How to Make a Subscription Box Business ProfitableDec 06, 2020
Many people wonder- if your subscription box items are such a good value for the customer, how do you make it profitable?
There are several ways to make a subscription box profitable.
Buying In Bulk (products and packaging)
- Whether you are buying wholesale, sourcing, or manufacturing items, there are considerable cost savings when you start buying items by hundreds or thousands of pieces.
- By buying wholesale, you can negotiate discounts based on the quantity of items or dollars spent. These are called volume discounts.
- With sourcing and manufacturing, there is a MOQ (minimum order quantity) for each item. Each tier up from the MOQ gets you significant discounts per piece.
Set a Product Budget
Setting a product budget was hard for me to do in the beginning. I would continually add "just one more item" to the box to make it extra special for my subscribers...until I realized one month, I was packing and shipping all of them for free....yes, free. I had gone so far over my budget, I basically did all the work just to cover my costs. Never again. I wasn't working this hard to do it all for free.
Once I created an average product cost budget, it became a black or white issue. I either had extra money to add something else, or I didn't—no more gray area. I do still catch myself wanting to add more... but I don't. I know the rules!
Increasing the perceived value
Increasing the perceived value of the box doesn't mean you have to spend a lot more money. In fact, it means spending very little and adding way more value.
You can add perceived value in so many ways, from simple packaging of your contents to adding printed items. Check out how LYB member, Jenny, increases her box perceived value for some ideas!
Calculating Correct Shipping Costs
Getting your shipping costs correct is a must. It can literally make or break your bottom line if you don't calculate this correctly.
No matter if you offer "free shipping" or charge for it separately, the best way to calculate the shipping cost is to create a mock-up box. With the box's size and weight, test different zip codes on your shipping carrier's website. Average those out to get the best estimate of your shipping costs.
Counting All The Costs
We've discussed product costs, we've discussed shipping costs, but have you considered the cost of your packaging, labels, inserts, or any "extra" you need to curate the box—all costs matter. You must figure these into our overall costs to ensure we are creating a profitable subscription box.
Determine Your Price
Setting your box price is the most important part. If you price too low, you run the risk of low-profit margins and low perceived value.
For example, would you buy a $10 hairdryer or a $40 hairdryer? I'd buy the $40 one every time because my perception is that the $10 hairdryer is cheap and wouldn't dry my hair very well. You need to think about the quality of your box the same way.
If you price too high, you run the risk of being overpriced and not selling.
When setting your price, profit margin plays a big role and can help you determine the right price for your biz.
But, what is a good profit margin for a subscription box?!?
I can tell you profit margins range from 5% to 90%.
It's evident that you will start with a lower profit margin than you will have when you begin to scale. Just like we mentioned above, once you are buying in bulk and able to negotiate your prices, costs will go down, and profits will go up.
My recommended profit margin for any subscription box owner is 30%-70% depending on your niche.
You might be thinking, only 30%?!? Why?
You've got to create a no-brainer offer, but what you are also creating is recurring revenue that you can count on every single month.
You don't have to chase the sale over and over again. You already have it.
Another way to look at that 30% is to think about the labor costs of packing 100 different orders. Then think about the labor costs of packing 100 of the exact same orders. You are saving a ton of time when you have a subscription box and can streamline the fulfillment side of the business.
Never start your box for less than 30% profit. If you can, push that closer to 50-60% profit... that's ultimately where you want you to be.
Knowing your numbers is an essential part of being a successful subscription box owner. I have created a Subscription Box Budget Excel Spreadsheet for you to download and keep track of your profit margins! Set yourself up for success, not failure.
When people ask if a subscription box business is profitable, I say heck ya! Set your budgets, know your numbers, and remember, the revenue hits your bank account every month. It's amazing!
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