When executed correctly, a subscription box business can become a great source of monthly income or even your new full time job. Here are my top 5 favorite reasons for launching a subscription (box) business.
1. You can fund your business with revenue from pre-sales.
That’s right, you don’t have to go into debt to launch a subscription business. Traditionally, ‘monthly box’ style subscription businesses ship once a month. Usually you have all your memberships re-bill about a month before you ship, giving you the cash you need to fulfill those orders. If you’re just starting out, I recommend setting up a pre-launch landing page using a service like Launchrock or Cratejoy (which is also a subscription business platform) to collect e-mails and build some hype around your impending launch. Once you go live, you’ll be able to tap into that list and come out of the gate with at least a few hundred or so paid memberships. If you’ve built in a good profit margin, you’ll have all the revenue you need to fund your business. I ran a pre-launch phase with Yogi Surprise and gained 750 members my first month.
2. Recurring revenue equals predictable cash flow.
One of my favorite aspects of subscription business is that your cash flow is very predictable. Once you’ve been in business for at least a month you’ll have a good idea of your customer retention rate. With this number you can predict exactly how much cash you’ll have in the bank a month from now. Decide you want to go on vacation for a month? You can drop all marketing efforts and you’ll still have revenue month after month. You can grow the business at your own pace and never have to worry about bankruptcy.
3. You can justify higher COCA’s.
If you’ve created a decent subscription box and you put out a quality product every month, you can expect to see between 10-12 month average lifetime values. Although it’s nice to do marketing spends that breakeven in ‘month one’ of your customer’s life-cycle, if you have a 10-12 month LTV you can justify a much higher customer acquisition cost than most businesses could ever dream of. If you make $15 a box/month profit, I would say you could comfortably spend $60 on a customer acquisition (4 months to breakeven). Make sure you know what your actual LOV is before determining this.
4. You can keep overhead low and maximize profit.
You don’t need an office, you don’t need a warehouse and you don’t need expensive contractors! All you need is yourself and maybe a couple sharp friends (and a city full of coffee shops you can hop between). Things like fulfillment can and should be outsourced. The only part of your business that will ever really scale to an unmanageable level is customer service. About 2,000 members is the threshold where you’ll most likely want to stop doing it by yourself and possibly hire someone part time.
5. It’s easier now more than ever before.
Back when I launched Conscious Box in 2011 there weren’t any software options available for running a subscription business that ships physical products. Now there are services available that have been built from the ground up specifically designed for managing a subscription box business. Cratejoy is a good example of an all in one platform for building a new subscription business.