Starting a subscription box business can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful subscription box business.
Importantly, a critical step in starting a subscription box business is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
14 Steps To Start a Subscription Box Business:
- Choose the Name for Your Subscription Box Business
- Develop Your Subscription Box Business Plan
- Choose the Legal Structure for Your Subscription Box Business
- Secure Startup Funding for Your Subscription Box Business (If Needed)
- Secure a Location for Your Business
- Register Your Subscription Box Business with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Subscription Box Business
- Buy or Lease the Right Subscription Box Business Equipment
- Develop Your Subscription Box Business Marketing Materials
- Purchase and Setup the Software Needed to Run Your Subscription Box Business
- Open for Business
1. Choose the Name for Your Subscription Box Business
The first step to starting a subscription box business is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your subscription box business:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your new business.
2. Develop Your Subscription Box Business Plan
One of the most important steps in starting a subscription box business is to develop your business plan. The process of creating your plan ensures that you fully understand the subscription box market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your subscription box business.
- Company Overview – this section tells the reader about the history of your subscription box business and what type of subscription box business you operate. For example, are you a monthly subscription box, quarterly subscription box, or a customized subscription box?
- Industry Analysis – here you will document key information about the subscription box industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target market are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your subscription box business? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your subscription box business make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
3. Choose the Legal Structure for Your Subscription Box Business
Next you need to choose a legal structure for your subscription box business and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the subscription box business and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a subscription box business together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a subscription box business include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a subscription box business is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your subscription box business, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
4. Secure Startup Funding for Your Subscription Box Business (If Needed)
In developing your subscription box business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a subscription box business to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a subscription box business that they believe has high potential for growth.
5. Secure a Location for Your Business
When starting a subscription box business, you will need to find a space that is affordable and has enough room to store all of your inventory. You may also want to consider locating your business in a city with a large population, as this will increase your potential customer base.
6. Register Your Subscription Box Business with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
7. Open a Business Bank Account
It is important to establish a bank account in your subscription box business’ name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
8. Get a Business Credit Card
You should get a business credit card for your subscription box business to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
9. Get the Required Business Licenses and Permits
Licenses and permits you may need to start a subscription box business include a business license, a seller’s permit, and a general contractor’s license. You may also need a shipping permit. For more information on the licenses and permits you may need to start your business, contact your local government agency.
10. Get Business Insurance for Your Subscription Box Business
You may need multiple types of insurance to operate a subscription box business.
Business insurance policies you should consider for your subscription box business include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Auto insurance: If a vehicle is used in your business, this type of insurance will cover if a vehicle is damaged or stolen.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
- Professional liability insurance: This protects your business against claims of professional negligence.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
11. Buy or Lease the Right Subscription Box Business Equipment
There are a few pieces of essential equipment that you’ll need to run your subscription box business. You’ll need a computer to manage your orders, a phone to communicate with customers, and packing supplies to package and ship your subscription boxes. You may also want to invest in a label printer to create professional-looking labels for your boxes.
12. Develop Your Subscription Box Business Marketing Materials
Marketing materials will be required to attract and retain customers to your subscription box business.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your subscription box business. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional subscription box website provides potential customers with information about the products you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media channels will help customers and others find and interact with your subscription box business.
13. Purchase and Setup the Software Needed to Run Your Subscription Box Business
To start a subscription box business, you’ll need software to manage your inventory, shipping, and customers. There are many different types of software that can help you do this, so you’ll need to find the one that fits your needs. Some popular options include Shopify, Shipstation, and Mailchimp.
14. Open for Business
You are now ready to open your subscription box business. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start a Subscription Box Business FAQs
Is it hard to start a subscription box business?
No, It is not hard to start a subscription box business because all you need is a good idea and the drive to make it happen. Additionally, the growth of e-commerce has made it easier than ever to reach customers and start selling your boxes online.
How can I start a subscription box business with no experience?
There are a few things you can do to get started with starting your own subscription box business with no experience. First, look online for resources or attend entrepreneur workshops in your area. Additionally, try reaching out to subscription box businesses that are already established and ask them if they would be willing to mentor you. Finally, make sure to create a business plan and track your progress along the way so you can continually improve your process.
What type of subscription box business is most profitable?
The most profitable type of subscription box company is one that offers a variety of products in its box. This allows customers to try out a range of products without having to go to multiple stores. It also gives them the opportunity to find new favorites.
How much does it cost to start a subscription box business?
It can cost anywhere from $5,000 to $20,000 to start a subscription box business. You'll need to invest in marketing, branding, and product development in the beginning. Additional costs include web hosting, payment processing fees, and shipping materials.
What are the ongoing expenses for a subscription box business?
The ongoing expenses for a subscription box business typically include costs associated with shipping and handling, as well as marketing and advertising. Additional costs may include the design and production of the boxes, customer service, and inventory storage.
How does a subscription box business make money?
There are generally two ways subscription box businesses make money: through the sale of products and services, and through membership fees. Some businesses also generate revenue by charging brands to be featured in their boxes, while others make a commission on every product sold.
Is owning a subscription box business profitable?
Yes, the subscription business model is profitable because it generally involves a high level of customer retention, which means businesses spend less on lead generation to get new customers. The price of the subscription box also often includes the shipping costs which makes it even more attractive to new customers. Subscription box businesses can be even more profitable if they use a tiered pricing strategy in addition to one time purchases.
Why do subscription box businesses fail?
Many subscription box businesses fail because they do not properly assess what their customers want. They may also offer the wrong mix of products, which can frustrate customers and lead to them canceling their subscriptions. Businesses that do not manage customer satisfaction well are likely to see a high rate of customer churn.