This will make everything so much easier for you...

On this week's episode of Subscription Box Answers, I follow up on last week’s discussion. I personally believe anybody can create a successful subscription box, and there is so much opportunity out there. There are some smart decisions you can make, though, which will make everything much easier and drastically increase your chances of success.

In this week's episode, I share some very valuable information that you really need to consider when it comes to your business. If you are new, you might not be aware of some of this, and it could take you a while to figure it out. I am going to save you all that time and hassle by sharing some really important stuff now, so you can make the right choices and significantly improve your chances of success.

If you have a question you want answered on the show, make sure you head over to www.SubscriptionBoxResources.com, join the free Facebook group, and post your question there.

Transcript

Speaker 1: 0:01

Welcome to Subscription Box Answers with your host, liam Brennan. You're no rubbish, no crap. Straight to the point podcast with real, actionable tips, real strategies and insights from the industry which will help you start and grow your own successful subscription box business. You ask the questions, you ask the questions, you ask the questions. Liam gives the answers. It's as simple as that.

Speaker 2: 0:36

Welcome back to a brand new episode of Subscription Box Answers. As always, I hope you're having a really great day Now. On last week's episode, I discussed the characteristics that I believe you need to have if you want to grow a successful subscription box business. I also made it clear that I personally believe pretty much anybody can grow a really successful subscription box, and there are a few different reasons why I believe that. Mainly because the barriers of entry are pretty low and you also don't need a lot of money to start a subscription box business. So pretty much everybody has a level playing field from the start and if you get it right, you really can build a great business that will pay you a great salary and give you and your family plenty of freedom. I do believe that goal is attainable for pretty much anybody, but there are still some things you need to be aware of to put the odds in your favor, and the reason why I'm recording this episode is because, after last week, I had a number of people reaching out to me saying, yeah, that was helpful, but they want me to dig a bit deeper and they want me to talk about some things you need to be aware of when it comes to a subscription box business and some things you need to do, aka picking the right niche and some other stuff which will help put the odds heavily in your favor so you can actually build something successful. So, on this episode just going to cover a few things that all subscription box owners should be aware of, and especially the new people who are only starting their journey and and if you're aware of these things, you've a much greater probability of building something which works out great for you.

Speaker 2: 2:54

Okay, let's get into it. Number one this may seem really obvious, but I need to cover it anyway because it's so important. If you want to have a successful business, you have to have a great product. Marketing skill will not save a poor product. Yeah, if you're a really good marketer, you may be able to get some initial traction, but it will all unravel really fast. Your churn will be really high, you'll get bad reviews, word will get out that you're sending out a terrible product and people will stop signing up. Having a great subscription box is an obvious requirement. Your customers need to know they're getting good value for money and be genuinely excited about receiving your box every month. That just goes without saying.

Speaker 2: 3:49

Now there have been a couple of times over the years where I have come across some companies that have ended up failing because the subscription boxes they were sending out weren't good enough and the customers just weren't happy with them. There is one particular company that stands out in my head and the person who was running the company was a experienced internet marketer and they knew how to acquire customers, but the churn rate was absolutely terrible and they were getting flooded with bad reviews. And they reached out to me and they were like I'm really struggling. I never realized it would be so difficult. This business model is a lot harder than I thought and I'm really struggling to keep my customers happy and scaling the company up. Do you have any advice? And I took a look at some of the boxes the customers were receiving and I was like you have to improve that. That's why you're struggling. You're sending out products that look like they're sourced from the dollar store and the unboxing experience is absolutely terrible. Nobody's going to have any kind of anticipation about receiving that box every month.

Speaker 2: 5:06

Now there are a few things you can do to help improve your product and create an amazing experience for your customers, and I'll explain what those things are and what we actually do in BusterBox. The first thing is right you're never going to find pound shop products or dollar store products in one of our boxes. It's just never going to happen. That is by far the quickest way of breaking the trust with your customer and potentially getting a bad review and sending your churn through the roof. If customers sign up to your box and they feel as if you're ripping them off with these type of products, it's just not going to work out well for you. So we are really really picky about the type of products that go in our box and we're nearly at the stage now where all of the products in our box are our own brand. They're our own brand BusterBox treats. They're our own brand BusterBox toys. They're really good quality and they have a high perceived value. Now I know when you're starting out. It obviously isn't possible to have all your own brand stuff, and that's completely fine. We are the exact same ourselves. But all I say is just be mindful of the type of products you're putting in your box.

Speaker 2: 6:35

The next point try to use themes as much as possible. It really helps increase the perceived value of your box and get your customers excited about opening it every month. I'll explain why. We obviously send out a box of healthy treats and fun toys in BusterBox. Now if all we were doing every month was just sending out a random selection of toys and treats, it will get repetitive for the customer very, very quickly and they are likely to cancel. Now it would be fine with the dog. A dog is the best customer ever because anything is going to make a dog happy. But unfortunately the dog doesn't have the credit card or pay the bills every month. That's the owner, and if the owner feels they're just getting a repetitive box of toys and treats, they're not going to stick around for a long time.

