Is the subscription box model profitable?
Yes! The subscription box model gained popularity in the United States back in 2011 and is reported to have generated $2.6 billion in 2015. Now, in 2021, the subscription box market is estimated to be worth $15 billion and continues to trend upward.
Are these profits sustainable in this post-pandemic world?
During the 2020 global pandemic, the world was in a state of uncertainty however, one thing was certain, US consumers continue to maintain their subscription boxes services. The most popular of these subscription box services were HelloFresh, BarkBox, Blue Apron, and Dollar Shave Club. Experts have estimated that subscription-based services will continue to maintain their profitability in the future, making this business model evermore popular.
By 2023, as many as 75% of direct-to-consumer brands will have a subscription-based offering. – Daniela Forte, Content Manager for Multi-Channel Merchant
Who are the customers of the subscription-based model brands?
The subscription-based model aims to appeal to consumers driven by factors such as conveniences, flexibility, customization, and especially brand values. These factors align with specific millennial consumers. A statistical analysis of the latest data shows that consumers of subscription boxes are between 25 and 44 years old and their individual incomes ranges from $50,000 to $100,000. – McKinsey
Are subscription boxes marketable in the affiliate space?
Affiliates who manage a blog, an email list, or social media influencers will find great success in promoting subscription-based brands. This may be because subscription-model relationships seem to build a stronger bond with customers than do purely transactional models. This is because many subscription box services offer the factors we reviewed earlier such as customization, flexibility, ect. Thus content affiliates are prime marketers for subscription services because they provide social proof to their audience. Content affiliates speak to the factors and values of the target audiences subscription-based brands aim to capture. Brands are keen on affiliate marketing because the quick activation of links and product review requests provide immediate revenue bumps and branding.
Content affiliates and social media influencers are not the only affiliates to comprise a successful affiliate program. Subscription box programs convert at a consistent rate with coupon/loyalty affiliates. Coupon/Loyalty sites have large pools of potential customers. Because of this these sites historically convert sales for a longer period of time than content affiliates.
How can subscription-based model brands optimize their affiliate programs?
If you are a direct-to-consumer business working with a subscription-based model and wanting to market your brand and services through affiliate marketing there is a key factor to keep in mind. The lifetime value of your subscribers.
“…you don’t need to get bogged down in complex calculations – you just need to be mindful of the value that a customer provides over their lifetime relationship with you.” – Qualtrics
To determine how to maximize your affiliate program it’s important for the brand to know the lifetime value of its subscribers. That way you can understand the margin for affiliate commissions and how to make the program appealing to affiliates. For example, let’s look at Sago Mini Box and Toca Life Box. Both subscription services cater to children and each subscription costs $19 per month. With such low monthly subscription costs, offering affiliates an 8% or even 10% commission per subscription wouldn’t be enticing. The affiliates would only earn a measly $1.50 to $1.90 per referral.
On the advice of Matt Midthun, the program manager of Sago Mini Box and Toca Life Box, the programs offer a flat rate payout rather than a percent commission. Up to $20 per subscription. Both brands have a strong customer lifetime value. Thus they are not concerned that nearly 2 months’ worth of revenue was spent on the referring affiliates’ commission.
Additionally, there are a few keys strategic management techniques Matt has implement to ensure sustainable growth:
- Consistent program recruitment resulting in the continual growth of the affiliate program partners.
- Run reguler activation campaigns to keep current affiliates engaged with the brand.
- Organize reviews with subscription box affiliates like this one from HelloSubscription.
- Last but not least the use of vanity codes.
“A vanity code not only boosts conversions, but usually results in higher profile placements.” – Matt Midthun
As Matt has said “A vanity code not only boosts conversions, but usually results in higher profile placements.”
As you can see subscription-based business models are highly lucrative in their own right. And with the right strategic management of their affiliate program, these brands can meet their pinnacle potential.