We've embarked on a journey to explore the 9 Models of Recurring Revenue and it’s been a fascinating insight into the subscription economy. Businesses all over the world are tapping into new streams of revenue that are set on autopilot. Today, in our third article, we will discuss The Subscription Box Model. We’ll review how it works, who is benefiting from it, the potential issues, and how can you leverage it.
If you’d like to catch up on the previous articles in the series you can access them here:
What is a Subscription Box?
The Subscription Box is like the gift that keeps giving!
The concept is easy - a new subscriber will sign up, usually for a monthly fee and in return a “surprise box” will arrive at their doorstep every month. This box will contain a curated selection of specialised products to explore.
A number of start-up's that have leveraged The Subscription Box model have grown into multi-million-dollar companies over the past five years. Dollar Shave Club, Barkbox, Ipsy, BlueApron, and ShoeDazzle are some well known examples.
However, this model of recurring revenue isn’t limited to startups alone: even household name brands like Under Armour, Sephora, Gillette, and Gap have tried their hand at offering subscription boxes.
Is the Subscription Box for Me?
The subscription box model has been popular, and there are now over 3,500 of these types of businesses in the United States alone. However, research from Mckinsey & Company has found that around 13% of subscription box businesses have ceased operations in the last few years. This may indicate a change in market sentiment, a level of maturity for this market, or perhaps a realisation that this model is not as easy as many businesses first thought. One thing is for certain, there are some clear winners in this space.
In the beauty sector, for example, the key players have very different models. These companies have taken the time to make sure that their subscription box strategy is aligned with their broader brand and business strategy.
This is a critical factor for success.
Ipsy enlists beauty influencers to shoot videos demostrating how to use the products that are in the bag, this leads to additional advertising revenue.
Birchbox’s strategy is to drive subscribers towards buying full-sized products which are available on their website or retail stores.
Sephora Play uses their subscription as an additional tool in their marketing arsenal, it compliments their bricks and mortar business, with the intention to create more loyal customers who will spend more money with them.
To assess whether the Subscription Box model is for you, consider these factors below.
The Ideal Scenario for The Subscription Box Model
Hitting the mark on The Subscription Box
If you get the formula right as a subscription box provider, then you can certainly reap the many benefits that this model offers, including:
- Recurring Monthly Revenue – Of course, this is the sweet spot that we have long promoted over our series of articles. The subscription box can generate predictable, regular income as long as you have active subscribers.
- The ability to test your products directly with consumers – New products in beta-phase can be tested with your subscribers. This can provide good feedback from passionate individuals before promoting it to the general market.
- Access to behaviourial data – as we know data has become one of the most valuable commodities. Data gathered from customer preferences will help you build better client profiles and enable you to develop a deeper and more personalised relationship with your customers.
- Creating sticky consumers who will stay on if they find a service they like. Replenshiment style subscription boxes such as those offered by Amazon Subscribe and Save and Dollar Shave Club have particularly high long-term subscriptions rates, according to McKinsey 45 percent of members have subscribed for at least one year.
Interested to find out more about the 9 Recurring Revenue Models?
The Subscription Box has been the third model in our 9-part series on Recurring Revenue income.
We’ll continue to explore the models so you can decide how best to introduce recurring revenue into your business.
Be sure to review our other articles so far in the series
As you learn about the different recurring income models, keep an open mind as to how it could work in your business. Getting it right will mean a nice future stream of income, while at the same time increasing the value of your business.
Keep an eye out for our next article where we’ll dive into the third model of recurring income.
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Understanding the 8 Drivers of Business Value
Today, we’ve discussed Recurring Revenue, which is one of the 8 Drivers of Company Value.
Now you can measure your business against all 8 Drivers of Value and get an indication of what your business is worth today.
With that information, you can develop a clear plan to increase the value of your business. You'll not only find smarter ways to grow, you'll also be putting yourself in the best position to exit your business, when the time is right, for a premium price.
interested to know
what drives the value of your business?
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What you'll discover
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CEO and Founder, Exit Advisory Group
If you would prefer to reach our directly, I would love to start a conversation. Connect with me and send me a message on LinkedIn, or get in touch any of the ways below. Old fashion phone calls are also welcomed!
At Exit Advisory Group we help entrepreneurs maximise company value and exit at the top of their game.
We do this by giving business owners the tools and strategies to design more profitable, efficient and enjoyable businesses to own - that are also less dependent on them. When they choose to exit, they are in the best position to unlock the wealth in their business and be rewarded for their hard work.
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