Speaker 2: 7:33

So we obviously like to switch things up every month and we will have different teams and this just helps keep things fresh and keep people excited about getting the box every month. Like one month it could be an earth box, the next month it could be a surf box, the next month it could be a fetching clouds team, it could be an under the sea team, it could be a dinosaur team, it could be a pub team, whatever. Every month there will be a different team and the toys will be centered around that team. I'll give you an idea of what I mean. A couple of months ago, we sent out a pub box and the toys were a dartboard and a glass of beer and that went down really well. And that went down really well. Now it doesn't make a difference what subscription box niche you're in. For the vast majority of them, you should do something similar and you should have a team each month. It will really help improve the overall experience of your box. Now, obviously, if you're in like the mail delivery niche or a few others, it won't be relevant, but for the vast majority of subscription box services, teams are a really good idea. Now that we've got product quality out of the way and I've explained how important that actually is, let's jump into some other tips I can share which will make things so much easier for you.

Speaker 2: 9:12

The next one right your niche. This is really important. You need to be really mindful about selecting your niche. You should select a niche that can support the growth of your company. Now, what do I mean by that? Well, the first thing I mean by it is you need to pick a niche with a big enough market to sustain growth, because you're always going to have churn. Now, when we were setting up BusterBox and I've said this before we were looking at the fitness niche and the dog niche and a big part of the reason which we were considering either of those niches was they were big markets with big purchasing power. So many people have dogs and so many people take their fitness really seriously. Now we obviously went with the dog box in the end, but fitness would have been a very good option as well. I know it would have been because we did some research into that.

Speaker 2: 10:18

A mistake that people make is they go so, so, so narrow that there's just no market there. There's just no market there to scale up because, like I said, you will always have churn. So if you go into something that's really really small, you could eventually end up burning through your market could take a good amount of time, but depending on how small the market is and how much money you're willing to put into marketing, that could actually happen. So picking a market which is big enough to sustain growth is really really important. Now you don't have to go with a mass market product and you can niche down. That can actually work well for you. But just be mindful of your market size. You may not want to niche down so, so small that there just isn't enough people there to build any kind of viable business. So I definitely recommend doing some research into your potential market size before jumping into anything.

Speaker 2: 11:24

Now this brings me to the next point Does your potential niche have purchasing power? One of the biggest pieces of advice I can give to you is do not sell or attempt to sell to broke people. It just makes everything so much more difficult. You want to go into a niche where they really see value in what you're doing and they're excited to receive your box every single month. You don't want to get involved in something where people are typically struggling for money and every time a charge comes up with their credit card, they panic and they want to cancel. I highly recommend doing your research around that before jumping in.

Speaker 2: 12:05

Now, the way we did our research around that in BusterBox and obviously this may be different because we're in the dog niche but we looked into the country which we were planning to sell to and we looked into the data around how much those people typically spend on toys and treats for their dog each month. We then done a costing exercise to figure out how much we could potentially earn from a box of toys and treats each month, and then we figured out there was enough profit left over to build a viable business, and that's one of the reasons why we decided to go with the dog niche. The people we were targeting had enough purchasing power to buy our box each month. This brings me on to the next point how difficult is it to market to your niche? This is something that people really need to consider before jumping into something, because I have come across many boxes over the years which tick a lot of the boxes around. Building a successful subscription box company. There's a great owner running it, they have a really good website, they have a great product, but their problem is it's really, really difficult to target their potential customers.

Speaker 2: 13:30

I'll give you some examples. If you're in the tobacco or adult niche, as far as I'm aware, you can't advertise on Google, facebook or TikTok, and if you can, it's restricted. Obviously, there are other places you can go to pick up customers, but not having access to those three platforms is going to make things pretty difficult for you from the start. Now, this isn't only the case with tobacco or adult stuff. The niche you pick may have access to those channels, but those channels don't work well to acquire customers for your niche. So that's something you have to really think about.

Speaker 2: 14:16

Before you jump into anything, you need to do your research. Look into Facebook and see how likely is it going to be that you'll be able to acquire customers through that. Look into Google and see what kind of search volume you get around your niche. Look into TikTok. Look into potential Facebook groups where you can pick up customers. Look into potential forms where you can pick up customers. All of that stuff needs to be looked into and you need to get to the bottom of basically figuring out how you're going to acquire customers. A lot of those channels do work really, really well for subscription boxes. That's the great thing, but every now and again, you do come across a box which, for whatever reason, is just not a good fit for any of those channels. Now, obviously, there are other ways of acquiring customers, but not being able to advertise effectively on those channels is definitely going to make things much harder than they need to be.

