For Small Businesses, Subscriptions Mean Success
WHY YOU SHOULD CARE
We’ve all got a great idea for making a product, and now have a way of actually selling it to consumers.
For three years, Erin Maynard ran a store called The Geeky Cauldron out of her home in Phoenix. She sold jewelry on the online artisan marketplace Etsy inspired by themes from popular books, films and TV shows: think vampires and wizards. For the most part, it made her decent income, but month-to-month sales were a roller coaster. Some months, sales topped $5,000. Other months, they barely cracked $1,000.
That is, until she got in on one of the hottest — but dullest-sounding — trends in retailing.
It’s the subscription business, in which companies bundle up boxes or groups of products and ship them off to loyal customers. The concept isn’t new, of course (remember when the milkman delivered?), but in the past couple of years, that home-delivery model has gotten hotter than ever, for products ranging from picture books to handmade soap to dog treats to date-night tickets. And the money follows: The success of companies like Birchbox and Dollar Shave Club has captivated venture capitalists, who’ve poured nearly $1 billion into subscription e-commerce in the past five years, according to CB Insights, and spawned hundreds of imitators. Amazon, Target and Walmart have also gotten into the action, launching subscription services for groceries and cosmetics.
My whole life has changed in four weeks.
— Erin Maynard
In the latest evolution of the trend, mom-and-pop shops are jumping in. Maynard launched a site called Fandom of the Month Club: Each month, she sends subscribers two to four pieces of jewelry based on a theme. Among the items in her first box were a bow-and-arrow necklace and a bird bracelet, in a nod to Katniss Everdeen. Since launching her subscription site in early October, she’s seen quick results: She reached her monthly target of sign-ups in just five days.
No wonder other businesses are following suit. Companies such as Umba and Fair Ivy sell subscription boxes with products sourced exclusively from artisans and small businesses. It’s even beginning to catch on in the Etsy marketplace: Some 80 Etsy sellers now offer subscriptions for their handmade and artisan products, Etsy confirms, and a search for “subscription box” on the site brings up more than 200 items for sale. And of course, with the successful idea comes a slew of service sites, like Subbly and Cratejoy, which offer tools that allow small retailers to set up these online subscription shops.
Maynard had been mulling over the idea of launching a monthly subscription when she came across Cratejoy in a Google search. The company’s service was still in private beta. Once she got access, she quickly created a site for Fandom of the Month Club, but she didn’t expect it to get much notice. “I literally threw it up there, and I woke up and had 21 subscribers,” she says. Maynard ended up creating a waiting list when her shop reached 120 subscribers, because that was the maximum number of orders her supplier could meet.
With subscriptions at $13 a month, Maynard’s sales are pretty modest, though she says 30 percent of her customers have already dropped dough for three- or 12-month packages. But for her, the guaranteed sales are a game changer. The upfront revenue allowed Maynard and her husband to finalize plans to move from Phoenix back to her hometown of Omaha. “It’s paid entirely for my move,” she says. “My whole life has changed in four weeks.”
Perhaps the biggest challenge is scaling up …
Subscriptions are often boons for small retailers. Why? There’s the guarantee of regular money, for one; logistics — since items are shipped only once a month, it’s easier for retailers to manage inventory. “That’s a huge, huge deal for merchants,” says Amir Elaguizy, the CEO of Cratejoy. “It makes the business so much better run.” Cratejoy, which publicly launched in mid-October, has signed up some 3,300 retailers, most of them small to mid-sized. It offers three service plans, ranging from $0 to $299 a month, with transaction fees between 1.25 and 3.75 percent.
In fact, selling boxes full of quirky items may be a smart strategy, says John Warrillow, the founder of The Sellability Score and author of the forthcoming The Automatic Customer: Creating a Subscription Business in Any Industry. “Retailers are getting killed by Amazon,” he says. “The only way they can win is with a unique product.”
Still, subscriptions aren’t an automatic gold mine. Customers have almost too many choices these days, and even once they’ve fallen in love with the product, retailers have to stay on the ball to make sure their buyers don’t get bored with the monthly shipments. That may require regularly changing the product mix, says Warrillow. He notes that Dollar Shave Club, for instance, now sells other grooming products alongside its razors. Because their inventory is limited, many subscription retailers don’t allow exchanges or returns unless a product is defective or an order is incorrectly filled, which may be a turnoff for some customers.
Perhaps the biggest challenge is scaling up, especially for custom or handcrafted products. As Maynard can attest, small suppliers often have trouble filling bulk orders. That limited capacity could put a ceiling on some businesses’ growth. Tim Ray, a co-founder of Toronto-based Carnivore Club, which sells a monthly subscription box for artisan-cured meat, says he expects his company’s customer base to remain fairly small. He often scours the yellow pages for small-scale butchers to work with, and few can supply thousands of customers at a time. Carnivore Club has 2,000-odd customers right now, who each pay $50 to $55 a month, but Ray may establish a waiting list once membership hits 5,000 or 6,000. “I think there’s a natural cap on businesses like ours,” he says. “It’s not one you can grow indefinitely.”
But for many small retailers, gaining steady sales is enough. Maynard is so pleased with her monthly-box experiment that she’s decided to close The Geeky Cauldron to focus on Fandom of the Month Club. “Even if I don’t get any more subscribers,” she says, “it will pay a large portion of the bills.”
And that’s enough for most mom-and-pops.