Unlocking Profitable Pricing: Mastering Subscription Box Strategies

Today, personalization and/or customization is the name of the game—your customers expect you to provide personally curated services and products to them and, in return for doing so, these customers are willing to pay top dollar as well. In short, today’s customers are little more than spoilt children. It is this larger trend in the social attitudes of the modern consumer that has prompted the rise of subscription boxes. In this blog, keeping this necessary information in mind, we will first understand what is a subscription box, and then we will move on to the main body of the blog in which we will primarily attempt to devise the best subscription box pricing strategy for your business.

What Are Subscription Boxes?

Customers who join up for recurrent delivery of carefully picked goods, usually on a monthly basis, get subscription boxes, which in itself is a popular retail idea. These boxes serve a wide range of interests and requirements, including food, literature, and hobbies in addition to beauty and fashion, among others.

Each subscription box is thoughtfully designed to provide customers with a special, frequently personalized experience. Although the contents of the box might vary greatly, they often contain a selection of goods associated with the theme or category of choice. Subscribers pay a set monthly price in exchange for a surprise delivery of goods tailored to their interests or preferences. A popular subscription box, especially after the movie Barbie’s phenomenal success at the box office, is delivering various goods related to the Mattel doll to the subscriber’s doorsteps.

Why Do You Need Subscription Boxes?

Before moving on to devising the best pricing strategy for subscription boxes, it is important to understand their potential benefits for your business. In this section, we will briefly cover the benefits of offering subscription boxes to help you offer similar boxes for your subscribers.

1. Highly convenient:

People who dislike shopping or just don’t have the time for it may find subscription boxes particularly appealing. One is that everything is brought right to your door. Having treats delivered to your home automatically each month is also a plus. Some businesses, especially those invested in nutrition, even provide auto-shipping of healthy foods.

2. A way for you to discover new products:

Sometimes you won’t be able to locate your object on your own and it could be necessary for it to come to you. While many subscription boxes are designed to be personalized for you, they may also be a great way to sample items you would not ordinarily order.

3. Add value to your service:

According to your preferences, skin type, hair color, and other factors, your subscription box’s variety is often chosen for you. Additionally, the products have already undergone professional scrutiny, so you need not worry about their quality.

4. Increases customer loyalty:

Subscription boxes build customer loyalty by establishing a dependable and customized experience, continuously exceeding customers’ expectations, and encouraging a feeling of community among its subscribers. Customers remain thoroughly engaged and eagerly anticipate each delivery thanks to the element of surprise and value-added content, strengthening their loyalty to the brand and lowering their turnover to your competitors.

Devising The Best Pricing Strategy for Subscription Boxes

To comprehend how to devise the best pricing strategy for subscription boxes, it is important for us to first understand that there is a sure-shot formula that can help you calculate the return on investment (ROI) on your subscription box. In this blog, we will be using this formula as a guiding light to help you understand how to price your subscription box. In the case of subscription boxes, ROI is considered to be the equivalent of customer’s lifetime value. The formula is as follows:

[monthly box cost] x [customer acquisition cost] x [customer lifetime (in months)] = [customer lifetime value]

Now, let us break down this formula into its smaller components to understand what they are and how can we calculate them.

The first component to calculate is your customer acquisition cost (CAC). Subtract your monthly marketing costs (advertising, public relations, social media) from the total number of clients you bring on each month, and then multiply that number by the payment the customer makes for each monthly subscription.

The next step is to know your churn rate to calculate your client’s lifetime value. Here is the equation to calculate the churn rate of any given business:

Customer Lifetime Value is equal to 1 / the average monthly customer attrition rate.

Use this formula to calculate the churn rate, multiply it by the customer acquisition cost, and then finally divide that by the customer lifetime value to determine the price of each subscription box that you should be aiming for. Therefore, if we were to flip this formula to calculate the ideal cost of each subscription box, it would appear to be as follows:

[Monthly box cost] = ([customer acquisition cost] x [customer lifetime in months]) / customer lifetime value

From now on, use this formula to calculate the price of your ideal subscription box!

The Bottom Line

Subscription boxes have become a significant retail trend in today’s customized and convenience-driven customer market. These carefully chosen offerings serve a range of interests while providing comfort and personalized services. Businesses gain from subscription boxes because they increase client loyalty, open doors to new items, and guarantee high levels of convenience.

In this blog we have attempted to understand the ideal pricing strategy for subscription boxes, giving a formula for figuring out Customer Lifetime Value (CLV) based on Monthly Box Cost, Customer Acquisition Cost (CAC), and Customer Churn Rate. With the help of this thorough strategy, businesses may decide on the perfect pricing for their subscription boxes, enhancing both profitability and client pleasure.

SubscriptionFlow is a robust subscription management software that can help you calculate the ideal cost of each subscription box and, in doing so, assist you in devising the subscription box pricing strategy that will supercharge your business. Book a demo with SubscriptionFlow now to formulate the perfect pricing strategy for your subscription boxes!