Speaker 2: 15:17

Okay, we're moving on from niche right and now we're jumping into your business model, and this is really really important stuff as well, and not many people talk about this at the start and I think everybody needs to be aware of these things you need to pick a business model that actually makes financial sense. This sounds really, really obvious, but unless you've been in this industry for a while, you may not know what I mean when I say a business model that makes financial sense. You might be like any subscription box can make financial sense a lot of them can but there are some things that you need to be aware of to ensure you're picking the right business model. So let's go through them. Number one strong unit economics. What do I mean by that? You should aim to have a 50% gross margin or higher. That should be your target. Now we do realize when you're starting out and we were exactly the same, by the way it may not be possible to achieve a 50% gross margin straight away, and that's absolutely fine. You may need to hit economies of scale to actually unlock that margin in your business, and that's absolutely fine. You may need to hit economies of scale to actually unlock that margin in your business, and that's perfectly normal, but that should be your target.

Speaker 2: 16:46

Some people launch their subscription box with a margin of like 15% or 20%. It's nowhere near high enough, and even when you take economies of scale into consideration, it doesn't make a difference that, yeah, the margin may improve a bit, but it's never going to get anywhere near 50%. Now why am I saying you need to have a 50% gross margin? I haven't just picked this out of thin air. I'm saying it for a really good reason and, trust me, I know this well because when we launched BusterBox originally, our margin wasn't high enough. It was like 28% on our 12 month subscription and even though we were getting a lot of people signed up, it was just never going to work for us. The numbers were never going to work in our favor. So, thankfully, we have managed to increase our margin and get it to where it needs to be, and we did that through a couple of different ways. We did it through number one one, economies of scale. Number two, increasing our prices. And number three, going with our own brand products. Because what we found was everybody was making a margin off our products when we went through suppliers. The manufacturers were making the margin, the suppliers, the middlemen, everyone was making a margin, and the more people your products need to go through before they reach you, the more people who are making a margin off your products and the less overall margin you're making.

Speaker 2: 18:23

So we managed to get to where we needed to go, and the reason why it's so important to have a margin around 50% or as big as you can get, is because you need to pay things in your business, and this sounds absolutely basic, but it's true and people don't take this into consideration. You need to pay a salary. If you can't afford to pay yourself a good salary, why are you in business? You're better off getting a job. It's less hassle. You need to pay yourself a good salary. You need to pay for software. You need to pay for fulfillment. You need to pay for insurance. You need to pay for marketing. You need to pay salaries for other people who come in to help you run your business. Unless you want to do everything yourself and burn yourself out, there's plenty of things that need to be paid and if you have a really tight margin, you're making things so much more difficult.

Speaker 2: 19:22

Number two low churn. 10 and under should be the target. If you have a high margin and low churn, you are going to have a really high customer lifetime value, and if you have a really high customer lifetime value, this allows you to reinvest more money into marketing, which will allow you to reinvest more money into marketing, which will allow you to grow quicker and have a more sustainable business. So all of these things are tied together and the reason why I'm saying 10% and under should be the target. It's because if it's much higher, it becomes really difficult to grow at a certain point. Yeah, you may be able to get to a few thousand subscribers with a higher churn rate, but eventually it's going to become really, really difficult.

Speaker 2: 20:21

I'll explain to you a simple calculation. Right, if you have 10,000 active subscribers and you have a churn rate of 10%, that means you are losing a thousand people per month. Now, that is a lot of people, okay. But if you've managed to get to 10,000 subscribers and you're in a big enough market, you will be able to replace a thousand people per month. That will be possible. Say, if you had 10 000 subscribers but you had a 20 percent churn rate, well, at that point you're going to have to replace 2 000 people per month. Now imagine if you went to 11 000, 12 000, 13 000, 14 000 subs and you had a 20 percent churn rate. If you work out the calculation, you'll see it will become really difficult and really expensive to replace that many customers really, really quickly, and that's why your churn rate is so important and you should be aiming to have 10% or under. Trust me, it will make everything so much easier for you and it will make your company so much more profitable. And, like I mentioned, having strong unit economics and a low churn rate all ties into your lifetime value, and if you can get a high lifetime value, you're going to have a much more profitable and sustainable business and it's going to be worth a lot more money if you ever choose to sell it at some point in the future.

Speaker 2: 22:07

Now we're going to leave it there for today. Everybody, I hope you got a lot of value from this episode. It's just a follow on from last week's episode, going more in depth about some key things you need to know if you're in the subscription box industry or you're thinking about setting up your first subscription box. Like I said last week, there is amazing opportunity in this industry and I honestly believe anybody can build a highly successful and profitable subscription box. But these are just some key things you need to be aware of Now. We'll be back next week at the exact same time.

Speaker 2: 22:54

If you got value from this episode or you've been listening for a while and you've enjoyed the content and you've learned some stuff, can I ask you a big favor Would you mind giving me a review on Apple or Spotify or wherever you listen to this podcast? It just helps me get it out to more people. If you have a question you want answered on the show, as always, head over to subscriptionboxresourcescom and join the free Facebook group and post your question there. Chat to you next week and have a great day. Bye-bye.