Sophie Howard:
Hello, and welcome to the episode where we're going to do a deep dive into a really, really cool business model. This is one of my very favorites. It's not for everyone, but if you get this right, this is one of these money machine businesses where two lots of different customers pay you for doing the same thing. So it's a really, really neat model. And it is, if you haven't already guessed, subscription boxes. So a lot of really good business models are ones where both sides of a platform pay. So both the users and the providers of a service pay to be on some central hub, offering their services, maybe people pay to buy the services and maybe the people delivering the services, pay some sort of commission on their fees or pay to promote their service. And so it's really neat if you can bring buyers and sellers of something together and own the platform.
And this is the ultimate position to be in business is to own the platform where people come and do business on your platform. So we've seen quite a lot of the big tech giants do this very successfully. For example, on Amazon, when a product sold on Amazon, both the customers pay Amazon and the people selling on Amazon pay quite a lot in the way of fees and commission. So they really own it. And James Schramko, who's a very clever business coach, he's got a program where he talks all about owning the race course or the other one is to own the casino, which is because the house always wins. They control and own that territory where people come to engage in trade and you own it. So owning a marketplace is cool, but a smaller and simpler way to have that beautiful model of being paid by two lots of people at once is a subscription box.
Now, this is a thing that tends to be a physical box that's mailed out to subscribers usually every month. And there's some really fun subscription boxes. There's some very boring utilitarian subscription boxes. There's subscription boxes that people give as a gift. There are ones that are just replenishing supplies of some everyday consumable thing that you use up all the time, like toothpaste and toothbrushes. But if you've got an e-commerce product that's got subscription potential, so any kind of consumable product, this is a model really worth thinking about, or it could be a digital product that's sold on a subscription type basis. So it could be a magazine or some kind of reading material. It can even be attached to a community. So maybe every month, they receive a type of tea to drink in sample, but they're also going to get some tasting notes and there maybe also going to be in a Facebook group with people sharing things to eat with the tea or cheeses to try with the wine and the wine club.
So you can definitely build a really nice community out of people who are passionate about whatever the box is all about. So I'll give you a few examples and there's some eye watering valuations on these subscription boxes who've done it really well and gone really big. So if you want to have a look at a good example of this, then you can't really go past, well, there's probably three really classic examples that really show how this can be done really, really well. So we've got the Dollar Shave Club, which sold to Procter & Gamble for over a billion dollars or some ridiculous amount. I should have written down the number, but it was absolutely a staggering amount just for resupply of razor blades every month to the customer's doorstep. So really, really simple. The people that started that built it really carefully and very deliberately and had this amazing exit because Procter & Gamble in the shaving business, and they wanted to own that recurring revenue.
So the valuations on these businesses can be really high because the owner of this business has a lovely feeling of certainty. Every month, they know that more customers' credit cards are going to be charged, they know exactly how much inventory they need to ship, and it's just so predictable. There's a lovely certainty with your future cash flow, which you don't get in any other business models. So software business models have this, this recurring monthly revenue, but this one you have recurring monthly revenue, and you can even get paid by both sides at once. So back when I had a tea business on Amazon, I started a subscription box and it went well. And I had a company in Chicago, packaging up all the tea samples and gifts and boxing it up and shipping it out for me each month, which was wonderful. And when I was running that business, I got approached by Birchbox.
So Birchbox is the second huge example of a subscription box that's gone really well. So the first one's Dollar Shave Club, the second one's Birchbox. And Birchbox approached me and said, "Look, you've got these wonderful tees. You've got these detox teas. Our customers really care about beauty and cosmetics. That's what Birchbox is all about. Would you like your tea to feature in one of our monthly boxes?" And they sell thousands and thousands of these things every month. So I was like, "Well, there's a lucky break. Yes, please. Thank you very much. Where do I sign?" And they said, "All right. So here's our pitch deck." So Birchbox, and it was actually Birchbox Paris who contacted me. So I was jumping ahead in my mind, oh, I'm going to go off to Paris and celebrate my win of my tea business hitting the mainstream.
This is just a tiny startup at the time. Anyway, they sent me the pitch deck about the metrics and how these products that go into the Birchboxes go on to be global winners. And as it went on, I became more and more nervous that this was not quite the deal I'd first imagined. And sure enough, at the end, there was some price tag to be in this box. So I was going to have to pay to put my product in this box, not just give them free product even, pay quite a considerable amount for the exposure to my ideal customer. So that sampling industry is huge. And so Birchbox gives out lots of little beauty samples sachets of serums and mini mascaras and goodness knows what else, frizzy shampoos and all sorts, makeup, lip balms, anything that can be mailed, they'll put together a special little bundle of goodies.
