Every business owner knows that a regular customer is worth their weight in gold. Consider this story about a man who buys a latte and a bagel every weekday from the same coffee shop. He’s only spending $5.35 a day, but the coffee shop would have to attract 10 new customers who visit twice a month in order to replace the revenue from “$5.35 Guy.”
But what if you could go a step further? What if you could charge the $5.35 Guy $107 a month, automatically? That’s the idea behind a subscription-based business model. It’s an attractive enough idea that the subscription e-commerce market has basically doubled every year since 2013.
Creating a subscription option for your business can be a great way to make your revenue more predictable, smooth out seasonal fluctuations, and delight your most loyal customers. But customer expectations are high in this space, and, according to research by McKinsey, customers are very likely to cancel a subscription that’s not delivering great value or a superior experience. That means your concept and execution have to be spot-on.
Here’s how to launch your own subscription service, in 8 easy steps:
Start by mapping out how your best customers interact with you. How often do they visit? What do they buy most often? What do they buy at regular intervals? For a subscription box or subscription service to work, you’ve got to identify a product or service, or a type of product that customers will want to get on a regular basis—monthly or quarterly. That means staples that customers use often, or special treats they’d be excited to receive. Dig into the data from your loyalty program to generate some ideas on what your best customers buy again and again.
There are a lot of subscription services out there. Whether you’re interested in books, food, beauty products, booze, dog treats, tea, or anything else you can think of, there’s a subscription box for that. Do a survey of the market and figure out who your competition would be. Start thinking about how your box or service would stand out in this crowded market. Get a couple of sample boxes from competitors in your space. What do you like about what they’re offering? What could you do better?
Because there are so many subscription services out there, you’ll need to target a pretty specific niche. Think about your core business’s brand. What makes you different? What kind of story are you telling? Think about your best customers. Who are they? Maybe you can target your box at working moms, or vegan coffee drinkers, or amateur tango dancers. For a box, the more specific, the better. The other approach is to create a value-based subscription—target people who are already buying something regularly and give them a small discount for paying in advance for a year’s worth of product.
If you’re launching a subscription box, you’ll need to figure out who curates each box, where you’re sourcing products, and who’s packing and shipping the boxes. If your service starts small, you might be able to do fulfillment in-house. But you should figure out at what point that will get to be too much, and at least come up with a couple of options for outsourcing logistics if you need to. Similarly, if you start with just a few subscribers, you might be able to pull products out of your regular inventory—but as the service grows, it will become its own separate inventory management challenge.
As with any product, getting pricing right is crucial to making your subscription service profitable. Make sure you’re charging enough to cover the costs of not just the product, but the logistics of sourcing, packing, and shipping. Cratejoy, a subscription box platform, recommends building in a 40% profit margin to make your box sustainable. Here’s a calculator that will help you work out how much to charge. Of course, if your subscription model is value-based, offering customers a “subscribe and save” discount on regular purchases, then you’ll want to calculate the price the way you would a discount for loyal customers. Your goal is to find a price point that’s attractive to the customer but sustainably profitable for you.
Assembling a sample box is a great exercise to help you start getting into the details about the look and feel you want for your subscription box. In the world of subscription boxes, the unboxing experience is a big deal, so you’ll want to think through the design of the packaging as well as the actual items you’ll include. Many boxes also include a packing list that explains how products were chosen, gives the retail price of each item, and says a few words about the overall theme. This is a great chance to address your customers directly and make the case for why your subscription service is worth the price.
Your sample box will also be invaluable as you start marketing your new service. Take plenty of photos and get ready to start sharing them online and on social media. Decide how you’ll reach out to your loyal customers to get them excited about this new subscription—by email, in person at the point of sale, with signage in your store. But don’t limit your outreach just to VIPs. A really successful subscription service will appeal not just to the people who already shop with you regularly, but will also work to convert occasional shoppers into loyal customers. Create a prelaunch period with a set timeframe to sign up customers and build buzz.
Even after you’ve launched your subscription service or sent out your first box, the work isn’t over (of course not!). You’ll want to keep reevaluating how the logistics are working, whether the price is right, how customers are reacting—what’s working, and what’s not. If you discover you’ve priced your subscription too low, don’t panic. There are ways to increase prices that won’t alienate your customers. For example, try adding some new options or offering a new bundled deal that’s more profitable for you, but still feels like a good value for the customer.