requires a pretty great time investment. So you are going to need to put in some work to make sure that your membership is offering something that is enticing and that is of value. Um, you’re going to have to make sure that you’re maintaining your offerings so that you’re keeping up with exactly what it is a customer wants. So, whether that means you’re constantly updating your product offering, or maybe you’re constantly having to compete on price, you’re going to have to really stay on top of what makes you competitive. That being said, if you really hone in on your competitive angle, you can create a business that is long lasting. All right. So next up, let’s take a look at the three steps that you’re going to need in order to jumpstart your subscription box business, and really just hit the ground. So, first of all, you’re going to use to settle on a niche. After that, you’re going to want to plan on how you’re actually going to source your products. And then finally, you’re going to want to think about how you’re going to package and ship them out to your customers. So let’s start by looking at our niche.

Finding a Niche

The first step in starting a successful subscription box is choosing a niche or choosing a theme for your box. Now, I would say that choosing something that’s of actual interest to you or something that you’re actually passionate about is going to really help you stay committed to your business idea. Also, if you are your own target audience, you’re going to have the advantage of understanding the consumer. But maybe during this pandemic, you’re, you’re lacking some hobbies. Maybe you’re lacking some passion. Totally get it. Um, what you can do is you can hop onto Google trends and that’s going to help you understand which industries are on the up. This tool is also going to help you capitalize on a trend before it blows up. But let’s say you’ve done Google trends um, and you’re still kind of like racking your brain um, you’re trying to think of your product idea, or you’re trying to figure out your niche. We actually have a detailed video that’s going to show you how to carve out your niche and how to market and position yourself as the go-to brand for a specific audience. So if you are interested in seeing that video, I’ll just link that right here and you can watch that video after you’re done watching this one.

Sourcing Your Products

So as you’re sourcing your products, I would recommend that you start with three to five items and you want to make sure that they are small enough to fit in your box, but also light enough so that you’re not spending like an arm and a leg on shipping. So that will keep your costs low. Also make sure that each item is falling under the niche of your subscription box. You want to make sure that you’re still appealing to your target audience with every single item, and you want to make sure that your items are satisfying an actual need. I know we talked a little bit about this before, but when your products are actually satisfying a need, customers will see the value in your box. Um, but if, if your products are not satisfying a need, Um, what will likely end up happening is these products are going to end up in someone’s closet or on the floor somewhere. Um, and customers will just eventually cancel. So keep that in mind. So when you actually start sourcing your products, you’re going to want to be reaching out to brands either via LinkedIn or emails or Instagram DMS. So introduce yourself. Let them know about your business and make sure that you are explaining to them why it would be beneficial for them to be featured in your box, let them know why it’s a value to them. And then also make sure that you’re telling them how many products that you’re looking to buy so that you can start to work out a deal for a bulk order.

Packaging and Shipping Your Boxes

The method that you choose to pack and ship your boxes is going to depend on what scale you want to operate at. So you can easily do this in your living room. If you just get brands to ship to your home, you can save on warehouse and fulfillment center costs. But let me just pose a little scenario here. Let’s say you have 20 customers. Okay. That doesn’t seem like a lot. That’s just like 20 customers, right. But if you have five items per box, that’s still a hundred items that need to be packed and that’s still 20 boxes that need to be shipped. So hopefully you can see how this would actually take you away from your marketing and your scaling. Um, but as you do scale, maybe you want to start off, you know, just in your living room, but as you do scale, you can think about hiring maybe a part-time student or outsourcing your fulfillment and your shipping. So, if you do want to learn all the details about packaging and shipping your orders, I mean, it can be a pretty deep topic.

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *