The global subscription eCommerce market is huge and growing. It’s expected the market will reach nearly $480 billion globally by around 2025. With a fast-growing sector like that, there is room for a lot of new players to carve out a niche for themselves.
Of course, wanting to start a subscription business isn’t enough. You must narrow your focus and develop sound plans for starting and running the business.
Wondering where you can or even should start the process? Keep reading for our guide on starting your subscription business.
Picking an Idea
Some entrepreneurs start a subscription service based on one of their own unfulfilled needs. They find a hole in the market and seek to fill it. Some people are idea-generating machines who seemingly come up with great ideas all the time.
If you fall into this latter category, picking between your subscription business ideas can prove difficult. You can simplify things a bit by asking this question:
“Does this idea serve a specific niche?”
After all, food subscription services don’t cater to everyone. They target busy professionals with more resources than time. Focusing on a niche lets you work with an identifiable and reachable target market.
Physical or Digital?
There is another question beyond how to start a subscription business? It’s the question of whether you should start a physical or digital subscription business.
Many customers like physical subscription businesses because they like getting the boxes in the mail. Many customers, sometimes the exact same customers, like digital subscriptions because they provide convenience. Think of streaming video services.
Digital Pros and Cons
Digital subscription services can offer an initial advantage in terms of startup costs. If you’re not buying, storing, and shipping physical inventory, you save a lot on overhead. The tradeoff is that digital subscriptions thrive on a steady stream of new content.
You can’t rely on the marketplace to simply provide you with things to throw into your digital subscription service. You must generate new content, courses, quizzes, exams, or units on a regular basis. This often requires that you pay third-experts or freelancers to flesh out your content.
Physical Pros and Cons
With physical boxes, you likely don’t make most of what goes into the box. You buy products in bulk from vendors. That means you typically can rely on the marketplace to help you fill out your boxes.
That also means that you’re somewhat at the mercy of your suppliers. If they go under, for example, it can leave you scrambling.
You must consider sourcing your products before you get very far into starting a subscription business. Your precise vendors will vary based on niche, but you should always look for well-established suppliers or wholesalers with a healthy business model.
You will need accounts with those vendors, which may take some negotiation in terms of invoice due dates. If you’re looking for credit, such as net-30 or net-60 invoicing, expect the vendor to ask you for financial information. They’ll likely run a credit check on you personally or your company.
For digital subscriptions, you’ll likely produce the initial round of products in-house. Unless you are very sure you can keep producing content at a steady pace, you should start looking for specialists you can hire for additional content.
Deal with the Technical Side of Things
Assume that your business will get traction and your customer base will grow. That means you’ll need subscription management software of some kind. If nothing else, you’ll want it for billing.
In reality, though, you should assemble a complete suite of integrated customer management software applications to handle everything from billing and accounting to marketing and customer relationship management.
You’ll also need a website as a basic customer portal for both digital and physical subscription services. For physical subscriptions, you’ll need standard security measures to protect user data on the site.
For digital subscriptions, you’ll need some extra bells and whistles on the site. Specifically, you’ll need a public area for visitors to get a taste of your service and sign up. You’ll also need a dedicated members area where you host paid content.
Coming up with a working financial model for a subscription business is often one of the single biggest challenges. You must charge enough that you cover all your costs and ideally make some profit as well.
For a physical subscription business that means the price of the subscription must cover things like:
- The actual products
- Shipping supplies
- Shipping costs
The good news is that a growing customer base will let you secure better per-unit costs on the box products. Expect that you’ll need some serious initial market research to pin down a price point that secures you a profit and leave people happy with their boxes.
Since the initial costs on launching a digital subscription service generally prove lower, you get more leeway in pricing. Bear in mind, though, that your costs for things like cloud services or hosting costs will rise as your customer base grows.
Digital subscriptions handle fulfillment right on the website, so it’s built right into the model. Physical subscription services must consider fulfillment.
While you’ll likely handle it in-house at first, a fast-growing customer base can leave you staggering to catch up. You should at least investigate third-party fulfillment services as an option for when you scale up.
Surviving When You Start a Subscription Business
Surviving when you start a subscription business demands the same things as any other kind of startup. Plan out as much as you can in as much detail as you can. The more you know going in, the less likely it is that something will catch you unawares.
Surround yourself with competent people. The more competent people you can find, the more you can delegate important tasks.
Maintain good relationships with your suppliers. If you think you’ll make a payment late or even miss one, call and talk it through with them. Most vendors will work with you if they think you’re acting in good faith.
Looking to bone up on your business finance? Check out the articles in our Finance section.