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How to Capitalize on the $10B+ Subscription Box Market

We assess the categories with the most (and least) opportunity, providing a road map for entering the space.

11 Minute Read

It’s no secret that the past decade has sent companies flocking toward the subscription model. And who can blame them: that sweet recurring revenue and the promise of a $1B exit (a la Dollar Shave Club) is compelling. But it’s not too late to launch a subscription box — you just have to know what market to enter. 

In this piece we:

  • Explain how the subscription box was born and assess market growth
  • Break down challenges with making subscription boxes work in specific categories
  • Analyze hundreds of subscription boxes on Crunchbase and which categories are saturated
  • Give over a dozen examples of niche boxes doing between thousands to millions per month, from cellphone-sized books to Brazilian jiu-jitsu
  • Share a roadmap for assessing and entering the $10B+ market

History of the Subscription Box

Early attempts at the subscription box began in 2004, with The Sampler — a box that partitioned out goods from different indie crafters. The Sampler no longer exists, but it wasn’t until many years later that subscription boxes really started to take off. Some notable boxes leading the charge included:

Many of these boxes remain some of the most popular to this day.


Most popular (Forbes, 2018)Most popular (Clutch survey, 2019)Highest trafficked (Hitwise, 2018)Highest valuation (Pitchbook)Highest sales (McKinsey, 2018)
1Amazon Subscribe & SaveDollar Shave Club (29%)Ipsy (4m monthly visits)FabFitFun ($1.1B valuation)Hello Fresh
2Dollar Shave ClubIpsy (21%)Blue Apron (3.3m monthly visits)Honest ($860m valuation)Stitch Fix
3IpsyBlue Apron (17%)Hello Fresh (3.2m monthly visits)Ipsy ($800m valuation)TechStyle
4Blue ApronBarkbox (17%)Stitch Fix (3.1m monthly visits)Rent the Runway ($770m valuation)Blue Apron
5BirchboxHelloFresh (16%)Dollar Shave Club (2.8m monthly visits)Harry’s ($750m valuation)Dollar Shave Club

On the heels of the subscription box pioneers, a flood of boxes were launched, resulting in thousands of companies (some cite 3.5k, while others cite as many as 7k) iching to take advantage of the $12-15B subscription ecommerce market

Psychology Of Subscription Boxes

Subscription boxes play on some of our most innate human needs; in particular, the desire for convenience, novelty, and simplicity.

  • Convenience: This is a no-brainer. Having something — whether it’s $1 razors or toilet paper — delivered to your doorstep each month plays nicely into our “lazy brains.”
  • Simplicity: Unlike dating apps, where the transaction of value is traded for more information (i.e., swipes, matches, etc.), subscription boxes do the sorting for you and deliver what you’re looking for — at least in theory. These boxes separate us from the paradox of choice and associated decision fatigue, by providing us a “personalized experience” — the top-rated reason people continue subscribing, according to McKinsey.

These 3 desires translate into 3 key boxes, which McKinsey identified:

  • Curation (55%): Access to highly personalized items paired with surprise (Birchbox)
  • Replenishment (32%): Access to commodity items easily (Dollar Shave Club)
  • Access (13%): Access to members’ only perks including lower prices (Naturebox)

Source: McKinsey

As you might expect, although not quite linearly, each of these closely map out with our core desires. Curation maps with novelty, replenishment to convenience, and access to simplicity. 

In many cases, boxes fall between 2 types. For example, FatBitFun (which has over 1m subscribers) is a curation box, but also plays into the access model, by guaranteeing product worth $200 in value, for the $49.99 price point.

It’s also a common error to assume that all subscription models operate the same way logistically and fiscally, just because the user-facing pricing structure is similar. For example, Ipsy works with influencers to demonstrate how to use a product, leading to additional ad revenue. Their boxes are only marginally profitable on their own. Birchbox, on the other hand, delivers samples in an attempt to get customers to purchase full-sized versions. Meanwhile, FabFitFun generates a portion of its revenue through sponsored products in their boxes. 

When considering whether to start a subscription box, it’s crucially important to determine what your model looks like and why

The Numbers Behind the Box

While the origins of the subscription box started small and mostly bootstrapped (85% of boxes), attention surged in 2016 when Unilever bought Dollar Shave Club for $1B in cash.

Why did this particular acquisition matter so much?

Ecommerce has only recently broken valuations of 2x sales, but Dollar Shave Club was sold at a 5x multiple, due to that sweet, sweet recurring revenue model.

But that doesn’t guarantee success for new products, as the market is increasingly crowded. 

Before you dive in, it’s worth exploring the benefits and challenges of this model:

Benefits:

  • Consistent recurring revenue
  • Depending on the box, LTV can be up to years (see Bump Box story here)
  • Relatively accurate inventory planning
  • Viral marketing (ex: like digital museums, people actively share the product on social)
  • Opportunity to personalize, build relationships, and gain proprietary data

Challenges:

A Cautionary Tale

The subscription market is still growing, although it has matured in many aspects. 

Hitwise suggests that traffic was up 890% between 2014 and 2018, with a record 18.5m Americans visiting at least one subscription site. But data suggests that growth is slowing.

Source: Forbes

Across some of the most popular brands, traffic is still gaining steam, while others are losing traction.

Source: Hitwise

PipeCandy conducted a study of over 500k ecommerce companies, bracketed as subscription businesses or not, through their proprietary ML platform. 

