The subscription box business model describes any business sending paying subscribers a box of products regularly. Boxes are usually sent monthly, but can also be sent quarterly, half-yearly, or yearly. This model has gained popularity starting in the 2010s to reshape the customer value chain, giving consumers more options and less friction. Examples comprise Dollar Shave Club, BirchBox or BoxyCharm, and many more.
Revenue Source
Description
Advantages
Drawbacks
Examples
Subscription Fees
Customers pay a recurring subscription fee (monthly, quarterly, or annually) to receive curated products or experiences regularly, typically delivered to their doorstep.
– Predictable and recurring revenue stream – Builds a loyal customer base – Opportunities for upselling and cross-selling to existing subscribers
– Need to continually provide value to retain subscribers – Customer churn if expectations aren’t met – Competition with other subscription box services for subscribers’ attention
Birchbox, FabFitFun, Blue Apron, BarkBox
Customization Fees
Some subscription boxes offer customization options, allowing customers to tailor their box’s contents to their preferences for an additional fee. Customers pay extra for personalized selections.
– Additional revenue source beyond subscription fees – Enhanced customer satisfaction through personalization – Encourages customers to engage more with the brand
– Complexity in managing customization options – Ensuring an efficient and user-friendly customization process – Balancing customization costs with customer willingness to pay
Ipsy, Stitch Fix, HelloFresh, Kidbox
One-Time Purchases
Many subscription box services offer one-time purchase options for their boxes, allowing non-subscribers to buy individual boxes without committing to a subscription.
– Attracts non-subscribers and first-time buyers – Additional revenue source outside of subscriptions – Provides flexibility for customers who don’t want a recurring commitment
– May compete with the subscription model – Managing inventory and supply for one-time purchases – Ensuring one-time buyers have a positive experience and may convert to subscribers
Bespoke Post, GlobeIn, Loot Crate, Book of the Month
Add-On Products
Subscription box companies may offer add-on products or merchandise that subscribers can purchase alongside their regular subscription. These can include exclusive or limited-edition items.
– Increases average order value (AOV) – Encourages subscribers to explore additional offerings – May create a sense of exclusivity or urgency around certain products
– Balancing the presentation of add-on products to avoid overwhelming subscribers – Ensuring add-on products align with the brand and subscriber preferences – Avoiding excessive upselling that may deter subscribers
Glossybox, Bespoke Post, Causebox, Gentleman’s Box
Partnerships and Sponsors
Subscription box services may collaborate with brands and sponsors to include their products or promotions in their boxes. Brands pay for placement or exposure to a targeted audience.
– Generates additional revenue from brand partnerships – Offers subscribers exposure to new products and brands – May result in exclusive items or discounts for subscribers
– Maintaining the integrity of the box’s curation while including sponsored items – Ensuring sponsored products align with the target audience’s interests – Managing partnerships and negotiating terms effectively
FabFitFun, Breo Box, Cairn, CultureFly
Limited-Edition Boxes
Subscription box companies create limited-edition boxes centered around specific themes, collaborations, or events. These boxes often come at a premium price and may attract collectors or enthusiasts.
– Drives excitement and anticipation among subscribers – Commands premium pricing for exclusive or rare items – Offers opportunities for themed marketing and collaborations
– Balancing the frequency of limited-edition releases to maintain exclusivity – Managing inventory for limited-edition items – Ensuring transparency and value for customers paying a premium price
Loot Crate, Pusheen Box, Bespoke Post, Birchbox Limited Edition
Affiliate Commissions
Subscription box services can earn affiliate commissions by promoting and recommending products or services to their subscribers. When subscribers make purchases through these recommendations, the service earns a commission.
– Additional revenue stream from affiliate partnerships – Offers subscribers access to products and services they may find valuable – Encourages collaboration with brands and enhances the subscriber experience
– Ensuring transparency and authenticity in affiliate recommendations – Balancing affiliate promotions with the subscriber’s interests and needs – Managing affiliate relationships and tracking commissions effectively
FabFitFun, Birchbox, Ipsy, Cairn
Dollar Shave Club is an American online subscription service delivering razor blades and grooming products monthly. The Dollar Shave Club business model flipped upside down the “razor and blade” model popularized by Gillette. In short, where Gillette sold its razors at cost while making fat margins on its blades, Dollar Shave Club offered a subscriptionmodel to cut off the costs and friction to get new blades and grooming products with a curated package. BoxyCharm recognized that there was a gap in the popular beauty subscription box market. Most companies were shipping boxes with sample-sized products that were not on trend or seasonally appropriate. As a proponent of the subscription box business model, BoxyCharm makes money via subscription revenue.
The subscription box business model is nothing new, with many brick-and-mortar businesses having used the system for decades. Wineries are perhaps the most obvious example, regularly shipping wine to members of clubs or loyalty programs.
Having said that, the internet has caused renewed interest in the model and lead to proliferation in its adoption by eCommerce businesses. Some of the companies responsible for starting this trend include Graze and Birchbox, delivering regular boxes of healthy snacks and beauty samples respectively. Dollar Shave Club is another business that has used the model with great success, sending men tailored shaving and face care products.
What’s more, there now exist companies such as Subbly and Cratejoy that offer dedicated, subscription-based commerce platforms for other entrepreneurs and start-ups.
Why is the subscription box business model growing?
