Now is a great time to get on board with subscription eCommerce, but are you ready for it?
If you’ve chosen to adopt a subscription-based eCommerce model, we commend you. The industry is certainly on the rise, with subscription box businesses up 3,000% in the last 3 years. Subscription eCommerce services like Birchbox, The Honest Company, and Dollar Shave Club are all million-dollar companies, paving the way for smaller, but just as ambitious, new contenders. And now is as good a time as any to get started.
Source: The Honest Company
But how do you separate yourself from all the other “gold rushers” looking to get rich quick? Aside from hard work and business savvy, you’re going to need to be prepared. And that’s what this article is about.
We won’t repeat the same benefits of the subscription eCommerce industry that we wrote about in our first article in the series. Give it a read if you want an overview explanation. Here, we’re going to get into practical, hands-on advice for getting your subscription eCommerce model off the ground.
This is our starter checklist of everything you need to do or consider before launch.
1. & 2. Choose Your Industry and Where to Source Your Products
These two basics we covered in our previous article The Ultimate Guide to Getting Started in Subscription eCommerce. They’re both complex topics that require more space to do justice, so we won’t waste too much time repeating ourselves here.
As a review of the main points, we listed some of the most lucrative industries for eCommerce subscription services as:
- Grocery and Food
As for the question about where to source your products, here’s the short answer. Selling your own products requires more startup capital and more time to turn a profit, but allows you reap more of the benefits in the long run. Alternatively, forming a partnership with product sponsors diminishes each individual partner’s initial investment, but also their ultimate returns… though it is a safer route for entrepreneurs inexperienced in subscription-based eCommerce.
One of the best methods of choosing your industry is to isolate a common problem and offer a solution, with an emphasis on what subscription eCommerce can offer that conventional eCommerce and brick-and-mortar stores cannot. Marketing of eCommerce veteran Armando Roggio distinguishes three key areas where subscription eCommerce has the advantage:
- Replenishment — People periodically need products like razors, tampons, makeup, and even food. If a service takes care of replenishing these products at a reliable frequency, it’s a huge convenience for the shopper. Other shopping experiences involve the thrill of buying something new, but replenishing the same product over and over is a hassle the customer would be happy to get rid of.
- Discovery — Part of the magic of subscription boxes and falling in love with a new product or brand you wouldn’t have bought on your own. Subscription boxes appeal to those who enjoy both expert recommendations and surprises. Each package is like a gift you buy yourself, though you don’t know what’s in it. Often, one of the best selling points is that the products are chosen by someone who knows better then the shopper.
- Ongoing Service — Rather than a pay-as-you-go model (which has its own merits) subscription service allows customers to use their service any time they want, as much as they want. Netflix is the perfect example of a subscription service; for a single monthly fee, customers can watch an unlimited number of movies whenever it’s convenient to them.
Roggio recommends first answering what kind of problem your eCommerce subscription service will solve, and then look into what kind of competition you’ll face. This is where niche-targeting comes in handy. For example, there are plenty of generic women’s apparel subscription services, but what about one that targeted Native American jewelry? This type of specialization works well with the subscription model, for reasons we’ll explain below.
3. Identify Your Target Customer
With any business, from subscription eCommerce to selling home-grown vegetables from your truck, it pays off to know your target customer.
- age 25-44
- higher income
- higher education
Fay notes that the same profile also applies to frequent social media users. According to the report, subscription eCommerce sites “help older millennials and Gen X-ers get new stuff they can talk about without exerting much effort.”
Another reason for this age group is that they’re familiar enough with subscription-based models to know how they work, but still enchanted by the novelty of the delivery box iteration. In the words of another senior data analyst John Fetto,
“Consumers who came of age in the digital era are accustomed to subscriptions models for online media (Netflix), music (Spotify), and news (New York Times online), but ironically for them subscribing to something in the physical world is exciting and new.”
That’s not to say that this group is the only group worth targeting. Men, as well, are receptive to subscription eCommerce. In fact, Thomas Rankin reported that, statistically, men are more likely to feel overwhelmed when shopping and appreciate recommendations more than women. On top of that, men on average shop more than women, and prefer shopping online to in-store.
But perhaps one of the most important aspects of eCommerce subscription services is its ability to reach niche markets. Vegan foods, particular fashion styles, even personal items like menstrual products — part of the appeal of subscriptions eCommerce is indulging in specific and unique interests and need that aren’t fulfilled by standard shopping, especially considering the discovery aspects of subscription boxes.
Choosing on your target market and your type of product is a bit of a chicken-and-the-egg conundrum. It’s best to examine and decide on both at the same time.
4. Create Your Value Proposition
You’re not the only one who noticed how effective subscription-based eCommerce is, and competition is fierce. From the outset of your new venture, determine your company’s value proposition.
