The Economics Of Subscription Boxes

Analyzing the economics of subscription boxes to gain a deeper understanding of the strategies and tactics

Subscription boxes have become increasingly popular in recent years, with companies offering everything from makeup and skincare to books and snacks for monthly fees.

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But have you ever wondered how subscription box companies make a profit, or what goes into pricing their offerings?

The global market size of the subscription box industry is likely to reach $74.2 billion by 2028 from $26.2 billion in 2022.

In this article, we'll explore the economics behind subscription boxes, from their business model to pricing strategies and the challenges and opportunities they face.

Business Model of Subscription Boxes

Subscription boxes operate on a simple business model - customers pay a recurring fee to receive a curated selection of products on a regular basis.

But how do subscription box companies make money?

There are a few key factors involved in the subscription box business model.

Curation process

Subscription boxes are all about providing customers with an exciting and unique experience.

This is where the curation process comes in. 

The curation process involves selecting the products that go into the subscription box based on a particular theme or concept.

Here are some details on how the curation process works:

A curated book-themed subscription box, with an assortment of books, bookmarks, and reading-related accessories, showcasing the carefully selected items

Product sourcing:

  • To curate a subscription box, the first step is to source the products that will be included. 
  • This involves finding the right suppliers, negotiating to price, and determining the quality of the products.
  • Many subscription box companies source products from small businesses and independent artisans, which adds to the exclusivity and uniqueness of the products.

Theme development:

  • Once the products are sourced, the next step is to develop a theme for the subscription box. 
  • This could be based on a season, holiday, or even a specific interest or hobby.
  • The theme sets the tone for the curation process and helps guide the selection of products.

Product selection:

  • Based on the theme, the products are carefully selected to create a cohesive and exciting experience for the customer.
  • The products are evaluated based on their quality, uniqueness, and relevance to the theme.

Packaging and presentation:

A subscription box with beautifully designed packaging, showcasing the attention to detail and care that goes into creating a memorable unboxing experience
  • The products are then packaged and presented in a visually appealing way to enhance the customer's unboxing experience.
  • Many subscription boxes also include personalized notes, instructions, or recipes to provide additional value and enhance the overall customer experience.

Customer feedback:

  • Customer feedback plays a critical role in the curation process. 
  • Subscription box companies rely on customer feedback to improve their curation process, select better products, and create more engaging themes for future boxes.

Overall, the curation process is an essential aspect of the subscription box business model.

It is what sets subscription boxes apart from traditional retail experiences and creates a unique and personalized experience for customers.

The process involves product sourcing, theme development, product selection, packaging and presentation, and customer feedback, all of which contribute to the success and sustainability of the subscription box business model.

Cost of goods sold

The Cost of goods sold (COGS) is an important concept to understand when it comes to the economics of subscription boxes.

COGS refers to the cost associated with producing and delivering the products that are included in the subscription box.

Here are some details on the cost of goods sold and how it affects the subscription box subscription business:

Product cost:

  • The product cost is the amount that the subscription box company pays to source the products that are included in the box.
  • This includes the cost of raw materials, manufacturing, and shipping.

Packaging cost:

  • Packaging cost includes the cost of the box, any inserts or packaging materials, and the cost of shipping the box to the customer.
  • Subscription box companies must pay close attention to packaging costs to ensure that they are not eating into their profit margins.

Fulfilment cost:

  • Fulfilment cost includes the cost of packing and shipping the subscription box to the customer.
  • This cost can vary depending on the size and weight of the box and the shipping method used.

Overhead cost:

  • Overhead cost includes all the fixed costs associated with running the subscription box business, such as rent, utilities, salaries, and marketing expenses.
  • These costs are not directly related to the production and delivery of the subscription box products, but they still contribute to the overall cost of the business.

Profit margin:

  • The profit margin is the amount of profit that the subscription box company makes after deducting the COGS and overhead expenses from the revenue generated by the box.
  • Subscription box companies must carefully balance their COGS and overhead expenses with their revenue to ensure that they are making a profit.

Overall, the cost of goods sold to consumers is a critical component of the subscription box business model.

Subscription box companies must carefully manage their product, packaging, Fulfilment, and overhead costs to maintain a healthy profit margin.

By keeping these costs in check, subscription box companies can provide high-quality products and experiences to their customers while also running a profitable business.

Customer retention

A customer receiving a surprise gift or discount for being a loyal subscriber, showcasing the brand's efforts towards customer retention in subscription box business.

Customer retention is a key aspect of the economics of subscription boxes.

The ability of a subscription box company to retain customers directly affects its revenue and profitability.

Here are some details on the importance of customer retention and strategies for achieving it:

Importance of customer retention:

  • Customer retention is crucial for subscription box companies because it is less expensive to retain existing customers than to acquire new ones.
  • Loyal customers are more likely to purchase additional products or subscribe for a longer period, which increases the lifetime value of the customer.
  • Additionally, loyal customers are more likely to recommend the subscription box to their friends and family, which can lead to new customer acquisitions through word-of-mouth marketing.

Strategies for customer retention:

Overall, customer retention is critical for the long-term success of subscription box companies.

By providing high-quality products, services and experiences, offering incentives for referrals, personalizing the box contents, and staying in touch with customers, subscription box companies can build a loyal customer base that generates consistent revenue and profitability.

Cost Considerations for Subscription Boxes

The cost of producing and delivering subscription boxes can quickly add up.

Here are a few cost considerations for subscription box service companies:

Product costs

Sourcing products at wholesale prices is key to recurring revenue and keeping costs down for subscription box companies.

However, they also need to balance cost with quality to keep customers happy.

Packaging and shipping costs

Subscription box companies need to consider the cost of boxes, packaging materials, and shipping fees when pricing their offerings.

They may also look for ways to reduce packaging and shipping costs, such as using eco-friendly materials or negotiating better shipping rates.

Fulfilment costs

Subscription box companies need to have enough warehouse space and staff to manage the inventory and fulfilment process. 

This can be a significant cost for companies, especially as they scale.

Pricing Strategies for Subscription Boxes

Subscription box companies use a variety of pricing strategies to appeal to different customers and maximize revenue.

Here are a few common strategies:

Flat-Rate Pricing

Many subscription box companies use flat-rate pricing, where customers pay a set fee for each box.

This provides a predictable revenue stream for the company and a consistent experience for customers.

Tiered Pricing

Some subscription box companies offer different tiers of service at different price points.

For example, a premium subscription box model may offer higher-value items or more customization options.

Add-Ons and Customization

Subscription box companies may offer additional items or customization options for free or for an additional fee.

This allows them to provide additional value to customers and generate additional revenue streams.

Challenges and Opportunities for Subscription Box Businesses

Opportunities and challenges of standing out and differentiating oneself in a competitive subscription box industry.

While subscription boxes can be a lucrative business model, they also face several challenges.

Here are a few of the challenges and opportunities for subscription box companies:

Customer Acquisition 

Subscription box companies need to spend money on marketing to acquire new customers.

Additionally, subscriber churn can be high, meaning companies need to work to retain their customers.

Inventory Management 

Overstocking or understocking can be a significant issue for subscription box companies. Additionally, managing product expiration dates can be a challenge.


As subscription box companies grow, they need to be able to increase their fulfilment capacity and expand their product offerings to keep up with demand.


Subscription boxes have become a popular way for companies to provide a unique and convenient experience for their customers.

However, subscription box companies need to carefully manage costs, develop pricing strategies that appeal to their target consumer market, and navigate the challenges that come with scaling their business.

As the subscription box industry continues to grow and evolve, it will be interesting to see how these companies adapt.

- Jack

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About The Author

Jack Cullum

Welcome to my blog. I'm known to bust a box or two open. I'm discovering the limitless world of subscription boxes for men. Follow my journey in my newsletter to get more news and discounts!

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