Subscription box business model - right for you?

While the demand for online shopping grew throughout the 2010s, the pandemic accelerated this growth. With online shopping comes an added demand for subscription services, a considerable area for growth. According to Whistl research, the value of the subscription market grew from £332m in 2020 to £395m in 2021, an 18.9% year-on-year increase. It’s estimated that this will increase to £1.8b by 2025.

As a result of this growth, it’s only natural for UK businesses to wonder if the subscription box model might be right for them. In this guide, we’ll discuss the possibilities and cover how to start a subscription box business of your own.

What is a subscription box business model?

First things first: what is a subscription business model? With this type of pricing model, a business charges recurring payments to its customers in exchange for regular delivery of boxed goods or services. These can be sent out at any interval, whether they’re weekly, fortnightly, or monthly. Some are offered with a rolling month-to-month contract, while others have a longer commitment. To maximise recurring revenue, subscription services must bank on their customers renewing services over time.

How to start a subscription box business that’s right for you

If you’re interested in building a subscription box business, here are a few initial steps to follow. The process begins by choosing a great idea. Think about how you’ll provide value to the customer and how your product fits into the market. Who are your competitors? What unmet needs do your customers have? Once you’ve defined your USP, you can then follow these steps.

1. Calculate your base costs.

You need to price your product competitively, so this step must begin with plenty of market research. What are your competitors charging? If your subscription box rates are too high, you’ll struggle to get beyond launch. At the same time, you need to cover minimum costs and earn sufficient profit for growth. Typical costs include transaction fees, packaging materials, the product materials, the box itself, and any shipping or fulfilment costs.

2. Choose a pricing method.

In addition to base cost, you also need to determine how to charge your customers. One option is the freemium model, where customers get limited access to your products or services at no charge. If they want to upgrade, they’ll then pay a fee. This is better suited to SaaS or service-based subscriptions. For subscription boxes, more companies opt for tiered pricing where customers can select from several different levels of service at correspondingly low or high prices.

3. Focus on customer satisfaction.

Building a subscription box business involves far more than well-planned pricing models. You’ll also need to keep your customer happy with unique products and a high level of innovation. Customers want to be surprised and delighted each month. Throw in fresh content, the occasional freebie, and make sure the billing and payments process is easy to navigate.

Subscription box business model examples

You’re probably already familiar with some successful businesses using this model. Here are a few examples for illustrative purposes.

• HelloFresh is a meal kit delivery service offering fresh ingredients and recipe cards to time-strapped home cooks. It charges a base subscription price while giving customers the option to upgrade each week with unique items and add-ons.

• Bloom and Wild applies the subscription business model to floral deliveries. Customers can brighten their homes with a professional arranged floral bouquet each month, making this a popular option for holiday gifting.

• Stitch Fix offers an example of the subscription business model applied to retail clothing. This personal styling service applies high-tech algorithms to provide personalised outfits to its customers. They can try on each month’s clothing and return what doesn’t fit or suit their style.

What the future holds

With online shopping and home delivery services showing no sign of a slowdown, there’s never been a better time to try a business model for subscription boxes. Current trends include an emphasis on maximum convenience.

Today’s consumers are already accustomed to receiving home deliveries, so you need to make sure deliveries are smoother than ever. One way to accommodate this trend is with letterbox deliveries. For example, Bloom and Wild manages to fit its arrangements into a flat, letterbox-ready package. Wine subscriptions are following suit with unique flattened bottles that don’t require anyone to be home for delivery. As the industry continues to grow, we’ll see new innovations to make subscriptions even more successful.

How can GoCardless help with a subscription box business?

If you’re thinking of building a subscription box business, GoCardless can help streamline the payments process. Take recurring subscription payments directly from customer bank accounts, reducing the chance of late or failed payments. While card payments are costly and prone to failure, GoCardless uses direct debit to cut unnecessary expenses. It also collects an average of 97.3% of automated payments on the first try, with Success+ to automatically retry any that fail. Customers only need to sign up with their details once to enjoy convenient, automated payments.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.