The Definitive Guide to Starting a Subscription Box Company

I love exploring new business options and that was the motivation behind the interview series last year with several up-and-coming and established subscription box companies. If you recall, we learned a lot about the business behind the business. It’s taken me awhile to get the final wrap-up together as there were so many aspects I wanted to cover and further research to be done. It’s here today. Here is your definitive guide to starting a subscription box company from necessary personality traits to the easiest way to create that spiffy new website.

Business Basics

Personality Traits – You won’t get far in home business if you are not organized and motivated. Especially in startup phase, you may be handling most business aspects yourself. There is no boss standing over your shoulder to make sure deadlines are met. Your success starts and ends with you. You will need fulfill orders in a timely manner. You’ll need to handle customer service issues as a professional. You also need to be open to “constructive” criticism.

Business Plan – A business plan will help you identify your target audience, where to market your new business, establish your initial investment and determine when you can expect a profit. Though a business plan isn’t necessary with every type of business, it becomes almost essential if you need to deal with outside parties like vendors or funding sources. Business plans are not enjoyable in most cases. They make you answer the hard questions, but that’s a good thing! Regardless of what you may want to think, your target market is not everyone. Your ideal customer is a certain gender, age, income bracket, etc. Nailing it down will help you save valuable marketing time and dollars in the long run.

Register Your Business Entity – Before jumping into any type of business venture it is best to get some expert advice. Though you may not need to establish a business entity, it can help protect your family’s assets from legal or financial liability. It can also be difficult to get funding as a sole proprietor. These are all things your local Small Business Administration (SBA) or online service like CorpNet can assist you with.

Local Licenses and Permits – Most municipalities have some rules when it comes to operating a business out of your home. Or maybe you will be working out of an office space straight away. Either way, check into your local laws for any additional permits or licenses required.

EIN – It’s absolutely necessary that you keep your business and personal money separate. Failing to do so can spell big trouble should the IRS come knocking. In order to open a business banking account, you may be required to show an Employer Identification Number (EIN). This will also help keep your personal identity safe as this is the number you are giving out for business purposes as opposed to your Social Security Number. You can obtain an EIN from the IRS website at no charge.

Banking Accounts – Check around with your local banks for low cost checking accounts. Some may provide free checking other may have minimum balance requirements.

Payment Processing – You will need a way to accept payment from your new online customers. While PayPal is a popular choice, they are not traditionally “merchant-friendly” when it comes to things like refunds. Intuit Quickbooks provides affordable payment processing allowing you to accept credit cards, bank transfers and more. Dwolla is another payment processor on the rise worth checking out.

Will you need funding? As we saw in this interview series, the initial investment required runs the gamut from those using leftover inventory from an existing business (OAAndP) to those with estimates around $10,000 (Unbound). If you need to get money together to start your subscription business, you can get a traditional loan, borrow from family or friends, or look to crowdfunding opportunities like Kickstarter or IndieGoGo.

What Costs Are Involved with Starting a Subscription Box Company?

Cost of Product – Some subscriptions pay for product, others don’t. You are going to have to hustle to get companies giving you product for free. They want a return. They want to know you can provide results. Partnerships can greatly increase your profit margin, but they may be hard to land initially. Get your pitch perfect. Explain why the product is a good fit. Know exactly how many samples you need. Show them the publicity they can expect from your end.

Shipping Costs – Several factors go into shipping prices including weight, size of box and distance the package will be traveling. The same box may have a postage range from $5.50 to over $13. You will need to take these fluctuations into consideration when pricing your box. Cratejoy has a great calculator to get you started. Don’t forget the cost of the actual box and packing materials.

Credit Card Processing Fees – Most payment processors charge around 2.9%

Employees and/or Freelancers – Most of those I interviewed quickly found they could not handle production alone. Especially when it came to boxing and shipping, they needed help. Whether you are hiring a few people to help with shipping once per month or contracting a virtual assistant to handle your marketing, these costs should be taken into consideration as well.

Prelaunch Marketing

Even before you are ready to ship those first boxes, you can start collecting the names and email addresses of those interested in your new subscription box with a landing page. Services like Cratejoy or Subscribely make setting up an ecommerce website in this industry a breeze.

Social Marketing – Pinterest, Facebook and Twitter are the Big 3 when it comes to social media marketing right now. There are also smaller platforms available depending on your chosen industry. A site like Tagboard can help you discover where those most interested in the service you have to offer are hanging out. You can then connect with influencers and start your brand awareness campaign.

Free Pub Opportunities – Many of the interviewees you were introduced to during our interview series were found through HARO, aka HelpAReporter.com. Whether you are a new business owner or established entrepreneur, this is a great way to land free pub. Press releases and guest posting are other ways to get the word out.

Reviews – Bloggers are some of the most highly influential people on the internet. Sending out a few review boxes or exclusive coupon codes can get your business moving. Just be prepared! Starting a wait list is preferable to a bad box experience.

Affiliates – Not even review bloggers can live on free products alone. We make our money through referral fees in most cases. Though you may not be ready for affiliates in the beginning, you can eventually create an affiliate army ready to promote your subscription service in every way possible. Don’t forget to figure those commissions into your pricing structure.

Be Ready for Trial and Error

Your first six months should be used to gather a lot of feedback. Are your priced correctly? Are the reviews good? Should you narrow down your niche?

Need more info? Check out Lori Peter’s How to Start a Subscription Box Company. She also provides consultations.

What is your dream subscription box? What would you feature?