What problem are you and your products solving for your customers? And, more importantly, why should they choose you over your competitors? You need to be able to answer these questions as soon as possible so you can build your business around your advantages.
Writing for Forbes, Michael Skok outlines 4 steps to creating a workable value proposition:
- Define the problem — Explore every corner of the pain points your customer suffers from, so you can build the most satisfying solution as possible.
- Evaluate your solution — Will you subscription service solve the customer’s problems? For how long?
- Measure potential customer adoption — Analyze the market and make some preliminary predictions to see how viable your plan is.
- Build your value proposition — Skok recommends the following format: For [customers] who are dissatisfied with [pain point], we offer [product and subscription service] that proves [solution] unlike [competitors’ solutions].
Your completed value proposition will then help you build or modify your website, especially what needs to be expressed on the home and landing page to demonstrate your value quickly.
5. Find a Sustainable Pricing Model
According to Jameson Morris, founder of Conscious Box, Escape Monthly, and Yogi Surprise, the biggest reason subscription businesses fail is they don’t build in enough of a profit margin. You can overcome this pitfall by identifying their Cost of Goods Sold (COGS) early on.
A lot of times new subscription companies just copy or base their own pricing model on their competitors, thinking that they already crunched the numbers. But who’s to say the competitors didn’t just copy the model off someone else? Long story short, the companies that don’t do their own math tend to fail.
In addition to COGS, you’ll also want to calculate your Customer Lifetime Value (CLV). This is an estimate of the total amount of net profit you’ll receive from a customer throughout the future. In other words, how long will they be a paying subscriber combined with your monthly fees. For subscription eCommerce, this value is essential; the CLV is the advantage eCommerce subscription services have over traditional eCommerce.
6. Know Precisely How Much Startup Capital You Need
Morris also advises calculating your startup capital as accurately as you can. One of the benefits of the subscription-based eCommerce model is that it can survive on low overhead. Save yourself some hassle later-on by only raising as much as you need. This is more easily accomplished if you’ve already checked off the previous item and know your COGS, CLV, and pricing model.
One consideration to factor in is that you can use preexisting technology to save on development. Subscription eCommerce isn’t as new as it was a few years ago, and today there are plenty of secondary services aimed at helping subscription beginners. In fact, one of the driving forces behind the success of the LemonStand platform is that we’ve already done all the technical legwork, so all you have to do is customize the design and specifications, all for a fee considerably less that designing an eStore from the ground up.
7. Decide on Your Shipping and Fulfillment
If you’re selling a subscription box, both shipping and product fulfillment are enormous factors. Unlike traditional eCommerce, there is more reliability and routine in fulfillment, especially with subscription boxes, where practically the same shipments go out at the same time every month.
The fulfillment downside of subscription boxes is that you have to assemble packages of products from different sources before shipping.
Here’s some factors to consider before finalizing your decision:
- Are your items perishable? Can you buy in bulk and ship them from a warehouse?
- For eCommerce subscription services that offer products from a new company every month, can you have that company ship them directly?
- Do you need a custom package, or will any cardboard box do? Some fulfillment companies (more on them below) can print custom boxes on their site, and monitor when you need to reorder more.
- How important is the presentation of your package? In other words, is an artfully arranged, decorated package part of your service (a la that “gift for myself” spirit)? If so, you may need to spend more on your packaging team. This is known as “kitting,” and it’s often overlooked by traditional eCommerce professionals transitioning into subscription eCommerce. Traditional eCommerce uses the less involved “pick and pack” method. Make sure your fulfillment center has experience in kitting.
Source: POPSUGAR Must Have
In an article on his own blog, Morris gives more of his personal advice in eCommerce subscription services. A common misconception is that handling packaging and shipping yourself will save you money, and assure that its done to your specifications, but that’s not always the case. Often fulfillment centres are the more rational option, saving both time and money, and giving you one less hassle to worry about.
A professional fulfillment centre has more experience in this area than you, especially if you’re new to subscription eCommerce. Don’t be fooled into thinking subscription box businesses start out by packaging everything themselves in their garage (the prototype, maybe…). Moreover, the bigger your company gets, the more help you’ll need. It’s best to start a working relationship early on and grow together.
One thing to watch out for, though, is postage. Fulfillment centres may try to include buying and processing postage in your bill; however, they may not be able to get the best pricing for this. Hold your ground and agree to process your own labels and send them every month.
Don’t take these steps lightly. While we describe them briefly here, each one is a vital component to a successful subscription-based eCommerce company. That means you must give each its due consideration and time before moving on to the next one.
In the next article in our subscription eCommerce series, we’ll cover some of the logistics of planning a monthly subscription service, including budgeting and fulfillment centres, which we touched upon here, but also new topics like acquiring customers.
Is there anything about subscription eCommerce that you’d like us to cover? Do you have any specific questions? Let us know now in the comments below.