How To Start A Subscription Business? Ultimate 2024 Guide

Boopos Editorial Team

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Subscription businesses are not only limited to traditional media like newspapers or magazines. Today, the subscription model is ubiquitous, covering products from beauty items and razor cartridges, to meal kits and aromatic candles. In fact, the market for subscription-based e-commerce products and services is expanding rapidly, with Forbes predicting it will grow to over $904 billion by 2026.

Ahead, we’re sharing practical advice on how to start a subscription business by exploring subscription business ideas, and sharing insights on key aspects such as customer retention, payment systems, and technology implementation.

What is a subscription business?

A subscription business operates through a model where customers pay a recurring price at regular intervals to access a product or service. In contrast to traditional one-off purchases, this model is designed to provide ongoing value through continuous service or product delivery. Subscription businesses can vary widely in their offerings, from digital services like streaming platforms and software applications to physical goods like meal kits and beauty boxes.

Is the subscription business model profitable?

One of the biggest advantages in starting a subscription business is its profitability. Customer acquisition is a significant expense for both retail and service-based businesses. In traditional business models, ensuring a customer's return can be challenging, leading to a constant struggle to increase customer lifetime spend and generate revenue.

A subscription-based model alleviates these issues, creating a predictable, recurring revenue stream that remains as long as customers maintain their subscriptions. Automating regular billing can also enhance efficiency in revenue generation, helping with scaling a subscription business.

5 Key benefits of subscription businesses

In an era where convenience and personalization reign supreme, subscription businesses have carved out a significant niche in the market. Characterized by recurring revenue and customer retention, they offer unique advantages for both entrepreneurs and consumers.

Here’s a closer look at five key benefits that make starting a subscription business a lucrative and strategic move.

1. Predictable and steady revenue stream

As we mentioned earlier, one of the most appealing aspects of a subscription model is the predictable flow of income it generates. Unlike traditional business models, where sales can fluctuate, subscriptions ensure a steady monthly or annual revenue, making financial planning and scaling more manageable. This stability is particularly beneficial for new businesses looking to establish themselves in the market.

2. Enhanced customer relationships

Subscription businesses thrive on long-term customer relationships. By providing ongoing value through regular deliveries or services, these businesses foster a sense of loyalty and engagement. This continuous interaction allows companies to understand their customers' needs better, leading to more personalized services and higher customer satisfaction.

3. Lower customer acquisition costs

Acquiring a new customer can be costly, but the subscription model offsets this by extending the customer lifecycle. With a focus on retaining customers for longer periods, businesses can amortize the cost of acquisition over a more extended time, ultimately reducing the overall cost per customer.

4. Opportunities for upselling and cross-selling

With subscriptions, businesses have ongoing opportunities to introduce new products or services to their existing customer base. This model opens the door for upselling and cross-selling, as customers become more open to trying additional offerings from a brand they trust.

5. Valuable data insights for business growth

Subscriptions provide a wealth of data on customer preferences, buying patterns, and feedback. This data is instrumental in making informed decisions about product development, marketing strategies, and overall business growth. Leveraging these insights can lead to more effective targeting and customization, further driving the success of the business.

Different types of subscription businesses

Subscription businesses primarily fall into two categories: subscription boxes and replenishment models. Both models offer unique approaches to maintain customer engagement and generate recurring revenue in the evolving subscription business landscape.

How to start a subscription box business

Subscription boxes offer a variety of items around a specific theme, introducing an element of surprise. Here are four steps to kickstart your subscription box business:

Build a prototype box: Find a problem and develop a solution by creating a box with relevant products. Conduct user testing and focus groups for feedback.

‍Establish supplier relationships: Identify vendors who align with your box theme and are looking to reach new customers or clear old stock.

Figure out pricing: Calculate costs of goods sold, packaging, rent, payroll, and shipping. Research competitor pricing for market insights.

Develop a marketing strategy: Plan a diverse e-commerce marketing approach using tactics like influencer partnerships, SEO, customer referrals, social media, advertising, and events.

Subscription box businesses in the real world

Popular subscription business examples of this type are Birchbox, FabFitFun, and Mystery Tackle Box. These businesses often have additional revenue streams, such as selling full-size products on their websites or retail outlets.

Here is a brief look into the offerings and business models of these three companies:

Birchbox

Birchbox revolutionized the beauty subscription model by delivering a monthly selection of curated, sample-sized beauty and grooming products. Subscribers receive a variety of items, ranging from skincare and makeup to haircare, tailored to their preferences.

Birchbox's revenue primarily stems from its subscription fees, complemented by selling full-sized versions of the sampled products on its platform. The company further enhances its revenue through partnerships with beauty brands and special edition boxes, often in collaboration with celebrities or other brands.

FabFitFun

FabFitFun offers a seasonal subscription box filled with full-sized premium lifestyle products. It includes beauty, wellness, fashion, and home items, with the unique twist of allowing subscribers to customize some of their box contents.

The company's primary revenue source is its seasonal subscription fees, augmented by a members-only online shop where subscribers can purchase additional products at exclusive discounts. FabFitFun also benefits from revenue through sponsored products and influencer partnerships for box promotions and exclusive product launches.

Mystery Tackle Box

Mystery Tackle Box caters to fishing enthusiasts with a monthly subscription service that provides a surprise selection of fishing lures and tackle. Each box is tailored to different fishing experiences and species.

A monthly subscription fee is the company's main revenue driver, supplemented by sales of individual fishing products and gear on their website. Mystery Tackle Box has also ventured into educational content for anglers, indirectly supporting subscription and product sales by engaging its customer base with valuable insights and tips.

