birchbox-business-model

How Does Birchbox Make Money? The Birchbox Business Model In A Nutshell

Birchbox is an online American monthly subscription service for skincare, perfume, and other cosmetic items. Birchbox was among the first players to start leveraging a subscription-based model to reshape how value is delivered to customers. Instead of a one-off purchase, Birchbox curates a set of samples that are sent to its subscribers, enabling them to discover new cosmetic products while reducing the friction and cost of discovery for new products.

Origin Story

Birchbox is an online American monthly subscription service for skincare, perfume, and other cosmetic items.

The company was founded in 2010 by Harvard Business School graduates Katia Beauchamp and Hayley Barna as a way to simplify the world of beauty and grooming. Indeed, Beauchamp and Barna noted how easy it was for women to become confused given the variety of beauty products on the market.

Birchbox initially experienced a period of rapid growth and become a market disruptor. However, the co-founders had difficulty convincing established beauty brands to work with them. Venture funding was also hard to access because the industry was dominated by men who had little understanding of a beauty service for women.

To get the ball rolling, Birchbox secured $100,000 from friends and family in 2010. Later that same year, a website was launched and further seed capital of $1.4 million was announced. By April 2012, the platform had amassed 100,000 subscribers. Buoyed by their success, Beauchamp and Barna introduced a similar product for men.

After the increased competition in the subscription box space, the company pivoted away from opening physical stores and instead placed its products in partner locations such as Walgreens. By 2019, the company passed 1 million active subscribers and 500 brand partnerships.

Birchbox revenue generation

Birchbox is primarily a subscription box business, but it does generate revenue in other ways.

Let’s take a look at each stream in more detail below.

Subscription plans

When a customer signs up to a Birchbox plan, they receive a small selection of five handpicked deluxe product samples each month. These products are curated for each customer based on their beauty profile.

Pricing is therefore dependent on how many months the customer wants to commit to:

  1. Monthly plan ($15/month) – for a commitment of one month.
  2. 3-month plan ($15/month) – for a commitment of three months, billed monthly.
  3. 6-month plan ($14/month) – for a half-year commitment.
  4. 12-month plan ($13/month) – for a yearly commitment. Customers who wish to prepay for a year will receive a 40% discount on the total price.

eCommerce sales

If a customer wants to purchase the full-size version of a sample from their subscription box, they can do so on the Birchbox eCommerce platform.

eCommerce sales comprise much of the company’s profits since the company sells subscription boxes at or near cost price. As a result, margins on some of the full-size products can be higher than 100%.

The company also collects revenue when its products are sold in Walgreens stores, though the specifics of that agreement are undisclosed.

Advertising packages

Birchbox makes money from advertising, but not in the traditional sense. Here, some brands essentially advertise their products by allowing them to be included in subscription boxes. Birchbox has also partnered with some brands to design custom boxes – ostensibly to delight customers but also to generate brand awareness.

Again, the nature of these agreements is unclear. Birchbox may be able to purchase sample products at a more competitive price in exchange for advertising services. Interested brands may also pay the company a fee to gain increased exposure.

Key takeaways

  • Birchbox is an American subscription box service for cosmetic and other related items. It was founded to reduce the confusion women experienced from the bewildering variety of beauty products for sale.
  • Birchbox generates revenue from sending a curated box of beauty samples to customers monthly. Subscription fees are reliant on how many months the customer is prepared to commit to.
  • Birchbox earns a significant proportion of its income from the full-size products in its eCommerce store, with some having profit margins exceeding 100%. The company also earns money through advertising and the sale of consumer buying data.

Read Next: Subscription Business Model.

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