As a growing e-commerce brand, you’re no stranger to the hype around subscription boxes. But maximizing their results is another beast entirely.
Offering subscription boxes can be a savvy way to generate recurring revenue, create personalized customer experiences, and help shoppers save time and money.
In Q4 2020, subscription-based businesses saw revenue grow at a rate of 21%. An impressive seven times faster than companies on the S&P 500.
But the days of peak pandemic shopping are largely over. And adding subscription boxes to your business model may or may not be feasible for your unique brand.
From product alignment to fulfillment to meeting customer needs, creating a subscription channel takes careful thought and consideration.
We’ve already covered the best types of subscription boxes for Amazon sellers. Today, we’re going to break down the subscription box best practices for multichannel DTC brands.
What You Need to Know About Subscription Boxes
- Do Subscription Boxes Actually Increase Revenue?
- What Do Consumers Look For in a Subscription Box?
- Advice From Two of the Most Popular Subscription Box Company CEOs
- Ready to Add Subscription Boxes to Your Offers in 2023?
Do Subscription Boxes Actually Increase Revenue?
Let’s tackle the biggest question first. As with any business strategy, subscription boxes may increase revenue if they address unmet consumer needs and deliver real value.
According to McKinsey, it’s crucial to make sure your new subscription boxes are part of a sustainable model that:
- Supports your overall brand strategy.
- Has a value proposition and business case tied to a clear unmet need.
To address your target customer’s needs head-on, start by identifying pain points in the consumer journey, conducting market research, and testing your concept.
Send out polls, questionnaires, and surveys to your most loyal fans. You can also interview a few of your VIP customers and start a focus group to gather deeper insights.
Once you’ve proven your concept, ask your customer cohort to detail the types of experiences they’d like to have when they enroll in your subscription service.
By integrating customer research and machine learning to spot purchase predictors, you can create subscription boxes tailored to your audience’s shopping preferences and get one step closer to meeting your recurring revenue goals.
How Do Companies Make Money from Subscriptions?
E-commerce businesses make money from subscriptions when their customers pay a set amount for a service or bundle of goods every month. The longer a customer subscribes, the higher their customer lifetime value (CLV or CLTV) is, and the more money the business makes.
But there’s a caveat.
To make money from subscriptions, experts and analysts like those at McKinsey are quick to stress the importance of nourishing your subscription business rather than treating it as an experiment. A committed approach is vital if you want your new subscription channel to win and keep subscribers.
Subscriptions also come with a full host of data straight from customers, which lets you in on their key buying habits and patterns. If they sign up for an annual subscription, you’ll have a year’s worth of insights to help you predict what they buy and when — just imagine what that could mean for your marketing campaigns, inventory, and logistics.
Are Subscription Box Companies Profitable?
The short answer is generally yes. One apparel brand even reported that its subscribers spend 2.5 times more than their traditional (non-subscription) customers do.
Here are some other subscription box monetization insights you may find helpful:
- The average US consumer has four subscriptions.
- The subscription model may drive greater average spend.
- Subscriptions inspire customer loyalty.
- Subscription boxes provide value to consumers that appreciate novelty, convenience, and personalized experiences.
Who Uses Subscription Services the Most?
Younger generations have adopted subscription boxes the most. According to research by Emarsys, 32% of 16-24-year-olds in the US have a subscription, whereas only 7% of those aged 55+ have one.
What Do Consumers Look for in a Subscription Box?
Putting yourself in your customers’ shoes is key to designing a subscription box that meets their needs and (when orchestrated with care and creativity) exceeds their expectations.
Here’s a quick checklist you can run through to ensure you’re creating a subscription box with your audience in mind:
- Pricing Flexibility: Subscribers look for pricing flexibility, such as discounts and tiered pricing (think SaaS subscription tiers). They also appreciate reminders to periodically reset their subscriptions to higher or lower-cost plans.
- High Perceived Value: Consumers look for boxes that are great value for money. Emotional factors are also central, with 32% of consumers stating they signed up for a subscription because it “feels nice to receive something every month.” (BTW, we agree that it feels like getting a present.)
- Fun and Personalized Product Options and Experiences: From offering new products to playing up the novelty factor, subscribers value boxes that deliver personalized experiences.
Ease of Use: Shoppers expect zero barriers to entry when enrolling in a subscription. They’re looking for easy signup and cancellation processes, the ability to reorder items automatically, and zero complications receiving their boxes every month.
Advice from Two of the Most Popular Subscription Box Company Executives
Now that we’re clear on what consumers expect, let’s see what two of the top minds have to say on the subject.
