How profitable are subscription boxes?
Let’s talk about the numbers! This question came up for one of my clients in Subscription Box Academy recently:
Just how profitable are subscription boxes?
Are they a hobby business, or do they only make money when you’re a household name?
Quick answer: Yes, they make money.
Especially if you’re smart about how you grow your sub box and keep your costs lean, scaling them up as you grow.
Now, let’s take you behind the scenes and look at the actual numbers.
I’ll share a snapshot of where my own subscription box was when we reached £100,000 turnover (and £200,000), what the key costs were and the decisions behind them.
A £100,000 Bootstrap Subscription Box
First up - what do I mean by bootstrap?
Well, I grew my subscription box from the profits in the business. Apart from some savings from my day job (which largely covered my living expenses so I didn’t have to pay myself in the first 6 months or so), there was no cash injection or outside investment.
That’s been an intentional decision of mine - I wanted the freedom to grow without outside stakeholders, but you may choose something different.
Before we dive into the numbers, a quick explanation:
In the UK, when you reach the VAT (value added tax) threshold for turnover (currently £85,000), you pay 20% of the sale price to the government in VAT, minus the VAT you reclaim on costs (that’s a whole other blog post, and one better written by an accountant or bookkeeper!) When looking at your accounts, you cost everything excluding the VAT - so sales and expenses after VAT is taken off.
Your expenses are generally broken down into two parts - the direct cost of sales of your boxes: the boxes and packaging, the contents, the cost to pack the boxes and post them, and the cost of payment processes (e.g., Paypal) - these costs are directly related to how many boxes you sell.
Then you have your overheads - the costs that are more static, although they will go up as you scale — for example, if you have a virtual assistant supporting you with customer service, the more customers you have, the more hours they will do.
When we reached £100k turnover, the costs looks like this.
Turnover: £103,500 (excluding VAT)
Direct Cost of Sales: £48,250
This broke down into:
- Cost of contents in the box: £26,500
- Cost to package and post the boxes out: £15,600
- 3rd party website fees (e.g., selling your boxes through someone else’s platform): £3,350
- Payment processing fees: £2,800
With direct cost of sales, you’re generally aiming for 50% as an e-commence business - this came to costs of 47%, so pretty close.
Overheads (excluding director’s salary): £24,100
This is where it gets more interesting, and a ‘lean start up’ mindset and making decisions that support how you want to run your business come into play.
I’ve also pulled out the director’s salary / national insurance contributions here (that was for me), so you get a clear picture of what the pot of money at the end is - and again, you’d make a decision on what you want to pay yourself (through salary and dividends, allowing for taxes on those) and what you want to reinvest in the business (always a good idea, if you want to keep growing!)
I’ve not listed all the costs here, but these are the key ones:
- Marketing £5,800
This is definitely an area where I could have spent more at the time. I recommend a ‘test and scale’ approach to marketing, running tests on a lower budget, then scaling up those that work.
Most of this spend was through affiliates and online adverts; the affiliates ran really well (they refer a sale, I pay them a referral commission - it’s all automated), but online ads were a bit hit and miss. If you don’t keep a close eye on ads, they can quickly change from being a good ROI (return on investment) to horror-face-emoji in a few days.
- Freelance Support £8,400
I love working with freelancers - they have specialisms in different areas, and charge for the work created / hours worked, so you’re paying for what you need. This is ideal as a small / start up business, where your need wouldn’t make sense for full-time employees yet.
As a side note, I still think of and treat my freelancers as part of my sub box family, and care about them a lot, it’s just they invoice me at the end of the month, rather than be paid a set salary.
The support I had at £100,0000 turnover included:
Virtual Assistant for admin and customer service (the main support I had and still have)
Marketing Support (writing blog posts and scheduling social media)
- IT Software & Consumables £1,800
I love automations, and how technology can create more ease for us. That’s what really helps you scale, and we’re lucky to be born in a time when these are all at our fingertips.
Here’s the key tech I use:
Website hosting, etc - I used Wordpress with Thrivecart at this stage, and had paid in advance (one-off fee) for Thrivecart & the theme.
Google - where we host our email accounts and have GoogleDrive to share admin docs.
Dropbox - where my team keep a lot of shared large documents (e.g., raw and final video footage, images, design files).
ActiveCampaign - this is my email provider, and excellent at running automated emails.
SmarterQueue - We use this to schedule our social media posts. It includes an evergreen function, so relevant past posts can be brought back with different images / text in future.
Zapier - Allows different bits of software talk to each other if there isn’t an existing option to connect them.
AutoEntry & Xero - Accounting software.
I do review our IT budget every few months to check we’re still using everything - but the above are pretty settled now.
- Training and coaching £5,500
Yep, this figure is high comparatively, but I’ve learned from (a) trying to do it all myself for years and (b) working with great coaches, that (b) gets results!
In less than a year after £100,000 turnover, the business had reached £200,000 turnover, and that was in large part to the support I had from coaching - so a small investment for the result.
- Other costs £2,600
This includes insurance, legal, travel / events / accommodation, research, printing & stationery, telephone, depreciation, and all the other bitty costs involved in running the business.
Profit (incl Director’s Salary and associated taxes): £31,150
Now, you might be thinking that sounds great - or you might be thinking that isn’t a lot for running a business.
But here’s the key context - as I mentioned above, in less than a year, the business had grown to £200,000 turnover, and that final figure was more than £50,000.
It wasn’t a straight doubling as I chose to spend more on support (approx £24,000) so I had more time to support and coach subscription box owners.
And from there? Your business keeps growing (if you want it to), and you keep making decisions at each stage on where you want to spend, and how you want to grow.
I hope this has given you valuable insight into the finances of a six-figure subscription box business, and some of the decision making behind the scenes.
If you'd like my support to help you grow your subscription box, let's have a chat. You can book a free 30 minute clarity call with me here.
All my best,
P.S. If you've found this post useful, you might like these -
2) Watch my FREE Masterclass, ‘The 8 Key Elements to Create a £100k Subscription Box Business’ - it's ready now!
3) Want to really elevate your subscription box? Join Subscription Box Academy - the step-by-step programme to growing a successful, vibrant subscription box business.