One of the questions I get asked the most is “How do I get/source product for my subscription box?” or “How do I approach vendors and ask for a discount?”. Product sourcing or ‘procurement’ as I like to call it, can seem like a daunting task in the beginning, but when you’ve got a good system down it can become the most enjoyable part of your business.
Note: This guide is about product sourcing and purchasing product. Read why I think the free sample subscription box model doesn’t work anymore
Step 1: Identifying The Products You Want
Chances are, even if you’re just in the beginning stages of planning your new subscription business, you’ve put at least some thought into what types of products you want to include. If you’re not sure yet, now’s a good time to start brainstorming. For my subscription, Yogi Surprise, a simple trip to my local Whole Foods will help me come up with new ideas for the next month. I recommend starting with a local store that carries the types of brands you’ll want for your box. Bring your smartphone and snap pictures of brands/products you want to contact later!
Don’t forget to find a good variety of products. For example, with Yogi Surprise I keep the product selection or ‘box build’ as I like to call it, pretty diverse each month. Customers will get at least 1 food item or something they can consume right away. They’ll also usually get a yoga tool (something that they can use in their practice), maybe a piece of jewelry, and then a general natural lifestyle item. I have 6-8 products in every box. Dialing in on this ‘experience’ is extremely important and will be a major factor for whether your customers stick with you month after month.
Step 2: The Initial Reach Out
Once you’ve got a good list of brands you want to reach out to, it’s time to start communications! You might be surprised to hear that I never pick up a phone. Over the past 5 years of doing this, I’ve done it almost entirely by email (makes it easier to work in coffee shops!) I’ve tried every email template imaginable, from extremely long pitches to short and sweet messages. With Yogi Surprise, my emails have been much shorter and straight to the point, mainly because I’m buying product and don’t really have to send a ‘sales pitch’. My current favorite email template looks a lot like this:
Subject: Bulk-order inquiry
Message: Hi name, I’m with Yogi Surprise – a monthly care package for yogis. I’m interested in buying around 2000 units of the product name. I’m curious what sort of pricing you can offer and how much lead time you need. I’d like to send these out for my August 5th shipment (we’re located in Portland, OR). Let me know if this is doable!
This email template tends to get me pretty far. It’s very important to stress that you’re interested in actually paying money for their product or they’ll immediately write you off as just another ‘donation request’.
Step 3: Negotiation
Once you’ve gotten a response and are recognised as a serious buyer, it’s important to get a quote from them first. They’ll often quote you their standard wholesale prices initially, especially if you’re working with a smaller volume (under 500 units). From here, I try to push the price down closer to their cost, some vendors have another price point below wholesale referred to as ‘distributor pricing’. Often, I can get the price down by simple being totally transparent about my budget. I’ll say something like “Thanks for the quote, I’d really like to make this happen, but my budget is capped at around $1-$3.00/per unit. Is there any way you can meet me in that range? I’d also happily let you guys include an insert in each box with a coupon code and call to action”
As you get more and more experienced sourcing product in a specific niche, you start to get a really good sense for actual product costs and how far you can reasonably drive a price down. Getting a product at cost (or even below cost in a ‘cost share’ arrangement) is great, but I like to maintain really good relationships with my vendors and often try to get the price to a point where they’re at least making a little bit of money.
Don’t get me wrong though, I do believe there’s a lot of promotional value here for the vendor, but there are pros and cons to ‘selling’ this value to drive the price down. The more you sell the promotional value in exchange for a great price the more the vendor expects from you. Follow up promotion for vendors who’ve given you great below cost pricing can easily add up to a lot of extra burden for you and your team. Personally, I prefer to drive the price down as far as I can without promising anything.
Step 4: Payment and Delivery
Because of the unique cycles of a subscription box company, paying for product can sometimes become a juggling act. My re-billing date for everyone is on the 14th, it takes 3 days for the cash to hit my bank and I don’t have the money to pay for the product till the 16th or 17th. My shipment date is on the 5th of each month. I’m able to pay the vendors in full before they ship to me, but now that I’m in the thousands of subscribers the actual manufacturing of my product needed to start closer to the 1st of the previous month. Most medium-sized vendors are willing to start production without a deposit, but for the smaller ones it can be tricky – they literally need the money to buy ingredients. By the time you get to the size of Yogi Surprise, most banks will issue you a business revolving line of credit to help make purchasing easier. I now run all my businesses transactions through a line of credit and walk away with up to $2,000 in ‘cash back’ each month!
To make arranging and payment as easy as possible, we’ve designed a nice PDF that has all our shipping, billing and payment details on it. When I’m ready to purchase product from a particular vendor, I simply use an email to communicate a purchase order and attach the shipping and billing details PDF to the email.
There you have it! That’s my process in a nutshell. Hopefully this guide has made the procurement process a little more approachable. Soon I’ll be covering the topic of importing and negotiating with international vendors.