The Bean Box Example
“We are a tech company that happens to sell coffee,” says Bean Box Founder Matthew Berk.
Optimizing what needs to be outsourced versus what the company can do on its own is essential to Bean Box’s success.
Rated the best overall coffee subscription by RollingStone, Bean Box has a growing newsletter community of 300,000 coffee lovers, with nearly 40% of Bean Box customers coming from email.
And it’s not hard to see why.
With deals that smash barriers to entry, such as $5 coffee cash when you sign up for the newsletter and a free tasting flight when you subscribe, Bean Box puts the purchasing power back in consumers’ hands.
Top Reasons Customers Love Bean Box:
- Flexibility: Subscribers can choose a weekly, bi-weekly, or monthly subscription.
- Product Variety: With a large variety of beans and flavor profiles, Bean Box customers never get bored with their products.
- Expert Curators and Personalized Products: Subscribers choose between six ideal tasting experiences and leave the rest to expert curators. The result? Deliciously personalized coffee options.
According to Matthew Berk, the key to a profitable e-commerce subscription business is being both well-funded and in the right place at the right time.
He also emphasizes how important it is to think from a consumer standpoint and sell products your customers want to keep buying regularly. “Don’t get into this business because you like the idea of a subscription business — do it because of the consumer use case.”
Learn from Bean Box’s Success
- Take a look at your current product list and note any options consumers can’t live without. What would they want to buy again and again? What have they purchased repeatedly in the past? Which items naturally fit into your customers’ daily routines?
- Review your operational procedures and daily responsibilities. Cut unnecessary tasks and outsource as much as possible without risking your bottom line.
- Offer flexible subscription options to keep customers confident in their choice long-term.
- Get creative by offering personalized product varieties and curated boxes.
Giorgos Tsetis (and His Glorious Locks) from Nutrafol
“There’s no benefit for us to sell a bottle and someone not be successful with the product,” says Nutrafol CEO Giorgos Tsetis.
Giorgos, an engineer (and model!) turned subscription-based business owner, developed hair wellness supplement company, Nutrafol, to solve the very real problem of hair loss.
Founded in 2016, Giorgos started the brand after suffering from hair loss and experiencing a slew of negative side effects when attempting to regain hair growth with prescribed meds.
Just a year later, Giorgos was featured in Forbes sharing their ultimate business dream: Helping 80 million Americans avoid hair loss.
Giorgos’ plan took off and by 2021, Nutrafol’s subscriber count increased 102% YoY.
Today, an amazing 90% of Nutrafol’s DTC revenue comes from subscriptions.
Not too shabby for a brand that expects today’s price-sensitive consumers to spend $79 a month for the product.
So what is it that encourages Nutrafol’s customers to continue their subscriptions? Giorgos says encouraging customers to “create a habit” is key. Demonstrating how and why to integrate products into customers’ daily routines may inspire your product to become a household staple.
Nutrafol subscribers also trust they’ll receive the same high-quality product every month. The brand takes customer feedback and cancellations extremely seriously and customers feel cared for.
“We want to understand why people cancel so we can improve the consumer experience,” Giorgos says. If a subscriber cancels, Nutrafol asks the customer to fill out a questionnaire to understand why they’re leaving — and then actually uses that data to improve the product and brand.
By setting up repeatable cancellation workflows on the backend, Nutrafol can segment past customers and automate win-back campaigns and retargeting strategies.
One thing Nutrafol doesn’t do? Make it difficult for consumers to stop their subscriptions.
With Nutrafol, customers can stop their subscriptions quickly and easily.
Learn from Nutrafol’s Success
- Create a new product that solves a big problem.
- Never skimp on quality — deliver the same high-quality product every month.
- Encourage your customers to create habits using your products.
- Let consumers pause or stop their subscriptions whenever they want.
- When customers cancel, ask them why they’re leaving and learn from it.
- Take customer feedback seriously (and implement their requests).
- Automate win-back campaigns and retargeting strategies.
Boost Your E-commerce Margins with Subscription Boxes Done Right
Retailers interested in growing their businesses with subscription boxes need to focus on remaining customer-centric and striking the right balance between novelty, convenience, and value.
Those that nail it, have a lot to gain.
At SellersFunding, we’re committed to helping e-commerce entrepreneurs achieve their goals no matter how big or small. Whether you need funding solutions or growth-maximizing tools, we’ve got you covered.
With our Working Capital solution, merchants can access a flexible line of credit to invest in the inventory, tech, and human resources you’ll need to fund your new subscription box venture.
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