3 Different Subscription Business Models (And How to Begin One!)

Convenience is an incredibly important factor for consumers in today's society. That's why it's no surprise that 15% of Americans have signed up for subscription boxes. The popularity of these boxes has only continued to grow since they first emerged in the early 2000s. In fact, experts predict that by 2025, the subscription box industry will reach a staggering $473 billion.

If you're unsure about starting your own subscription box, let me assure you that there is definitely still a market for it. Not only that, but it has the potential to be a highly lucrative business venture.

On the surface, it may seem simple to throw a few items into a box and send them off to customers. However, there's a lot more to it than meets the eye. You need to consider factors such as product sourcing and getting customers to sign up for your box. It can be a complex process to manage all of these elements.

In this article, I will discuss the top three subscription box models and how to successfully run your business using these models. Let's dive into it. The three overarching subscription box models are curation, replenishment, and access.

Which model you choose will depend on the nature of your products and the stage of your business. Throughout this article, you'll gain a better understanding of which model makes the most sense for you. The curation model is the most common type of subscription box. Birchbox is a prime example of a business that uses this model.

If you're not familiar with Birchbox, they curate beauty products from existing brands and package them into personalized boxes for their customers. The goal of curation subscription boxes is to surprise and delight customers by providing them with products tailored to their preferences. To gather information about customers' preferences, you can have them fill out a quiz before signing up. This model also aims to introduce customers to new items they may not have discovered otherwise.

There are numerous benefits to choosing the curation model. Firstly, there is a high profit potential. Customers are willing to pay anywhere from $15 to $100 per month, and these payments can add up quickly. Additionally, offering the discovery of new products can diversify your revenue streams and increase overall profitability. Birchbox, for example, allows customers to purchase products they love directly from their platform, often with a discount.

However, there are risks associated with the curation model. One major risk is high churn. Customers may initially be thrilled with their subscription but eventually lose interest and cancel. Acquiring new customers can be expensive because the average lifetime of each customer tends to be relatively short. Additionally, since subscription boxes often contain non-essential items, they can be affected by economic downturns.

Another challenge with the curation model is the operational complexity. Coordinating with brands to curate your boxes can be a hurdle. Additionally, packaging, branding, and shipping costs are often high for subscription boxes. Despite these challenges, the curation model can be successful in various industries, including beauty, clothing, and food. Even if your business falls outside of these industries, there is still potential for success.

If you have connections within a specific industry, you are already on the right track to sourcing products for your box. Having a niche contact list can greatly expedite the process of marketing your new business and reaching potential customers. Similarly, if you're starting from scratch, the curation model is still a viable option.

Now, if you already have an existing business and want to use a subscription box to support it, the replenishment model may be the right choice for you. This model focuses on convenience and cost savings. Customers automate the purchase of essential items, often at a discount. However, not all products require regular replenishment, so it's important to consider which items make sense for this model. Consumable and convenience items, such as razors, diapers, and pet food, are ideal for the replenishment model.

An example of the replenishment model is Amazon's “subscribe and save” program. Customers receive free shipping and discounts when they sign up for auto-deliveries of essential products like toilet paper. The main advantage of this model is higher customer retention rates. When customers are continuously fulfilling a real need, they are more likely to remain subscribed.

On the other hand, the replenishment model may have thin profit margins. To succeed, you'll need to compete on price and offer generous discounts. Operating at scale becomes crucial as you need to sell a significant number of boxes to make a profit. This model is suitable for existing businesses that want to increase customer retention or for those starting a dropshipping business. Starting with a single item and gradually scaling up is a smart approach.

The third subscription box model is access. With this model, subscribers pay a monthly fee to gain access to lower prices or exclusive membership perks. It's similar to the membership models of stores like Costco or Sam's Club but in subscription box form. JustFab is an example of a brand that utilizes the access model. They offer members discounts on fashionable shoes and purses that mimic high-end styles.

Exclusivity is a major selling point for the access model. You want to entice customers to sign up and stay with your subscription by offering products or discounts that are not available elsewhere. Your marketing should emphasize the idea of exclusivity to attract and retain customers.

However, the access model requires a significant time investment. You need to consistently offer something of value to your members, which may involve updating your product offerings or competing on price. Staying competitive is essential for the longevity of your business.

Now let's explore the three steps you need to take to jumpstart your subscription box business. First, you must settle on a niche or theme for your box. It's beneficial to choose something that genuinely interests you or aligns with your passion. If you are part of your target audience, you have the advantage of understanding the consumer's perspective. However, if you're struggling to come up with a product idea or niche, you can use Google Trends to identify trending industries. This tool can help you capitalize on emerging trends before they become saturated.

When sourcing your products, start with three to five items that fit within your box and are lightweight to minimize shipping costs. Each item should align with your subscription box's niche and appeal to your target audience. Ensuring that your products satisfy a genuine need is crucial. If products don't fulfill a need, they may end up forgotten or unused, leading to customer cancellations. Connect with brands through platforms like LinkedIn, email, or Instagram to introduce yourself, explain the benefits of being featured in your box, and negotiate bulk orders.

The method you choose for packaging and shipping will depend on the scale of your operation. Starting in your living room by having brands ship directly to you can save on warehouse and fulfillment center costs. However, as your business grows, consider outsourcing fulfillment and shipping or hiring part-time help. Packaging and shipping details can be complex, so refer to our dedicated video on e-commerce shipping for beginners.

If you're serious about starting a subscription box business, Shopify is an excellent platform to meet all your needs. Building an online store is fast and easy with Shopify, and you can start with a free 14-day trial. The best part is that no credit card is required for sign-up. Shopify offers powerful features and free apps that simplify running your business. This platform streamlines the complex operational aspects of subscription boxes, allowing you to focus on growth and marketing.

By now, you should have a better understanding of the subscription box model that suits your business and the operational aspects necessary for success. If you found this article helpful, please give it a thumbs up to support the growth of our channel. If you have any questions, leave them in the comment section, and I'll do my best to respond. To access more actionable tips like the ones in this article, make sure to subscribe to our channel, Learn With Shopify. We release a new video each week, providing valuable insights to start, run, and grow successful online businesses. If you're an entrepreneur hungry for knowledge, subscribe now to never miss out.

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Frequently Asked Questions

1. What is the projected size of the subscription box industry by 2025?

The projected size of the subscription box industry by 2025 is $473 billion.

2. What are the three types of subscription box models?

The three types of subscription box models are curation, replenishment, and access.

3. What is the curation business model and how does it work?

The curation business model involves selecting and bundling products from existing brands into personalized packages for customers. The aim is to surprise and delight customers with products they will love.

4. What are the benefits and risks of the curation business model?

The benefits of the curation business model include high profit potential and the promotion of new products. However, the risks include high customer churn, expensive customer acquisition, and operational complexities.

5. Who is the curation business model right for?

The curation business model is suitable for businesses in industries such as beauty, clothing, and food. It is also a good choice for entrepreneurs with niche contacts or those starting from scratch.