How to Price Your Subscription Box Product
After reading our subscription box business starter guide, you may now be ready to dive deeper into the more specific aspects of your business as we promised. Since money is usually at the top of every business agenda, we’ve decided to tackle this one first.
Many seemingly contrary methods of determining prices for products and services of all kinds litter the Internet and tend to create mass confusion among eager entrepreneurs like yourself. Don’t panic. We’ve done our best to keep it simple and at least get you started.
We’re also not going to bore you with stupid formulas about how to come up with your cost of doing business. You’re an adult. Find a friend who’s good at math and add up everything you need to make your specific box business work (cost of products, assembly, shipping, marketing…). It’s going to be vastly different for every business. For the sake of time and sanity, this article will focus specifically on the subscription box industry.
Is Anyone Even Interested in Subscription Boxes?
Judging by this chart from Google Trends, it’s safe to say that there is a current interest in subscription boxes. Maybe these are people looking to buy or maybe these are people wanting to start a business. Either way, subscription boxes have been a hot, trending topic for few years now and it shows no sign of slowing down.
Can You Really Make Enough Money Selling Subscription Boxes?
The simple answer is yes, it’s possible. The profit margin you gain from the subscriptions, minus all of your costs, could be enough for you, depending on how you run your business. However, the money coming in from subscriptions is only one of the many possible streams of revenue for your subscription box company.
Once you have subscribers, you have an audience, you have a list that other companies desire to have access to. They will pay for that access. There are a few ways to leverage this asset. Put simply, you would be selling advertising space and endorsing another company. Don’t take this opportunity lightly. Think about what is good for your customers when selecting other companies to work with or your list will shrink to nothing.
“We’ve now worked with over 200 brands. We also service them in different capacities. Sometimes it’s marketing services, consumer insights and product testing. Sometimes it’s retail distribution services. Sometimes we get venture capital or private equity investment, or we get a strategic player to buy them.” Says Julie Bashkin, founder of health and the wellness subscription program, KlutchClub.
Additional Streams of Revenue
I know, we haven’t even gone over how much the box should cost and were already talking about other streams of income, but there’s a reason. It’s important to know that your subscription box business doesn’t need to entirely depend on the profit margin of selling your box of goodies. This information may help you to make more informed decisions about what you should charge for a subscription to your box.
With so many different industries getting into the box business, it’s difficult to lay out all the different joint venture possibilities that may be available to you. However, you may consider some of the following:
Straight-Up Advertising: It would be easy to include a flyer, an offer, business cards, gift cards and so on. Remember, you have an audience that other businesses want to reach. This method takes almost none of your your box real estate. Consider more premium ad spaces like a sticker on the inside lid of the box that you could charge more mula for.
Product Discovery: Surprise your customers with a new product sample each month. This is like the above advertising but may have more impact for the “advertiser”. This also feels less like an advertisement and more like a bonus to your customers.
Profit Share: Taking the advertising dollars up-front may not always be possible if the advertiser is bootstrapping or just not sure of the ROI. If you feel strongly that their business would have success with your audience, you may consider “advertising” for them with the agreement that you get a cut of all new business generated by the ad. Just make sure to have a solid legal agreement with clear terms and a good way to track the success of the advertising.
Equity: If you come across a very good match, you may consider a longer term agreement by arranging a profit share of the advertiser’s whole company. If you become a stakeholder, it’s up to you to be creative with how you can help them grow. After all, it’s in your best interest directly.
The Broker Model: Imagine not buying any products at all. Instead, your “advertisers” send you samples and actual products that make your box look full and complete and valuable. They pay you and your customers pay you. Sounds like a good deal to me. You will still have the cost of light assembly and shipping among other things... just in case you were starting to think this was a free lunch.
How to Minimize Risk
There’s always risk, be it money or time, but c’mon this is business. One of the reasons that the subscription box business model is so attractive is the minimization of risk. It’s nothing new that subscriptions make for better business cash flow than “one-off” sales. This is the driving factor behind so many software products going from a one-time, high-priced, download to a subscription based, lower-priced (monthly anyway) software as a service (SAS). Subscriptions make more money in the long run. The business has an opportunity to snowball. The new sales this month are added to the people still subscribed from earlier months as opposed to just starting over each month. Subscription businesses can become fairly stable with less effort but this is not what I mean by minimizing risk.
Traditional retail is to buy and then sell but that is a lot of risk. I propose that you sell and then buy only what you need (only what has been sold). Here’s how it works: take orders this month with the idea that the subscription box won’t be shipped until the end of next month. This gives you several weeks to get the boxes together. If your business would need more than a few weeks to get boxes together, no problem, add more time. Simply let the customers know the terms before purchasing. It’s your business. It’s that easy.
Yes, they will wait. That’s one of the beautiful things about a subscription based customer vs. a normal retail customer. If I wanted to buy a new office chair online, there’s no way I’d wait weeks or 2 months for it to arrive. But if I want to subscribe to getting something on a regular basis, I expect there to be a set-up period and I don’t mind.
It’s not wrong to offer immediate gratification. It may be a strength that draws more business your way and separates you from your competitors. Just be aware of the risk and don’t feel pressured to have all that going on. You can always jump from one model to the other when your business has grown.
How Much do Other Subscription Boxes Cost?
Usually between $5 and $100. It’s easy enough to find a subscription box directory like mysubscriptionaddiction.com and filter the results from lowest to highest. You can even narrow it down by category to see what your direct competitors are charging, if you have any.
The cheaper boxes are mostly doing samples and product discovery. The more expensive boxes may be justified by either higher product value or a better overall customer experience. I say, carve your own path. It’s great to see what everyone else is doing but they aren’t you. You have your own costs and, hopefully, your product is unique. There are many ways to create value: from great customer service, to a great unboxing experience, to a customized solution. Why not be the most expensive? Why not ship in a tube instead? Why not make them mail the box back to be reused if you’re focus is “green”? How about sending some of the proceeds to a charity? Value is subjective. Positioning is everything.
I hope we’ve provided you with sufficient food for thought about pricing your subscription box. Don’t go over to Google and confuse the issue any further. Instead, if you have questions, if we’ve left any stone unturned on this topic, let us know via Twitter @TVIinfo. We’re happy to come back here to this article and make revisions. Our goal is to be a resource.
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