And then the other side also pay to receive it. So people who subscribe to Birchbox pay maybe $40 a month or so. And every month, this lovely box of luxury skincare treats arrives at their door. And the hope of the people who paid to put those samples in there is that the customers love these samples so much that then becomes their regular ongoing beauty product of choice, or in my case, that they would drink my tea forevermore. Anyway, as a little startup, the price tag to play in that game was just too much for me. And I always wonder what would've happened if I'd done it, but I didn't, but I always keep an eye out on subscription boxes. And the other one that got away on me was talking to a lovely lady, Staci Brinkman, who started another tea business around the same time.
And she's still running hers now, Sips by, and it's a really cool business. She's got huge customer base, quality product, and every month she puts together four sample teas and delivers them to people who love drinking different types of tea, such a neat model. So it's a really, really cool way to focus in on a theme, create a product that changes every month. So the downside of there is one is that there's a little bit of logistics and admin each month to put together a really interesting and quality box. So it might be that you go out and approach interesting new brands and see if they'll pay to go in as a sample or whether you can get it for free. And then on the opposite side, you're marketing this month... Usually they don't advertise what's in that month's box, usually it's got some element of surprise, which is part of the joy.
When people receive these things in their mailbox, we all love a parcel we don't know. Especially if it's not just from Amazon, we know what we ordered yesterday, but if there's a surprise box, something we're interested in that we really love, then this subscription box brings a lot of joy when it lands in the mail, because we don't know exactly what's going to be in it. So I've been swatting up on best practice with subscription boxes recently, because I'm actually about to launch a new one of my own. Not tea. The tea one was good, but I actually sold that whole business so that one's been and gone.
But another one and it's going to be US based and probably around the $25 a month mark. And just I want to share with you on this podcast, how I've gone about researching what best practice is for subscription boxes, because if you've got any kind of product where either the physical product or some sort of experience around it, you can reuse and reuse or refill and refill or explore further into a world, say the world of wine. Every month, somebody could try a new wine or a new type of craft beer, or a new type of kombucha.
You name it, there's a subscription box for it. So I remembered it must have been 2016 when I had my tea subscription business, there was a group called Cratejoy, which is a platform that hosts these subscription boxes. So it lets you have the recurring monthly payments and host the website and they put together a really nice package to help you. And then part of Cratejoy is another big community called Subscription School. And it's amazing how much content there is in there, how friendly that community is if you need help choosing what kind of gift wrapping services available at what price or who can recommend someone that does perishable goods, or has anybody got any ideas for samples for box that sells. I don't know. Aromatherapy samples, somebody else might say, "You should try these guys for burners as a free gift or this person's got incense that might be a nice match."
So there's a lovely, helpful, very, very friendly community, which makes life easy because nobody's really competing directly. And actually the founder and main coach on Subscription School, he went off and set up a farmer's market box. So that did really well and basically got this geographic grouping of local produce and put together this feel of the farmer's market coming to you, rather than you going to the farmer's market to get homegrown local. Some will be fresh produce, but some might be preserves or Japanese or nuts or who knows.
So really, really interesting opportunities there. Some of the ones that I've seen go really well, there's one called Graze, which sells really healthy snacks. And people sitting in an office, if a thing gets delivered to your mailbox at work with healthy snacks in this is a moment of joy in your working week and you can sit at your desk with this beautifully packaged little bundle of there'll be some beef jerky and some macadamia nuts and some seaweed chips, and oh, you'll be running on the good stuff.
And there's quite a lot of snack boxes, there's all sorts. Sock of the Month Club, undies of the month club. There was one called MeUndies which Tim Ferriss promoted, which was a clever concept as well. So that was a few years ago, but that was another business that started up in this space and did a really good job of it. And then the last of the big three examples I wanted to share with you that's worth having a look through is BarkBox. So this is a monthly subscription box that is full of gifts for your dog. So BarkBox is dog treats, dog accessories, you name it, anything you'll get in BarkBox.
There again, that really sophisticated model. They have dog product companies paying to put their products in the box. They have Dogmad owners paying to receive this box. And every month, they rent a whole little logistical exercise to get the right products in the right box to the right people. It might be that everybody gets the September box in September and everybody gets the same thing. You would choose for a larger or a small breed of dog actually for theirs, there's a few options. You can also do a basic box or a more kind of premium VIP box. That's obviously more expensive. It has more goodies or maybe some more personalized aspect to it. So you see that across all the different types of subscription box. So BarkBox is great. They've got dog food treats or snacks, or they can have people who've got training companies, giving tips and little inserts and all sorts.
