How to Start a Subscription Box Business in South Africa in 2020
There’s no better time to start a subscription box business in South Africa than right now. Consumers have grown accustomed to the ease of online shopping. Offer them the chance to have their hobbies or interests replenished monthly and conveniently delivered to their door—boom. You have yourself a successful subscription box enterprise.
The idea of starting your own subscription commerce company from scratch can be daunting. So, we’ve simplified the entire process for you.
Eight Simple Steps to Start Your Subscription Box Business
The first thing you will need is a solid business plan (BP). Use these eight, simple subscription-box-specific steps in conjunction with BP basics to create your subscription box business model.
Psst, if you’re a new entrepreneur, use a business plan template as a springboard. Remember, a BP is a living document that will be refined or even change over time.
1. Product and People. What Are You Selling, and to Whom?
Every great business starts with a killer idea. Ten times out ten, you’ll get that inspired idea by solving a problem creatively.
It makes sense when you look at the fundamental principle of business is selling something that fulfils and need or desire at a profit.
- Who has the need?
- What is the need?
- How does your solution fill the need?
The secret to success is specificity. In other words, find your niche. Take your idea and narrow it down. Keep on refining it. The more specific you can be the better because this will help you carve out your unique positioning and target market.
At this stage in your planning, you’ll also need to identify your competitors. The more specialised your offering, the smaller the pool of direct competitors will be. Be sure to think about indirect competitors as well. For example, two chocolate subscription boxes are direct competitors, and a fudge subscription box is an indirect competitor because they both appeal to sweet-toothed confectionery lovers.
2. Price. Find the Balance between Palatable and Profitable
The next vital component of a successful subscription box business is profit. It’s not as easy as merely slapping on a hefty margin. Too high; you’ll price yourself out of the market. Too low; you’ll work your tush off for nothing.
Consider these costs in your pricing
- Product: the cost of the items in your box.
- Box: the costs for your box and any stickers or stamps and other accessories.
- Packing materials: bubble wrap or filler paper, dividers or inserts.
- Shipping: postage or courier fees (consider boxes and packaging tape, and stamps, too).
- Fulfilment: what it will cost to physically pack each box.
- Labour: salaries or wages.
- Transaction and platform fees: charges from your payment processor (gateway) and eCommerce platform per order (view Subscriptionbay’s fees here).
- Fixed monthly expenses: utilities (telephone and Internet), software licenses, outsourced services (IT; accounting) fees, office supplies and the likes.
- Acquisition costs: expenses for marketing and advertising to acquire new customers.
- Wiggle room: saving some slush funds that will allow you to scale as needed.
Then you’ll need to weigh up your BE against your target market’s price point, that is, what they perceive as a reasonable price for similar goods.
Take a look at what your competitors are doing, but use it only as a gauge. Don’t undercut yourself. You don’t know what their overheads are like, or if they perhaps have a deal with suppliers based on economies of scale—more on procurement, later. You can always sweeten a subscription box deal with added value as opposed to discounting. We love to think we’re getting more for less.
3. Prototype. Create Your Minimum Viable Product (MVP)
It’s time to put theory into practice!
The concept of a Minimum Viable Product (or MVP) stems from tech, but it is an appropriate way to approach building your first box too. It’s not the final product, but a version of what you envision with “just enough features to satisfy early customers and provide feedback for future product development”, Techopedia.
Doing so, creating a tangible prototype box will help you firm up your offering and prepare for your launch.
- The first iteration will give you a good idea on the viability of your planned pricing.
The aim is to create a visual representation of what customers can expect from your box. To avoid the risk of investing in the final products (without an indication of market interest), you don’t have to use the exact products that you intend to ship (but you can).
For example, if you plan to ship a “man crate” of six men’s grooming products for R500 per month, then gather six items (similarly priced) that best illustrate what your customer is likely to receive. Use examples that are close to the real thing as possible. Your preliminary marketing will set expectations that you must uphold for future customers.
Think about your packaging and packaging materials, too. Will you have custom-made boxes and crinkle paper? It’s worth taking time to deliberate the unboxing experience (which forms a large part of the customer experience). For the purpose of the prototype, make a mock-up box or ask your supplier for a sample box.
- Take photographs of the prototype to begin marketing and generating interest.
This is the perfect time to take pics in a range of styles (flat from above, straight from the side, slightly angled). See what resonates best with your brand. You can even A/B split test to see if your customers naturally gravitate to a specific style.
4. Pre-Launch. Promotion and Process Test
This is where you get to dip your toes in the water. Armed with gorgeous pics and confidence in your offering, the pre-launch is a build-up marketing campaign, also called a soft-launch. It helps you to gain insight into potential uptake before launch. If need be, you can also gather feedback on how to refine your offering.
