Welcome to the Back to the Basics series! (3 of 6)
In this episode, we are going to talk about how to make money with a subscription box business model! First, host Julie Ball will bust a few myths, then she’ll dish the secrets…like how to buy products at massive discounts. She'll walk through a sample scenario, explaining how to put together your product selection in a way that makes a profit.
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Hey everybody. And welcome back to subscription box basics. It's Julie again, you're head coach here at subscription box basics. And this is part three of six of our back to the basics series. I'm rolling solo for the special series, but don't worry. Renee is still around and she will be so excited to get back on the mic soon. Now if you haven't already make sure to listen to the last two episodes where I not only tell my own subscription box launch journey, but I also share with you some details about how the subscription box model works now in this episode, we are going to talk about how you can make that money, honey. I'm not exaggerating at all. When I say starting a subscription box, change the trajectory of my life and my family's life in a very positive way. I had no idea what I was getting into and I had no idea that I could make way more than I did at my corporate job. And have more flexibility and freedom in my schedule. I was able to replace my full-time salary within nine months of starting my box business. And last summer I sold the business for multiple six figures. It's still blows my mind, but I'm here to tell the story so that you can learn from it, get inspiration and think about what success means to you. All right let's dive in to how you can make money with a subscription box business. to buy products at massive discounts. The first myth is that subscription boxes are a get rich quick scheme. Nope. Not true at all. Just like most businesses, you need to lay a firm foundation, spend time on growing your audience, and provide serious value to your customers. And yes, like most product based businesses, you can expect a bit of overhead, some expenses from the get go, like boxes and box items. I'm sure that's no surprise. But where I find subscription box business owners hitting their stride and improving their bottom line, actually making money. It's when they can capitalize on buying in bulk, you know, quantities of scale. You've probably heard this before. The more you buy, the more you save. And so the same holds true for the subscription box industry. It's like this buying power. When you buy larger quantities of items, you'll have more negotiating power. And I'll talk more about this later. But as you can imagine. That usually doesn't happen right out of the gate, so it is not a get rich quick scheme. The second myth is that you can get all of your box products for free. Eh, that's not true either. And in fact, the mentality around this myth really gives our industry a bad rap. So we were in New York City twenty nineteen for the National Stationery Show. And so this is a show where we sourced a lot of our paper and pen products for Sparkle Hustle Grow. Which was my subscription box for female entrepreneurs. We get to meet with existing vendors. We meet new ones. And that's a really great place to get deep discounts at events. And I remember very specifically walking up to a new vendor that we were really excited about getting some pricing on one of their new products. I introduced myself and Renee,. And I showed him our Sparkle Hustle Grow box because I always take a box with me to events. And as soon as I said. So, we repped a subscription box. He said, we don't give away free product. What? I was really taken aback. So I said to him, I didn't ask for any free product. We were going to ask for pricing for this product. And I thought it was kind of rude for him to respond that way. But as I reflected back, I realized that he must have been asked for free stuff by subscription box owners enough times at that show or maybe in his day to day business that he felt like he needed to throw that out there. So quickly in our first conversation. So I just wanna bust that myth that you can get all your box products for free. Of course, there are some box models that they fill their box with sample items, and so that's another story for another episode. But for the most part, if you are trying to provide a ton of value and you wanna provide full size, And the last myth I want to bust is that you will buy your products at retail stores. Nope. Nope. Nope. You will never make money if you buy your box items at retail stores. They have huge markups. And so that's what I'm about to dive into next. The concept of wholesale buying, which So that you can build in a cushion in your finances, actually make money. And you definitely want to make sure you understand this wholesale concept as you're building your business. But before I explain wholesale, let's talk about how a subscription box business makes money. It's so it's a really, really simple concept and stick with me here. I'm going to try and paint this picture. So you, as the subscription box owner, charge subscribers a certain amount of money each month. That's your price, what the consumer pays. Then you curate, buy, and ship a selection of products in the box for less than that, for