So really, really nice idea. And a lot of these gift boxes are given as a gift. So I know that quarter four just tends to go off for these people with subscription box businesses, because somebody knows that their mother loves wine and they're not sure which wine to buy, but a subscription box to try a new wine each month's a great present. It's a gift that keeps on giving something turns up. You could have a fudge of the month for your grandmother who might live in a different place and you wish you had more contact. But every month, she'll get something physical in the mail that's thoughtful, that she'll love, that maybe she can share with her friends and it's a real occasion. So gifting these things is really nice because maybe a friend or family member knows that you've got an interest in something, but because you're maybe a bit of an aficionado, they don't really want to guess wrong or get something not to your taste.
So getting access to this club where someone else does the choosing shows it's thoughtful, it's better than giving a book token or an Amazon gift card. It's more thoughtful than that, but actually it does take all the choice out of the present bit for you, the gift choice itself. So it's a very thoughtful gift. It's a nice recurring event throughout the year. So typically, these subscription boxes, you would subscribe... Ideally, you'd get your subscribers to sign up for a whole year and every month that credit card gets charged. And so you would over time learn the churn rate, which is that's the percentage of people dropping off your membership each month. So you've always got to recruit a few more each month than you do. There's always going to be a bit of attrition as people drop off, they've now got 12 bottles of wine and drunk on their kitchen bench, which is a problem I've never had.
But sometimes, you've just had enough of trying 12 months of different teas, but for some kinds of things, maybe you just keep going forever. If it's a book of the month club or aromatherapy oil of the month type club, those products you're using them up and was looking for more if it's a serious interest of yours. There's a really good book on this whole industry called The Automatic Customer by John Warlow, which I can highly recommend you read. He's also got a great podcast and he's done another book recently about selling businesses. So John Warlow is somebody really, really good to follow on the subscription box industry. And there's a couple of other books as well and on my website, if you head over to aspiringentrepreneurs.com, if you head into the resources and find a reading list, there'll be a couple of really good books in there on subscription businesses.
So I've had a lot of fun building one and selling it so far and in the process of building the second one I've ever done. Things that make a huge difference are just things like the size of the box and the weight of the product. It's quite sensitive to the weight, just because of the way shipping's calculated. I've tended to go US only. I think if I can't find enough customers in the US, I should not bother with that one because that's a lot of customers and some really easy courier and logistics services available. There's a lot of services that offer that third party logistics of packaging, putting stickers, gift cards, tissue paper, matching up products into the right boxes for the right customers each month offer big spreadsheet.
So there's a whole industry out there doing that, but you could also pay somebody who's got some space at home. There's plenty of stay-at-home mums with half of a spare room where they could keep a few units of inventory. And while you're growing, just keep it really simple and have somebody a bit more hands on rather than paying for a great big factory or warehouse, sorry, to manage all your goods. So start small and see if you can, from the very beginning, put the word out that you are looking for quality products to put into your gift boxes. And even if it's not a gift box, it might just be something really boring, like the shaving one with the razor blades or toothpaste and toothbrushes, but maybe another toothpaste company wants to put in a free sample of their toothpaste to see if people like theirs instead. And they'll pick up some new clients and future orders from that marketing gesture.
So it's kind of marketing spend for the product companies, a really lovely gift for a lot of your customers and a real indulgence in their hobbies or interests for customers buying it for themselves. So I think you'll find a lot of details and really good examples. You can go through the screens, go through the ordering processes, some of the best subscription boxes you can see on Cratejoy.
Shopify also has all the plugins and WordPress also has all the plugins you need to do the recurring payments and manage all the staggered emails depending on where in the month people join and whether they've caught that months shipping date. So there's a bit of logistical stuff to think through. You definitely want somebody in your team, if it's not you, to have a bit of an operations brain. Sadly, I didn't get one of those.
And so I've hired some help on that front. But yeah, there's a few moving parts, but none of it's hard and the cash flow is so nice because every month, you know what's coming in and you know how many orders you need to fulfill each month off your list. So it's a great business model to explore. I've had a lot of fun with it. It's a really nice feeling. I think people buy something they really love. With this, it's not just a boring expense. It's a gift. It's something people want to be generous around or do something really interesting and special for someone they care about. So a lot of these are sold as gifts. So I think subscription boxes are an overlooked little gem in the e-commerce world and I'm certainly going to try and pick out a few more ideas for some more in the future once I finish this one.
So I'll keep you posted on the progress of this one. Maybe I'll drop a link to it in one of the future episodes as it's gone live, and you can see exactly what I've done and how I've done it just as an example. So all the very best, if you're going to head into subscription box land, it's a great place to be doing business. It's hands off if you design it that way, it can be as hands on as you want it. But there's people out there with amazing niche interests where there's not very much competition for subscription boxes for those interests and hobbies and niches. So go after them and do a great job and there's some great business opportunities there. Okay. So that's it on subscription boxes and we'll see you in the next episode. Thank you.