There are two primary objectives of a pre-launch campaign. First, create anticipation around your soon-to-be-launched boxes. Second, get a head start on building your subscriber base by creating an email list.
At a minimum, you will need:
- A Customer Relationship Management (CRM) system or, at least, email automation capabilities to build and maintain your database. Mailchimp is often a great platform on which to start. If you want to begin with the end in mind, look at Hubspot, Salesforce Sales Cloud or Pipedrive.
- Create a pre-launch landing page through which you can capture email addresses (signups) directly into your CRM or email tool. While your website is in development, a well-crafted landing page does the job of capturing leads.
- To set an email signup goal. How many subscribers do you need to launch comfortably? When setting any objectives, use the SMART method: Specific, Measurable, Achievable, Realistic, and Time-based. Consider a realistic signup conversion rate. Work on a conservative 10%. If you want to launch with 100 subscribers, aim for 1000 signups.
- To set the duration of your pre-launch. How long will your pre-launch last? This will depend on your email signup goal and the marketing resources you’ll use to get you there.
Consider that you need time for your brand to gather some momentum, but you also don’t want to keep early adopters waiting too long. Most soft-launches run between 30-60 days.
- To begin preliminary marketing on social media to drive traffic to your landing page. If budget allows, use a combination of organic methods, paid advertising and PR to drum up as much interest as possible.
- To create a drip email campaign (automated email sequence) to keep your leads warm-up until the main event.
While your pre-launch is underway, use the time you have to finalise and ready your procurement and shipping.
The proof is in the pudding. Your customers’ impression of the first box determines whether they will love or lump your subscription service.
Procurement, also known as product sourcing, refers to the “process of finding and agreeing to terms, and acquiring goods, services, or works from an external source¹.” Products being the contents of each box, and the box itself. Services being your shipping (delivery) partners if you are not keeping that function in-house.
Use your prototype box to refine your offering and create the very first box ready to be shipped.
Look at things from the customer’s perspective. Consider that they will experience their subscription box from the outside-in. From on-time delivery to the weight of the box, and the aesthetics during unboxing: will value-for-money be evident from the onset?
When they get to the contents, will the quantity and quality of the items live up to the expectations?
Sourcing the right products at the right price.
Naturally, you want to keep your cost of sales low, but don’t go so cheap that customers feel like they have not received value for money. This is where you’ll need to choose your purchasing model—and sharpen your negotiation skills.
If you’ve promised delivery in the first week of each new month, then you need a reliable partner that will live up to that promise. How the box arrives is just as important as when. Was delivery professional, in good shape with the contents intact?
Now is the perfect time to firm up your shipping policy and the agreement with your logistics partners to uphold the policy.
You will need to publish your shipping info and delivery schedule to manage customer expectations further.
Staying on top of orders and supplier fulfilment.
Procurement is an ongoing process. You need to continually find new products, establish supplier agreements, and manage these relationships. You’ll need to bed down your own ordering process to ensure timely delivery of products so that fulfilment to your customers runs smoothly.
For more information on where to source products, purchasing and processing read our complete procurement process guide.
6. Place. Your Domain, Discoverability and Distribution
Before the Internet broke down geographic boundaries, “place” referred to your physical location, which would determine your reach and where to advertise.
When it comes to subscription commerce, it helps to look at “place” from three perspectives.
- Where will your business live online?
Will your virtual storefront reside in your own domain (website) or rent space in a busy shopping mall (listed on a marketplace)—or how about a blend of both?
- Where will people discover your business? Start planning your online promotion such as Search Engine Marketing (SEM) comprising Google ads and Search Engine Optimisation (SEO) as well as Social Media Marketing (SMM).
- What is your area of distribution? As discussed, your ability to fulfil orders is paramount, cross-provincial courier delivery can hike up your costs of sales significantly. Conversely, national delivery could bump up your orders! It’s ok to start small (like the major metros, Gauteng and Western Cape) and expand your territory.
For now, let’s start at home—your home on the web.
Set Up Your Website, Marketplace Listing, or Both
Choosing where and how to “set up shop” online is not much different from making the same decisions for a brick-and-mortar store.
Do you want to own your premises with a stand-alone street-front store or rent in a mall? Each has its merits; there is no right or wrong. Your decision will come down to what suits your budget, time and tech resources best.
Running your own website is like owning your store’s premises. You are responsible for the look and feel, shopfitting, maintenance, security, utilities—the whole shebang. It’s terrific because you have total control over your space. It can be burdensome because you will need to either hire additional skilled resources or acquire specialised skills to keep things running.
Thankfully, there are loads of nifty, feature-rich, do-it-yourself platforms out there. You don’t need to learn coding to build your site. If ever you do, some packages include limited support, or you can contact a network of developers for hired help. Most of the website themes follow design best-practice, so user-experience is covered.
