Four years ago, I probably wouldn’t have believed you if you told me I’d be a pioneer of the subscription commerce industry.
At the time, I had just taken out over $10,000 in student loans to kick start my first business, and had planned to find a way to monetize my growing online natural lifestyle publication.
Let’s just say that didn’t pan out. But what did happen was even better: I learned not only how to build successful subscription commerce businesses, but also several best practices that, when applied correctly, can almost guarantee a sustainable, profitable business.
But let’s not spoil the story.
There I was at 22. With little capital left in the bank, I knew I needed a fresh idea – and quick. How could I combine my passion of sustainable, healthy living with a profitable, scale-able business? And that’s when I discovered the novel idea of sending customers a monthly box of ‘curated’ products, now known as ‘Subscription Boxes’.
At the time, only a handful of them existed. The now giant Birchbox was still in beta, and words like ‘subscription boxes’ and ‘subscription commerce’ weren’t even being used yet, especially not in the context of themed monthly boxes. The barren landscape of competitors was frightening, but also intriguing. So I jumped in.
I dreamed up Conscious Box and along with my two super scrappy friends, Jesse Richardson and Bjorn Borstelmann, we started the first monthly subscription for pure and natural product samples designed to help people transition to a healthier lifestyle.
For two years, we worked day and night, living above our desks in bunk beds, bootstrapping the business to success. We made a few early mistakes common to all businesses, but we also made some notable successes, like our near overnight launch of SubscriptionBoxes.com (a ratings and reviews site for the now nearly 300 Subscription Commerce businesses that exist) and getting to 3,000 recurring customers with little marketing spend.
At the end of our second year, we began raising venture capital. At first, it was like a dream come true. My two business partners and I finally had the “rocket fuel” to propel our business. In what seemed like an instant, we had raised $1.5 million, moved the business to Portland, Oregon, and made a few key hires, one of which was a new CEO (Replacing myself, naively thinking it would allow me to focus on growing the business rather than dealing with investors and finances).
Business was good. We were obsessed with our product, authenticity and customer happiness. Each day we would come in and hear from the customers who were loving Conscious Box and appreciative of what we were doing. We had great revenue and we were re-investing in our growth. Things were looking great, at first.
Regretfully, though, relationships deteriorated when the business didn’t scale as quickly, smoothly, or sustainably as hoped. We had built sophisticated sample tracking/variation building software and a new platform that attempted to ‘complete the circle’ of the customer life cycle we were trying to create — subscribe, try, and buy – but it wasn’t performing as well as we hoped. And because software solutions for subscription boxes didn’t exist yet (now there are good options like Cratejoy, etc) we were forced to continue spending large amounts of our money on technology development.
Then, at the end of 2013, things completely broke down. I was insistent on pivoting the company away from our ‘free sample’ model and into a model that had built in margin to purchase product, thus increasing product quality and retention. One thing led to another and the other two founders and I were pushed out of the company.
In the aftermath, the three of us had the chance to flex our new hard-won subscription business skills. Quickly, we launched Escape Monthly – a ‘Vacation in a Box’ (inspired by our lack of much needed vacations). This time, we built a very healthy budget in for buying product, allowing us to hire just 1 buyer and eliminating the need for an ever scaling sales team. We also went with a higher price point to draw in more affluent, ‘stickier’ customers. Through an aggressive early pre-launch strategy and marketing push, we kicked off the business with a few hundred customers. (The business is now successfully chiming away.)
A few months later, we launched Furball Box, a box built for cat lovers. This project was just for fun, but we got a great response, with a few hundred signups for our first month. With little passion in the room for cats and a customer base that was aggressively specific about their cats needs, we decided to close the business before shipping a single box. That was a great lesson about what doesn’t work in Subscription Commerce. If you can’t keep customers consistently happy, the business will eventually be crushed by unsustainable churn and we saw it coming.
More recently, I’ve launched Yogi Surprise (A Yoga Retreat in a Box). This time, though, I wanted to exercise a fully lean business, only bringing on one partner and a writer for hire when needed. Already, we’ve surpassed 1000 customers in our second month, and the customers couldn’t be happier. For me, these types of businesses are lifestyle businesses, your passion and authenticity will show through and it’s important to pick niche’s you feel strongly about rather than chasing “what hasn’t been done yet”.
Subscription Box businesses often seem simple on the surface, but can easily become very challenging. Logistically, there’s a lot more stuff going on behind the scenes than just simply putting products in a box and shipping them. I’ve seen many try and fail and I’ve seen some huge successes.
With that in mind, I’ve compiled the most need-to-know lessons of subscription commerce. These apply to any box, any niche, and at any stage. Apply these principles to your business and save yourself from the stress, wasted time, and headaches I experienced for the better half of my 20s:
1. Build a sustainable pricing model and profit margin
The number 1 reason I’ve seen subscription box businesses fail is because they didn’t take the time to map out their COGS and build in enough profit margin. Many of the early failures simply copied competitors pricing without doing the math themselves, assuming the competitor did the work (when it turns out they didn’t either). This created a domino effect of failing businesses for awhile. Here’s a great budgeting tool that helps with this part.
2. Product quality matters, don’t skimp on the details
Your customers will respond to a great product. The quality of the experience you create for them and the selection of products you include each month will be the #1 influence on your retention. Seems like a no brainer, right? Wrong. Too often, you’ll be faced with the tough decision of adding that extra product to your box or walking away with a liveable paycheck. Be strong though, skimping on product to increase net profit in the short term is not worth the long term ding in retention.
3. The most successful subscriptions fulfill real needs. Gimmicks aren’t sustainable.
Fortunately, I didn’t have to learn this the hard way, but from my relationships with dozens of other subscription box entrepreneurs, I know it to be true. Fulfill a real need in an established niche with a large built in community.
4. Don’t rely on ‘free samples’ it’s not sustainable at scale (and it’s hard to pivot your pricing model without serious churn).
Fundamentally, the problem with the free sample model is this: Once you begin to scale (past 3,000 or so customers) it gets harder and harder to not only procure enough product to fulfill your boxes (at least without 100 variations), but also to provide enough value back to your vendors that they continue to sample with you. Even worse, it’s extremely difficult to pivot your pricing model without serious churn. If you’re insistent on building a sample marketing business, choose a niche where the products have massive margins and cost cents on the dollar to make (like the beauty industry) and come up with a strong strategy that keeps your sample vendors coming back every quarter.
5. Customer Satisfaction is the best indicator of your business’s health (be obsessive about it).
I’ve been lucky to have had a business partner who is insanely customer centric. Jesse, who managed most community relations for each business, would literally send emails on a Sunday night to keep ticket response times under 2 hours. You don’t have to go that extreme, but the idea is there: take care of your customers. Go that extra length to send replacements, apply a coupon, and apologize. They will appreciate you for it, and you’ll see LTV increase as a result. I also recommend using a customer service application to create a finely tuned workflow for your customer service efforts (Zendesk is a great option).
6. Most subscription business can thrive with extremely low overhead. Don’t raise Venture Capital.
Perhaps my biggest regret is that I thought raising capital was necessary. Most of our money went to building technology and these days there’s some great options for subscription commerce businesses. Cratejoy for example, is a platform built just for Subscription Boxes.
If you’ve got a great idea for a new subscription, apply these lessons and you can grow your business to a sustainable few thousand customers, operate at extremely low overhead, and build a great monthly income for yourself.