4 Reasons Subscription Boxes Fail and Solutions (2020)

Starting a subscription box business is hard, bringing a subscription box business to success is even harder, I don’t think I need to emphasize it… Anyone who has been in the situation knows how it felt.

However, Box Reporter is here to help. We summarized 4 reasons that entrepreneurs may have done wrong or factors that could lead your business to failure. This article is perfect for any entrepreneur who just started their subscription box business, or even for a well-established brand as a reflection.

Table of Contents

#1 Not Planning Ahead

Benjamin Franklin once said, “If you fail to plan, you are planning to fail!”

Not planning ahead as a starting up subscription box business – or ANY business, will never succeed.

Why would I say a starting-up business? Because any successful business is thoroughly planned for their progress so they can assign different resources in different business stages!

Still researching and haven’t even started yet? You are lucky you found Box Reporter today.

Planning for a subscription box business or any business is not something to set and forget, plans will NEVER keep up with changes. Of course, this is an exaggerated statement, but you get what I’m trying to say here.

Here is a Bad Example I get when I ask entrepreneurs about their plan:

“Find a product and supplier in Jan.
Set up the website in Feb.
Start running in March.”

If you found this is funny, don’t laugh at this. This is real, and actually, many entrepreneurs who started their business for the first time in their life do not have good plans for what they are about to do, not to mention a business plan. This is totally fine, no one is born to be a business owner.

Solution:

  • Treat your plan as a framework

Here I provide an Example as a guideline for you to look at:

“Analyze the resources you have, including skills, finance, contact, knowledge, etc.
When and where to lock your first supplier.
How many resources you need with the pre-launch.
How to set up marketing campaigns at the launch stage, and aim to acquire 50 customers for the first month.
What is a good pricing model for you and estimated breakeven time for the business.”

You can see that planning is NOT just about setting up a due date and timeline, some people get too obsessed with the deadline in some particular matters, which narrows their vision to look after the whole, and it’s unacceptable as a business owner.
It’s almost like writing down everything you may need or may encounter, and a framework that keeps your business from falling apart.
Think about it yourself and try to improve it, don’t just copy and edit the parts that are relevant to your business.

Keep in mind that this is NOT a formal business plan, you do not need to be fancy or have a great philosophy and concept to attract investors.

  • Using the good old SMART objectives

The SMART objective is a fundamental tool to help people achieve business goals, many of you may have already heard of this somewhere in Uni, YouTube video, or another blog post. Just to make sure everyone know what I’m talking about, SMART stands for:

S – Specific
M – Measurable
A – Achievable/ Attainable
R – Relevant
T – Time-bound

The tool is straightforward and easy to understand just by the words, nothing fancy. However, Box Reporter wants to provide the best subscription box business content for entrepreneurs, so I’ll be illustrating more about the SMART objective, along with some subscription box related examples.

You are more than welcome to save or screenshot the picture to your device.

SMART objectives for Subscription Box
SMART objective for Subscription Box by Box Reporter

#2 Wrong Niche

 

Running your subscription business with a wrong niche is a disaster, I would say. You might find yourself in a very awkward position, where you thought you improved everything and did anything you can think of, but still a no return from your business, that could possibly because you have chosen a wrong niche.

I’m guessing this is how many of you choose your niche:

“Oh, I like this product, this is interesting, I might use this niche for my subscription box business!”
“XXX is my hobby, I’m into this for more than X years, I know so much about it, I’ll do this niche for my subscription box then.”
“Wow, this XXX is so trendy right now! I need to think of a way to convert it to a subscription box model.”
“This fitness and healthy food company is so successful, I might just use their category and niche it down again. Let’s do fitness and healthy food for post-pregnancy women.”

I’m not saying these are bad, or you can’t succeed if you think like this, I know some people used these mindsets to pick their niche and success, but for sure they are learning and improving as hard as they can through the whole process.

We will be writing a whole new article just for how to find a niche, stay tuned!

Solution:

  • Brainstorm your idea

Finding a good niche isn’t as hard as you might think, keyword tools and SEO tools are offered as an additional method for you to research. You don’t even need to pay for the expensive tools just for your niche, you can simply go to Google Trends and type in your keywords to see how the trend looks like for the past ten years, and estimate the next couple of years.
You can brainstorm your categories and niches from you or your friends’ interests, something you see in the mall, something you use in your daily life, etc. It’s a very straightforward process, nothing too serious.
Then, I’ve created a checklist for you to eliminate some ideas that might not work.

Box Reporter Niche checklist for Subscription Box

Niche Checklist for Subscription Box

 

  • You DO NOT need to pick a niche from your hobby.

I really need to say this because I’m done with how everyone on the internet tells you that you MUST pick a niche from your hobby and what you like, or you will fail.
I understand why people are saying that if you don’t like what you do, your business is going to fail, because running a business is hard, you need a “niche” or a “topic” you like and are passionate about.

Well, it’s ok if you try to be a blogger or social media influencer since your work is content-based.
But now you are starting up a subscription box business, it’s not even a regular e-commerce store, it’s a new business model!

Your job is to create and implement marketing strategies, design an attractive website, negotiate with suppliers, communicate with customers, detail your package, and so on. Not staring at your product for the whole day, so your niche IS or ISN’T your hobby really doesn’t matter that much.
As long as you don’t hate it, of course, it’s always better if it’s your hobby or you are interested in the niche.

