For many bands who provided products needed on a regular basis, introducing ecommerce subscription models added simplicity to customers’ lives and sustainability for the retailers.
But in 2019, the model that was initially created with simplicity and necessity in mind has taken a whole new shape – and with it comes a whole new buzz. Clothes, cosmetics, snacks, alcohol and jewellery are only a few of the items consumers pay to receive at their door every month. The UK subscription box market has boomed in the last few years:
- 90% of the British population is now subscribed to services
- 11% growth of the UK Subscription market between 2017 and 2018
- UK adult population spends an average of £56 per month on subscription services
- The value of the subscription box market is forecast to grow to £1 billion by 2022
Successful subscription box brands combine convenience with great branding and products to help them grow to become household names. These include Birchbox, Glossybox, Graze, Hello Fresh and Pack Coffee to name but a few. Equally, however, this relatively new business model has given a platform to business ideas that have not fared so well – enter Cheese Postie which shut its digital doors after a meagre three years.
What’s good about the eCommerce Subscription Model?
1. Customers checkout once to buy multiple times
It costs businesses (especially online ones) a lot of time and money to guide consumers through the purchasing journey and get them to actually buy something. And then it takes additional time and money to get them to come back after their first purchase.
The ecommerce subscription model does away with all the faff. Subscription businesses only need to persuade each customer to buy their service once. If the subscribers are happy with the service and value for money, they’ll continue to pay on an ongoing basis. Persuading consumers once is generally a lot easier and more cost effective than persuading them multiple times.
By their nature, subscription box services send customers a similar box every month. This provides a helpful regularity to the business. It also keeps operations relatively simple, which means that once a subscription business is large enough to outsource their operations, they can get better fulfilment rates.
3. A well-trodden path to follow
The beauty of the UK subscription model is that whilst its market is relatively fresh, its US counterpart has a long legacy of success that new UK businesses can learn from.
The British ecommerce subscription model is unique in that regard. Its stakeholders can follow in the footsteps of the people who have been there before and already found good solutions to the common challenges in this business model.
What makes a successful subsection box business?
1. Product/Market fit
Like any business, a subscription business needs to provide something that its target customers want and – most importantly for the UK market – at a price they are willing to pay.
2. Profit Margin
On average, you need to be selling you subscription for significantly more than it costs you. It’s important to find a market that will pay a good price and, ideally, find a way to get your products at reduced prices – or even for free.
Successful subscription businesses gradually build good systems to keep track of subscribers and suppliers and to process orders.
Outstanding subscription businesses ensure their systems are regularly revised and optimised to keep up with growth, consumer demands and market changes. A good fulfilment partner can help you achieve that.
If you’re a subscription box start-up, finding affordable ways to attract new customers should be a priority.
The Key Numbers
These are some of the key number you need to think about when starting a subscription business:
- Revenue per box: how much will you charge your customers?
- Cost of goods sold: how much will each box cost you? This includes all the contents, the box itself and any packing materials, and the time it takes you/staff to source the contents.
- Shipping and Handling Cost: how much will it cost you to prepare each box and ship it to your customers? This includes box-building time, picking and packing time, storage costs and postage.
- Customer acquisition cost: how much will it cost you to get each new paying customer?
- Average subscription length: how long do subscribers stay subscribed?
- Churn rate: percentage of customers that cancel each month
- Customer lifetime value: how much money will you make per customer over an average subscription time?
- Fixed costs: all ‘overhead’ costs of running your business.
Where the UK market is heading
After the initial wave of hype and novelty of the subscription model in the UK, what has remained are business who provide a genuinely useful and cool experience for the customer. Forrester analyst, Lily Varon, warns that once the novelty of subscription as a model wears off, consumes like to be in control of their purchases and the frequency of deliveries. She further notes that same-day and next-day fulfilment is also a threat to subscription businesses hinging on auto-replenishment.
In fact, subscription companies would soon face a tipping point once access to same-day courier services become available to consumer markets. This will mean the subscription market will become less focused on a regular delivery of a product you are loyal to and give customers the option to buy products on-demand.
Looking to grow your subscription business?