less than what you charge. So then the difference between what you charge your customers and what it actually costs you... That's your profit. That's the money you make. Now, of course, there's other factors like if you hire contract workers or if you spend money on advertising, but I'm trying to keep this as simple as possible. So let's break this down into an actual example. Let's say you run a bath and body subscription box that you sell for 30 a month, including shipping. So 30 is what the customer pays. Your customers may not know this, but behind the scenes, it cost you in this example, 15 to cover the costs of products, packaging, and postage, what I like to call the big three. So that means you profit 15 per box, because 30 Minus 15 in costs equals 15 left over. So in this example, you have a 50% margin. And ideally, you want to shoot for 30 to 50% margin for your subscription box. It may start out lower than that, and it may vary from month to month, but that's okay. You just want to start working on reaching that. 30 to 50% margin because as you buy more products and as you get better at negotiating, your costs are going to go down per box. Now let's imagine that you sell a hundred boxes at 15 profit per box. Like in the example we're using, a hundred times 15 is 1, 500 in profit. That's what you get to keep. You're making money. So now just imagine when you grow your subscriber base to a thousand, a thousand times 15 a box. It's 15, 000 total in profit. So that sounds really exciting, right? And that's a really, really simple example of how that you can make money with a subscription box business. Now I know, I know 15, 000 in profit. At that point, when you're sending a thousand boxes, you can't do this on your own anymore. You probably will still need to take things out of it like taxes, software costs, marketing if you do Facebook ads, that type of thing. But at least now you know the basics of how you're going to make your money. Now let's talk about one thing that I feel you really have to master and that is the concept of wholesale buying. So basically companies or distributors will sell goods. In large quantities to be resold by others. So if you are the business owner and you buy a hundred bath bombs, you're going to get that at a better cost than you would if you went right to Target or CVS to buy that same bath bomb. Instead, you're going to get that wholesale price. because you're buying direct. So to demonstrate the impact of wholesale buying, let's just use 50% off as our typical wholesale rate. That's typically what you're going to get out of the gate when you go direct and you say, I'd like to buy these at wholesale. You can expect right around that 50% off mark, but we'll talk a little bit about it later, how you can get even better. Discounts. So let's look at that bath bomb we talked about earlier. If you can buy it for 5 at a big box store or other retail store, you might be able to buy it direct from the company at a wholesale rate for 2. 50. That's 50% off, 2. 50. So here's what it might look like for your box. Write this down if you're a visual person. We're still looking at that example where 15 is what it costs for our products, packaging and postage. So you'll take a bunch of these wholesale items and bundle them together for your box items. And let's just say we have a 9 budget for that. Then you're going to put them in the box. 9 assortment of bath bombs, soaps, lotions, whatever you, whatever you decide to put in the box. And then let's say we'll use 2 as our packaging cost because we need to cover the costs of a box, whether you're getting a custom box or maybe you're just using a plain box with a sticker, maybe some filler, Like crinkle cut, tape, that type of thing. So we have 9 budget for products, 2 budget for packaging. And then for this example, we're going to use 4 as your shipping rate, which is low, but these items don't weigh a whole lot. So you might be able to ship them first class. So again, 9 in products plus 2 in packaging plus 4 in postage equals 15. That's what it costs you. To put together this box and that's the idea of wholesale buying it sounds really great right to save 50% on those products Let's talk about How to get set up with a wholesale account So it's pretty easy to get set up as a wholesale account for most vendors out there But there's a few strategies that I want to talk about because it's important The first thing I want to talk about is to apply for a resale certificate in your state Obviously, we're talking about the United States here but each state will allow you to apply for a resale certificate and this can save you a ton of money. So if you're a U. S. based reseller, and a reseller just means you're reselling someone else's product, you will not be required to pay the sales tax for the product when you purchase it from the wholesaler. That's what the resale certificate does at the time of this recording. Instead, that sales tax will be gathered at your checkout if it's applicable to the end customer. So for example, I sell in North Carolina and the North Carolina rules that I have to charge sales tax on my product purchases that are made in North Carolina. So if I'm going to ship there, if it's purchased and shipped to North Carolina. And there are some changes in the laws coming up. Soon I anticipate that that