Their findings? The number of subscription businesses launching peaked in 2015. Pitchbook ran a similar analysis of funding going into the space, which shows an almost identical curve. What’s perhaps even more concerning is that every cohort in the PipeCandy analysis had at least 35% of companies shut down

Source: PipeCandy

Source: Pitchbook

Our Advice: Niche Down

The alarming numbers cited above only highlight the need to properly vet what category to enter, if at all.

Pipe Candy’s study broke down the most popular categories of boxes. The most popular were food and beverage and beauty.

Source: PipeCandy

But these popular categories are getting even more saturated with big names like P&G (Gillette on Demand), Sephora (Play!), and Walmart (Beauty Box) entering the mix. 

Similar to the dating app industry, it seems like it’s a numbers game to grab market share in the most popular categories. So, if you’re planning on launching a beauty box in 2020, the best move is to find a niche that hasn’t been exploited.

Let’s first take a look at a few subscription businesses that got funding in recent years. Notice that they’re not targeting the mainstream, but a very particular segment of users.

According to the HitWise study, niche categories are in fact, on the rise. And according to that study, Kids and Apparel are two of the most-popular niche categories. 

There’s an opportunity to niche down further. We took a look at Crunchbase data and pulled two data sets:

  1. Companies on Crunchbase with “subscription box” in their description (N=172)
  2. Companies within both the ecommerce and subscription services categories. (N=278)

In analyzing the category distribution of each, we get a much more diverse look at the range of subscription boxes that can exist.

And by browsing individual results, you can get a much better sense of the types of niche subscription boxes that can exist (and succeed). For example:

  • Book of the Month is targeted specifically at fiction, with a primary audience of women. According to Similar Web, they get 371,551 monthly visits. 
  • Watch Gang is a subscription box targeted at watch lovers. Their site gets 740,276 monthly visits. 
  • The Beard Club gives men beard-grooming products. Their site gets 173,741 monthly visits. 

(Two categories you’ll probably want to avoid? Meal kits and makeup discovery boxes, both of which are oversaturated.)

Access the full dataset here.

We also found a number of interesting subscription boxes on Starter Story, which could offer more tips for entering the market:

Other niche boxes we like:

How to Enter the Market

If you’re still interested in launching a subscription box, here are some additional things to consider before jumping in. 

Market Research

Consider if and how you can acquire your first users. Google search is a great proxy for this.

1 in every 50 searches that go to subscription box websites include the terms “best” and “review”. So, if you’re planning on launching a hot sauce subscription box, check that people are actually searching for those things. With this particular example, the answer is yes. “Best hot sauce” has nearly 10k monthly searches and “hot sauce reviews” has 590 monthly searches, although volume isn’t incredibly high. Keep these keywords in mind to target later on. 

In addition to doing your due diligence on Google, browse subscription box marketplaces like My Subscription Addiction and niche communities to assess the competitive landscape. 

Acquiring Users

Subscription boxes have thrived in the age of the internet and much of their acquisition still hinges on digital channels. While doing market research, try to assess whether your particular box will “have legs” across different acquisition channels. Social is losing its influence, while email is increasing its impact: It generates 2x the site visits for subscription services, as compared to retail.

Source: Hitwise

Assess Economic Viability

Ask yourself the following questions:

  • What are the margins on this particular product without the subscription business? If they’re close to zero, it’ll be even more difficult to reach profitability as a subscription business. 
  • Use an online calculator, like CrateJoy’s Subscription Box Calculator which encourages you to go step-by-step through each piece of the pie, including cost of goods (incl. packing, postage), cost of acquisition, customer lifetime value, and churn. Try doing a best and worst-case scenario analysis at the idea vetting stage. 
  • Consider the demographics most likely to purchase online. Does your product serve this market? According to Hitwise, the typical subscription box is described as a “young millennial hipster.” The audience skews younger, might be found in college towns like Tucson, Arizona, and readily buys online already.

Additional Opportunities

Go global: According to PipeCandy’s study of the subscription space, over 70% of the 7k subscription boxes in existence were created in the United States. 

Technology: Subscription boxes are not just a story of manufacturing and fulfillment. Many of these companies are highly technical, pairing their algorithms with logistics, in order to deliver the right products to the right individuals. For example, Birchbox asks a series of profile questions, paired with product feedback and purchase history to determine which products show up on your doorstep each month. There may be opportunity to create an “off-the-shelf” solution for subscription box companies that haven’t developed their own onboarding or algorithms.

Kids: In 2018, the category that grew the quickest in terms of traffic was kids. There may be opportunities to think through kids’ subscription boxes that don’t just revolve around toys.

Subscription boxes for life events: Most subscription boxes are tailored around interests. However, some subscription boxes have wisely oriented around specific life events. Bump Boxes, for example, is a curation box that gives pregnant women peace of mind, by providing them with mindful products for their pregnancy. Bump Boxes is now doing $20m in ARR, with a customer LTV of 45 months. 

Why is this so smart? Whenever an individual enters a new phase in their life, there are many new things for them to solve. But, what if those problems are solved for them? Depending on the life event, the customer lifetime value may be much more lengthy, as compared to a traditional interest-based box. 

Consider those going back to school, moving to a new city, quitting their first job, or even going through cancer (see: Survivor Chest) and consider whether there’s a gap for a new box to support those people during that particular phase of their life.

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