 

#3 Bad Pricing Model

 

If you didn’t work out a sustainable and profitable pricing model, I’m 100% sure your business will fail.
Everything you can think of, and working to improve on, such as ROI, conversion, churn rate… are all leading back to the origin of business – money.

Solution:

  • Setting up a pricing model based on cost + profit

First, we talk about variable cost, the total cost for you to close a deal.

Let’s assume you are selling a candy subscription box, and the COGS (Cost of Goods Sold, the actual product you are selling) + shipping to you is $10.
Then you also need packaging (a nicely designed box + logo + sticker + decoration) is $1.9, a sampler or little gift to surprise the customer is $3.1, your average shipping to a customer is $6.7, and CAC (customer acquisition cost) is $10.
All added up to $31.7. 
I’d recommend a 50% margin for the final price, to pay your fixed cost and for your profit, which is 31.7*1.5=$46.5.

I know, I know… You must be thinking: What? That’s a lot!

But REMEMBER! It’s the perceived value that customers look at, not the actual costs of the goods that customers look at. Don’t be afraid to set a high price.
If your customers are looking for the best value, they will go to the supermarket or Amazon. “Value of goods” only takes a little part when the customer is assessing the value of the whole box they received. So work on your details, packaging, website, customer service, and brand image.

However, CAC (customer acquisition cost) can be as low as $1 or as high as $50, this is a whole new marketing topic and I won’t expand it here today. Just keep in mind that ALWAYS leave more budget for your marketing activities, it is a total black hole!
Also, have a look at the “cost per unit”, everything is just going to be the most expensive when starting up, COGS, shipping, etc., the more units you sold, the cheaper the cost will be.

 

  • Never just simply copy the competitor’s price.

Competitor’s price can be used as a reference price, a little factor for you to consider when setting your final price, never copy them straight away. Don’t even think you can just set your price a couple of dollars more expensive or cheaper based on their price. Here are the reasons:

  • You are not selling the same products.
  • You have different suppliers and different couriers.
  • The competitor’s pricing model could be wrong.

And if you find that your price is much higher than your competitor’s, don’t freak out yet, it might be one of the following reasons:

  • Your competitor has a first-mover advantage, they are experienced, and knows where to cut costs.
  • Your competitor is already in the business for some while, their cost per unit is lower, because they have more orders than you.
  • Different suppliers, hence, different prices.
  • They are not making a profit (don’t think that any business out there is making money).

If none of the above applies, perhaps you have some cost reduction to do.

 

#4 Didn’t look after Customer Satisfaction

 

Customer satisfaction is an essential part of your subscription box business that you will just need to bang it no matter what. It’s directly linked to the most important figure in the subscription box business – churn rate.

If you are unfamiliar with this term, the churn rate is the percentage rate of your customer stop subscribing to your product in a period, calculated by (subscriber at the beginning of the period – subscriber at the end of the period) / (subscriber at the beginning of the period).

Working on your customer satisfaction is the most cost-effective way to have a healthy churn rate, not putting your efforts into customer satisfaction and thinking that is not much of a deal will definitely lead your business to failure.

Solution:

There are no exact figures or metrics that you can find from your store’s data or Google analytics to tell your customer satisfaction score. However, it can be affected directly or indirectly by the following factors:

  • Packaging

Having an excellent package makes your customer feel that your company is a company that can be trusted, value its customer, and pay attention to detail. This includes but not limited to using a nicely designed box, logo/sticker and protective padding.

  • Don’t overpraise your product

This is not just how you describe your product in your marketing activities and website, you need to also check with your affiliate marketer for what they say about your product, some affiliate tends to overpraise a product to get the commission.

  • Little gift or sample

Put a little gift or sample in the box, even if the value of the gift is so low, the customer will still be surprised and pleased. Note that you shouldn’t say something like “there will be a surprise or a sample in the box for free.” I see some subscription box business owners tell the customer about the surprise gift to attract people to buy.
This is not how it works, the surprise gift in the box is the surprise of its presence, not the surprise of “customer aware of its presence but don’t know what it is.”

Let’s compare the two scenarios.

Scenario 1:
Brand tells the customer that there will be a surprise gift/sample in the box.
Result: The customer likes it, everyone is happy.
The customer doesn’t like it, which lowers his/her satisfaction.

Scenario 2:
Brand didn’t tell the customer there will be a surprise gift/sample in the box.
Result: The customer likes it, which exceeds his/her expectations, leading to positive word-of-mouth.
The customer doesn’t like it, nothing happens, he/she isn’t expecting this anyway.

Be aware that if you decide to put a little gift/sample in the box, you need to watch for the cost, cause you will need to give out the gift – not always, but very frequently, customers will be trained to have expectation on the gift.

 

Conclusion

 

Running a business is about details, there are many more reasons that could harm your business, due to the length of this article, we have only picked four reasons we think are the most deadly and harmful for a starting-up subscription box business. If you don’t get them right, your business may not show a significant loss or changes in the short term, but in the long term, they will eventually cause your business to fail.

Do you agree with me? Did you do anything I described in the article? Please share your experience below, I love to hear different stories!

If you have any questions, or want to know more about a specific topic. Please let us know by comment below, and we will reply to every comment we received and even write an article to explain your question!

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