Start a subscription box business by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your subscription box business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a subscription box business?
Logistics will be one of your largest challenges in the box business. While you don't need a storefront, you do need the space to store products and pack boxes. A small start-up may survive in your garage, but when you go viral you may need a warehouse. Otherwise, major costs will be focused on launching a blanketing advertising campaign and brand. Shipping costs will be a huge expenditure. You can launch a modest box business with a limited number of subscribers for around $10,000, but if you're planning to launch a major business right away, expect to invest much, much more than that.
What are the ongoing expenses for a subscription box business?
Once you are up and running, the cost of products, packing, and shipping will drive your bottom line. However, marketing and networking will remain crucial to keep your box current after the initial shipments are done.
Who is the target market?
While some current boxes appeal to a wide range of ages, it is true that the millennial generation is driving the subscription box market. The young consumer is anxious to experience new and unusual products while enjoying the convenience of door-to-door delivery. Your dedicated customer will be someone who has a good job with some expendable income, who also enjoys a value-packed purchase.
How does a subscription box business make money?
Your customers will pay you a regular amount for their box subscription. In order to turn a profit, you must source a collection of items that costs less than the price of the subscription. Some vendors may offer you free sampler packs, but customers will place a higher value on hard to find items or new products they can't find on the shelves at the store. Some month's boxes will turn a higher profit than others.
How much can you charge customers?
Your price will be part of the attraction. Gamers who spend hundreds a month on their hobby will easily spend $20 on a box packed with T-shirts, gadgets, and gifts. Popular box services run from $5 per month up to $200 per month for gourmet boxed meals and designer clothing rental services.
How much profit can a subscription box business make?
A good target for profit margin is about 30% per box. It takes creativity and hard work to find the right balance between inexpensive products and quality offerings. An aggressive marketing plan for a startup can see an income of $50,000 in the first six months. However, if your business manages to go viral, you can expect to see a lot more profit.
How can you make your business more profitable?
Many companies offer free samples for new products. By working with a network of companies that are in expansion, you can offer a unique experience to your customers while keeping operating costs at a minimum.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your subscription box business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
Form Your LLC
Read our Guide to Form Your Own LLC
Check out the Top Business Formation Services from our friends at StartupSavant.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
Federal Business Licensing Requirements
It is important that your business abide by all federal postal regulations. Visit the United States Postal Service website to learn more.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a subscription box business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a subscription box business
Before you start to spend money on placing ads, you need to develop a brand. Create a catchy name and theme for your box that stands out from the crowd. Before doing a big launch, reach out to celebrities (traditional and internet) and local media and offer a sample box and have them share their experience to get the conversation going. Flood all media channels, focusing on social media to saturate feeds with mentions of your new product.
How to keep customers coming back
Your young customers will buy their first box because you have a fun ad and your crate is filled with clever and unique items. They will maintain their subscription when they are always surprised by the variety and quality of your offerings. Their loyalty will be demonstrated when they share their box with friends, generating more subscribers.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Subscription Box Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
Subscription boxes are a marketing guru's dream. If you love networking to expand the impact of your brand and connecting with people who are passionate about cooking, pets, technology, or any other niche market, you are halfway there. You will also need to be ready to tirelessly work with suppliers in order to deliver new and unique products that your customers can't wait to try.
What happens during a typical day at a subscription box business?
During regular business hours, you might have to:
- Pack and ship boxes ready
- Source new products
- Expand your network of suppliers
- Create advertising campaigns for your target market
- Perform a quality test on all of your products
- Create box themes for the upcoming year
- Staying on top of customer service
What are some skills and experiences that will help you build a successful subscription box business?
- The ability to research consumer trends and apply marketing metrics
- A knack for smart investing
- Personal passion related to the specific theme(s) of your subscription box business
- The ability to network, form relationships, and negotiate the best prices for any given item
What is the growth potential for a subscription box business?
Great news! The subscription box service industry is exploding. When you create a box that fuels the need for new shoes, clothes, techie toys, or children's activities, the potential for growth is exponential. You may start out shipping a few hundred boxes out of your garage and end up with a massive warehouse in a short time. Your ability to read and respond to trends in the consumer market and create a unique box will determine your ability to expand.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a subscription box business?
The box business is all about feeding a hole in the consumer's life they didn't know they had. Your path to success is identifying that need--whether it be for organic jelly, shower curtains, or refrigerator magnets--and creating a collection of items the average customer won't find while shopping downtown. After delivering a fabulous crate crammed with fun, you will need to take advantage of the initial excitement by encouraging chatter on all social media outlets that can end up with mentions in mainstream feeds. This is truly a viral business. Be ready to respond by anticipating success.
How and when to build a team
Upon launch, you will likely want to hire additional workers to pack and ship boxes. Additionally, finding highly skilled team members to run your marketing campaigns will be essential, unless you have the skills to do this by yourself.