What are some of the reasons for the popularity of subscription box business models?
A few are outlined below:
Convenience – likely the biggest and most obvious contributing factor to the popularity of subscription boxes. If consumers do not need to leave their homes to purchase goods, they won’t. Some subscriptions, such as meal boxes or shaving kits, also offer additional convenience because they allow consumers to purchase multiple and complementary items in just a single purchase.
Brand loyalty – for merchants, subscription boxes offer reliable, recurrent revenue streams. This is seen as an effective way to build brand loyalty since consumers are less likely to cancel their subscriptions once they have been persuaded to sign up.
Repeatability – much of the popularity of this business model can simply be attributed to the ease with which it can be copied by other businesses.
Simplicity and scalability – the subscription box model by its very nature is relatively simple. The business only has to worry about making a fixed amount of deliveries per year, allowing it to solve other problems during interim periods. This is particularly useful for new businesses whose scalability and growth depend on addressing issues as they arise.
Key takeaways:
The subscription box business model describes any business that sends boxed goods to paying customers regularly.
The model itself is nothing revolutionary, but it has since widespread adoption thanks to the proliferation of eCommerce and associated businesses.
Research suggests the subscription box business model is responsible for at least 15% of all goods sold in an economy. What’s more, more than 50% of consumers are members of a subscription box service – with most motivated by convenience. For merchants, the model increases brand loyalty and is a simple yet scalable means of growth for entrepreneurs and start-ups alike.
Key Highlights:
Subscription Box Model: The subscription box business model involves sending paying subscribers a box of products regularly, typically on a monthly basis, but it can also be quarterly, half-yearly, or yearly.
Popular Examples: Dollar Shave Club, BirchBox, and BoxyCharm are well-known examples of companies that have successfully adopted the subscription box model.
Dollar Shave Club: This American online subscription service disrupted the traditional razor market by offering a subscription model for razor blades and grooming products, providing convenience and cost savings to customers.
BoxyCharm: Recognizing a gap in the beauty subscription box market, BoxyCharm stands out by providing full-sized and trendy beauty products to its subscribers, generating revenue through subscription fees.
Resurgence with the Internet: While the subscription box model is not entirely new, the internet has revitalized its popularity, leading to widespread adoption by eCommerce businesses.
Platform Solutions: Companies like Subbly and Cratejoy offer dedicated platforms that facilitate subscription-based commerce for entrepreneurs and start-ups.
Reasons for Popularity: The subscription box model’s popularity is driven by several factors, including convenience, brand loyalty, simplicity, and scalability.
Convenience: Subscribers enjoy the convenience of receiving regular deliveries without leaving their homes, and some boxes offer the ease of purchasing multiple items in a single order.
Brand Loyalty: For businesses, subscription boxes create reliable, recurrent revenue streams, leading to increased brand loyalty from customers.
Simplicity and Scalability: The model’s relative simplicity and ease of replication make it an attractive option for entrepreneurs and start-ups seeking scalable business models.
Impact on the Economy: Research indicates that the subscription box model accounts for a significant portion of goods sold in the economy.
Consumer Adoption: More than half of consumers are members of a subscription box service, showcasing the widespread acceptance and appeal of this business model.
Subscription-based business models are built on a recurring customer base, where customers usually have access to the product or service rather than their own. The customer can have the upside of the service without owning the good underlying it, which is maintained by the company running the subscription-based business.
Ipsy is a monthly subscription service for cosmetic and beauty products founded in 2011 by Michelle Phan, Marcelo Camberos, and Jennifer Goldfarb. Phan used her large YouTube following to launch and grow the platform. Ipsy makes money by charging customers monthly for beauty subscription boxes. Various subscription plans are available depending on the beauty product size and customization level. Ipsy also operates an eCommerce store selling branded and in-house beauty products. The company also sells product placement spots to brands eager to receive highly targeted exposure.
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 each time are sent to its subscribers, enabling them to discover new cosmetic products while reducing the friction and cost of discovery for new products.
FabFitFun is an online subscription box service sending electronics, cosmetics, fitness, wellness, and fashion items every quarter. Founded in 2010, it started as a simple website, and as it gained popularity, thus following later on a similar subscription-based model to Birchbox. It now generates revenues through membership services and brand sponsorships.
Dollar Shave Club is an American online subscription service delivering razor blades and grooming products monthly. The Dollar Shave Club business model flipped upside down the “razor and blade” model popularized by Gillette. In short, where Gillette sold its razors at cost while making fat margins on its blades, Dollar Shave Club offered a subscription model to cut off the costs and friction of getting new blades and grooming products with a curated package.
BoxyCharm recognized a gap in the popular beauty subscription box market. Most companies were shipping boxes with sample-sized products that were not on trend or seasonally appropriate. As a proponent of the subscription box business model, BoxyCharm makes money via subscription revenue.
The razor blade business model, also known as the razor-razorblade model, involves selling a product at a lower price to sell a related product later for a profit. The razor and blade business model was popularized by King C. Gillette, founder of the safety razor company Gillette, which sold a durable razor at cost while selling disposable blades at a premium.
HelloFresh is a German provider of meal kits founded by Dominik Richter, Thomas Griesel, and Jessica Schultz (née Nilsson) in 2011. HelloFresh has a relatively simple revenue generation model. The company makes money by charging users a weekly subscription fee for meal deliveries.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