Starting a replenishment model business

On the other hand, replenishment model businesses provide regular shipments of specific products to ensure customers never run out. To start a replenishment-based subscription service, consider these steps:

Figure out your product mix: Identify your niche and refine your products. Crafting a business plan to guide you here is also a key consideration in how to set up a subscription service under a replenishment model.

Set prices: Establish a fixed cost or charge an annual membership fee offering discounts for regular purchases.

Manage inventory: Invest in an inventory management system that updates automatically across all sales channels.

Handle shipping and fulfillment: Design or purchase packaging that is both safe and representative of your brand. Set up a warehouse for storage and fulfillment.

Replenishment model businesses in the real world

When thinking about subscription business examples of this type, companies like Quip, Dollar Shave Club, or StitchFix come to mind. These businesses have carved out niches by regularly delivering essential products their customers use on a consistent basis.

Here is a brief look into the offerings and business models of these three companies:

Quip

Quip has modernized oral healthcare by providing an electric toothbrush subscription service. Customers receive a sleekly designed electric toothbrush, with subsequent deliveries of brush heads and batteries on a regular schedule.

Quip's revenue is primarily generated through its subscription service, but it also expands its earnings through sales of additional dental products like toothpaste and floss. This approach ensures customer retention and routine product use, solidifying Quip’s place in daily oral care routines.

Dollar Shave Club

Dollar Shave Club disrupted the men's grooming market with its subscription-based razor delivery service. Subscribers receive regular shipments of razors and other grooming products, tailored to their personal preferences and shaving frequency.

The company's revenue is largely based on subscription fees, complemented by the sale of additional grooming products like shaving creams and skincare items. Dollar Shave Club also engages in advertising and partnerships, enhancing its brand visibility and revenue streams.

Blue Bottle Coffee

Blue Bottle Coffee delivers freshly roasted, high-quality coffee beans directly to customers. Subscribers can customize their orders based on coffee preference, grind size, and delivery frequency, ensuring a tailored coffee experience every time.

Aside from its subscription service, Blue Bottle also generates revenue with sales from its physical cafes and an online store offering coffee equipment and accessories. This diverse approach to business solidifies its position in a saturated market while also driving customer retention and loyalty.

Recommended: Subscription Business Models: What are they?

How to set up a subscription service: Where to sell

Deciding whether to sell your subscription services online or in-store is crucial as you start a subscription business. We recommend a hybrid system that combines the benefits of both digital and retail experiences.

Online selling promotes lean operations, reducing the need for retail staff and the cost of rent. Physical storefronts allow you to attract foot traffic and provide in-person demonstrations of your products. A hybrid model combines the marketing advantages of a physical store and the reach of an online platform, creating a powerful business model.

Maintaining customer loyalty and preventing churn

It’s not just about starting a subscription business - you need to sustain its success, too. To encourage long-term subscription after initial discounted periods, consider these tactics:

Reward customers for referrals to attract new subscribers.
Collect feedback to understand customer preferences and improve offerings.
Offer collectibles or unique packaging with each shipment.
Prioritize sustainable practices, as 78% of US consumers say sustainability is an important part of their lifestyle, and 60% say they’d pay more for a product with eco-friendly packaging.

Related: Subscription Pricing Models

How to make the subscription business model work for you: 7 Tips

The subscription business model has become a popular strategy for entrepreneurs for a reason. It generates consistent revenue while meeting customer demands for convenience and personalization.

But that doesn’t mean it’s easy to execute. Here are seven actionable tips to help make this model work effectively for your business:

1. Understand your market

Begin with thorough market research to understand your target audience's needs and preferences. This information is critical in tailoring your subscription service to their desires, increasing the likelihood of success.

2. Offer customization and flexibility

Allow subscribers to personalize their subscription experience. This could mean letting them choose the products in their box, select delivery frequency, or easily modify their subscription preferences. Flexibility in subscriptions can lead to higher satisfaction and lower churn rates.

3. Focus on quality and value

Ensure that your products or services consistently deliver value and quality. Subscribers are more likely to continue their membership if they believe they are getting their money's worth.

4. Leverage technology for efficiency

Utilize technology to streamline your operations. Automated billing, customer relationship management systems, and data analytics tools can enhance efficiency and provide valuable insights into customer behavior and preferences.

5. Invest in customer service

Excellent customer service is crucial for subscription businesses. Quick and helpful responses to inquiries and concerns can significantly improve customer satisfaction and loyalty.

6. Engage with subscribers regularly

Regular engagement helps keep your brand at the forefront of customers' minds. Use email newsletters, social media, and personalized communication to keep subscribers informed and interested in your offerings.

7. Continuously monitor and adapt

The subscription market is dynamic, so it's essential to continuously monitor your business's performance and adapt as necessary. Pay attention to metrics like churn rate, customer acquisition cost, and average revenue per user to understand your business's health and areas for improvement.

Scaling a subscription business

Recurring revenue is the defining trait of a sustainable subscription-based business model, making it attractive for entrepreneurs - and investors. Whether you're interested in starting a subscription box service or a replenishment model business, consider adopting a hybrid approach. When you start a subscription business with both an online store and a physical storefront, you can maximize marketing opportunities and operational efficiency.

Finally, to secure funding for your subscription business, consider platforms like Boopos. Our experts can guide you through a smooth acquisition process.

With a strong business plan and the right financial backing, your subscription business can ride the wave of this rapidly expanding market. Along with these tips for how to start a subscription business, it’s time to take your idea to new heights of success.

Contact our M&A advisors