might change where we're going to have to collect sales tax on all e commerce products. But you definitely want to talk to an accountant about what your particular state requires for you. A resale certificate can sometimes be called a reseller's permit, a reseller's license, resale license, sales tax ID, or sales tax permit. So you want to check with an accountant or a local tax office, maybe even a lawyer, and they can provide you with details on how you can apply for your specific state. But I will tell you that nine times out of ten when I apply for a wholesale account with a new vendor, they ask me for that resale certificate. If they don't, then I point it out to them and I say, I have a resale certificate in the state of North Carolina. Do you need my resale certificate number so that you don't have to charge me tax on my purpose? So that's a really big early step to get that resale certificate. Let's talk more about some buying tips, some wholesale buying tips. So, you want to check the product vendor's website. Many times they'll have a link right to their wholesale program, right to a wholesale application. If not, then they might have a contact form or maybe even an email address. So just email them and ask them about their wholesale or bulk pricing. Sometimes I even do this via Facebook Messenger. Or Instagram private messages, but I really like to get a contact person so that we can take that conversation to email and I can introduce Sparkle, Hustle, Grow to them, what I'm looking for, the types of quantities, the types of products that they're, that I'm looking for, be aware that many wholesalers will have a minimum buy, so they may, they might not do business with you unless you spend a certain amount of money. And that can be really difficult at first when you're just starting out. But usually what I found. is that those minimum buys are right around that 250 or 500 mark. So if you aren't quite there yet where you can spend 250 on one product, you can kind of get strategic and figure out how to get there. Maybe you look to see if they have a Second product that you can buy and the combined order will be 250 or or hitting that minimum level Or maybe you can find a colleague or someone else that has an online store That would be willing to go in with you on a buy together So you just got to get strategic try to figure out how to get there. I plan out about Three to sometimes even six boxes at a time And it gives me a really good big picture of what i'm going to need and a lot of times I will combine multiple products from that same vendor, and I will get some better pricing. When you're negotiating with a wholesale vendor, I encourage you to ask for a better deal. Why not? Maybe they'll give you 40 50% out of the gate, but it can't hurt to ask for something like free shipping. Or maybe you just ask them and say, Hey, can you do any better on that price? I'm really looking for 60% off. You just ask. You never know what they might be willing to do for you. Another thing that can help is if you create a media kit and show them where you're going to provide them value. Maybe you offer them a chance to put a bounce back coupon in your box to drive traffic back to their website. That's a huge value. Maybe you will feature them on your Facebook page, another way to provide them value. There's all kinds of other ways that you can promote that company and bring them additional value. Think about it this way, you may have the audience that that company is looking to promote to to get in front of, and you're going to put one of their products in the box, maybe even with a discount postcard, that's a ton of additional value for that vendor. And I like to call it activating the feature, that you've featured their product and you're going to activate it by featuring them on social media or in emails and other places. And we can talk about creating a media kit in another episode, but it's definitely valuable when it comes to negotiating and trying to get leverage for an additional discount on your wholesale buying. I hope this episode was able to provide some clarity on how to make money with a subscription box business. Be sure to subscribe so you don't miss out on future episodes because soon I'll be talking about product sourcing, one of the topics I get asked about the most. And we're going to talk about where I find products, how I reach out to the vendors, and exactly what to say. But before we talk about product sourcing, I want to talk to you about the key terms for the subscription box industry. You got to understand what these specific words mean. If you want to understand how the box model works and how you can launch your own subscription box. So join me in the next episode. Number four of six, where I'm going to teach you the language of subscription boxes. If you don't want to lose any traction before that episode is available, though, head on over to a subscription box, basics.com/launch. And you can watch our free on demand, video training that teaches you how to launch a subscription box business, a profitable one without the headache of piecing it all together from unreliable sources, you're going to love this training. We're getting a ton of positive feedback on it.. . So take a minute, head into the show notes to get that link again. And I'll see you in the next episode.