However, you will need to purchase add-ons for certain eCommerce functionality, security, a payment gateway (processing method) and possibly CRM integration. The out-the-box solution requires hundreds of hours to personalise, and maintenance is a full-time job.
For best results, you should learn about web design principals and Search Engine Optimisation (at a minimum).
Creating your presence through a market place site like Subscriptionbay can be likened to renting space in a shopping mall. As a tenant, the landlords need to ensure your utilities are running and fix any faults. They hire security and maintain the aesthetics of the mall. Mall management run advertising and are responsible for driving targeted foot traffic to the store!
You need only worry about the appeal of your store and its products. It’s much easier to make sure the shelves are adequately stocked, and everything is neat and tidy when the rest is sorted.
The downside? Your “rent” is not a fixed amount, but rather a percentage of sales. A fee for the transactions processed on the site as opposed to being charged for being there. So, you will need to factor this cost into your sales price (or mark-up).
You could also look at the fee as a small commission. The site works hard to not only attract ready-to-buy shoppers but ensure that they stay longer and explore as much as possible. They may pop-in for something specific, but in the excitement of browsing, they discover your subscription service. This is another perk of being present in a marketplace. It increases your exposure to qualified leads, who already show a propensity towards subscription box services.
If you can manage both your own site and your marketplace presence, you should do it. The more channels there are for people to discover and buy from you, the better. Time management is crucial. You will find yourself favouring the channel that brings the most sales. Be careful not to neglect your presence elsewhere. It can paint your brand in the wrong light.
Setting up your billing and payment processors
Once you know where the sales transactions will take place, you can set up your payment processors. Remember that all processors carry a transaction fee that you will need to factor into your margins. Subscriptionbay is integrated with PayFast. Find out more about merchant fees and how Subscriptionbay works here.
7. Production. Practice Makes Perfect
It’s time to start taking orders and shipping your subscription boxes.
All your hard work comes down to this. Here are a few pro-tips for your launch.
- Make an announcement. Let your entire database know when the first shipment will take place.
- Make the expected delivery date clear to manage customer expectations (avoid backlash before you’ve even begun).
- Create a referral incentive for your readers to forward the news to friends.
- Run a final promotion to encourage more signups.
- Include this in your referral incentive.
- Include it in a press release with the launch announcement to the media for extra publicity.
Prepare for month two and three now!
Once the sleuth is opened, you’ll find that days melt into weeks. In the blink of an eye, it’s time for your next shipment. If you have the next 2-3 shipments prepared in advance, you’ll buy yourself the time to implement learnings from month one. You’ll also have a buffer in case—you know—life. The aim is to improve your process continuously.
Sit down and reflect back on what you have accomplished. Did everything work out as planned? Ask yourself:
- What can I improve and do better before my next shipment?
- Are there vendors I need to re-evaluate?
- Where were the bottlenecks, and how can I fix them?
- Was there a frequently asked question or two from customers that I should address?
- Were my subscribers happy? Ask for feedback!
8. Protect Future Prosperity
The green shoots of your newly planted subscription businesses need daily watering and nourishment to grow.
You need to focus on feeding the pipeline by building up your subscriber base. The best and most cost-effective way to do so is through word-of-mouth referrals. Satisfied customers will advocate your brand—and positive reviews are priceless!
It’s true. The statistics on how reviews, ratings, and referrals influence purchasing decisions are overwhelming. Nearly 95% of shoppers read online reviews before making a purchase, says Spiegel Research Center, who also report that displaying reviews can increase conversion rates by 270%.
It is for this reason that we recommend continually improving your processes. Integrate feedback opportunities and asking for reviews into your communications. For example, send an automated confirmation of delivery email to your subscribers that asks for a Google Review (with a link). People are far more likely to leave a review while their experience is still fresh in their minds.
Use a referral incentive for existing subscribers. Perhaps a mystery gift box for every three successful signups that they referred, or entry into a draw for a grand prize for every five or ten shares.
Don’t let bad reviews harsh your buzz. Welcome feedback that helps you to become even better. Brands that respond appropriately to negative reviews, and better yet, implement positive changes, as a result, win hearts! The public loves to see a brand that is humble and authentic. It grows brand trust and customers loyalty—which money can’t buy.
In conjunction with your ratings and testimonials campaigns, practice good old digital marketing 101.
Where to From Here?
Remember that business plan that you started way back in the beginning? This is where you follow through on the rest. Did you have plans to diversify your offering? Extend your product range? Maybe you want to create a sister subscription box line. The world is your oyster!
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¹ Laffont, Jean-Jacques; Tirole, Jean (1993). A Theory of Incentives in Procurement and Regulation. MIT Press. p. 1. ISBN 9780262121743. tirole laffont