Posted by Liz Cadman+ on Nov 1, 2013 in Blog | 7 commentsStarting A Subscription Box Company – All Your Questions Answered! A few months we did a post asking for any and all questions about starting your own subscription box company. And now, Sam Gold – the founder of Yumvelope – has taken the time to answer every single one of your questions!(FYI – This is NOT a sponsored post – I’m posting it because I think Sam’s answers are very honest and helpful!) Everything below is from Sam: (Yumvelope packages ready to ship).Hi all! In case we haven’t met, I’m Sam Gold and I run a monthly snack box for foodies– Yumvelope. A few months back, Liz and I collaborated on an “Ask the founder” post, and questions poured in. Below are the answers to these questions. Since it’s been a few months since you last had the chance to post questions, feel free to post more below and I’ll get back to you in an upcoming post. If you make it to the bottom of these questions, you’ll find an awesome charity/personal subscription offer!How do you select which products will go into a monthly box?New product ideas come in from a variety of sources– direct emails from brands, suggestions from subscribers, and in-house searching (attending natural product trade shows, searching on online directories, etc.) From there, I personally reach out and we determine whether the product is a good fit. This determination is based on user reviews, ingredients, brand size, samples, and more!Do you pay for the products in a box?We often do. Many larger companies (the now-defunct goodies.co box comes to mind) will unconditionally ask for all product at no cost which seriously limits the brands that can be included. I prefer to have universal choice, and the subscription is accordingly a few dollars more expensive than other boxes. ($21/month)How big is your team?Other than for shipping/packing purposes, I handle all management of Yumvelope. In my opinion this is awesome for subscribers because if you ever have a question about or problem with your subscription you get to speak to the same person that makes all final decision!How do you start a subscription box company?To summarize: 1) Come up with idea. 2) Set up business. 3) Sell product. 4) Ship. In all seriousness, this will vary from business to business. The most important things to do are come up with a solid plan and then get out and prove the concept by selling product!What’s the biggest surprise you’ve encountered since starting Yumvelope?I think that I’ve been surprised by how many subscription boxes have popped up in the past year or so. Unfortunately, it’s quite simple to put up a legitimate-seeming website and offer a sub-par “fly-by-night” service. Joe Winke over at the gluten-free/vegan subscription “pantry” box Healthy Surprise suggests that this “fad” will ultimately weed out shady businesses: “…there have been a lot of subscription commerce companies sprout up in the last six months. Its an exciting concept with a relatively low barrier to start. However, as many subcom companies are realizing, it’s a LOT of work. Finding incredible products, ordering them, packing the boxes and then shipping them out takes a lot of effort, for just a couple of dollars profit on each box. As many subcom businesses grow and fully understand how much work it is, expect to see many more shuttering their services. I expect less than half of the subcom businesses started in the last year to be around next year.”How do you go about shipping all your boxes? I assume you have hundreds of subscribers…and wouldn’t think you could just wait in line at the post office.As the owner of Yumvelope, I ultimately have a strong interest in ensuring product quality. For this reason, I’ve kept all shipping in-house. We don’t take all of our monthly packages to the post office, however. All subscribers are managed either through our old platform (Memberly) or new platform (WordPress WooCommerce combined with Stripe). At shipping time each month, subscriber files are downloaded and then hooked into a shipping management program (Endicia). From there, labels are printed out in bulk using a Zebra LP2844 printer.Should copyrights and trademarks be in place before launching your site?If you are concerned with copyright or trademark issues, it is best to consult an attorney in the state where the business will be formed.How do we go about finding suppliers? My thought is I see something that will go great in one of my boxes at a retail store. How do I circumvent the retail store and go straight to the supplier? Are items less expensive this way? How do the logistics of that work?It really does depend what industry you’re looking into going. Assuming you’re going to need to use several brands each month, I would start by reaching out and asking to see wholesale prices. These prices are generally given to businesses that are planning to resell product to an end consumer. As you get larger, it may be possible to negotiate larger discounts.When should we consider using a fulfillment center? Is there a certain sales volume? What are the logistics of using them?I’m not the best source of information on this since Yumvelope doesn’t use a fulfillment center. Personally, I would recommend that you keep control of the packing/shipping process as long as you’re able to. In any scenario, you likely don’t need to worry about this now. I’d go out and get lots of sales– when I was first starting about, I found it was very helpful to stay focused on things that had to be done immediately rather than speculate about potential future scenarios.Can you outline the logistics, step-by-step, of how an order is fulfilled once it’s made on our website? Should we order the contents of the boxes as they come in? I’m concerned that without knowing how many online orders we’ll have, we won’t know how much to order in advance. However, I’m concerned that if we wait to order supplies once the orders are made, it will take too long to receive the items from the suppliers, then still have to box and ship them.Using November as an example the way our order funnel goes is:October 11th- October 31st: November orders accepted.October 20th-25th: Final product agreements completed, rough quantities givenNovember 1st: Based on predicted number of orders to come in over next 10 days, planned quantity decided. Product ordered from participating brands.November 1st-10th: November orders accepted assuming still available product.November 12th-15th: Product arrives and is shipped out to subscribers!How are shipments typically handled? Starting out, do we literally take our boxes to the post office ourselves? What about once sales volume starts increasing?I’d recommend using a simple platform like Memberly or even a simple webpage in combination with Paypal. Just get people to buy your product! When you’re ready to ship, you can use the a free tool like USPS Click-N-Ship. As you grow, you might want to upgrade to a program that allows you to email professional looking tracking emails to subscribers. I use Endicia for Mac which is relatively inexpensive at $15.95/month.I see all the time that a business will guarantee their box has a $25 value, but it will only cost $25. How is the profit made?Profit is made because these businesses (including Yumvelope) don’t pay full retail price for product. In example, Yumvelope might include Quinn Popcorn one month– a box retails for $5. We might only pay $3.50, leaving space for profit.What kind of start up costs should we expect (types of costs and estimated amounts)?This really varies by industry; I will say that you should get a good handle on potential costs (there WILL be unexpected expenses, so try to do as good of a job in the due diligence phase as possible) before committing to anything.How far in advance should we plan the contents of our boxes?Once again, this varies. Definitely do plan ahead; I can say from experience that it’s not fun trying to find a product to include last-minute. Last November we had a producer call last-minute and state they could no longer sell previously-agreed upon product! Just be sure to get firm agreements well ahead of time.What is a reasonable profit/ROI?Unfortunately, the subscription box business is very often low-margin. The good news is that many (if not most) customers return month-to-month. To calculate the margins you need to earn, take the amount you’d like to make in a year, divide it by 12, and then divide it by a number of subscribers. If this amount is too high, rework the business plan!What mistakes did you make? How did you fix them? What would you have done differently?One mistake was relying too heavily on a planned deal with a third-party. I planned to gain a ton of exposure from this deal, and it fell through. There was far too much of an effort put into making this work, and I could have spent more time elsewhere.I’m curious how far ahead of time the the box selections are finalized. For example, are the boxes already planned for August, September, etc when the July boxes go out? How many products are sampled (that’s got to be the best part!) before the final decisions are made for what will go in each month’s box and what are some of the reasons a product might be rejected?Product decisions are most often well-planned. I typically begin brand negotiations/relationships 2-3 months before actual inclusion, although there have definitely been some extreme outliers! What is crucial is that a large effort is put into confirming the awesomeness of a potential product. Rejections occur frequently, and most often the product isn’t a great fit. Usually it isn’t a bad product, but we want to stick to only including the best Besides all of the other questions listed above, I’ve always wondered if you need a permit or license to ship food through the mail in these boxes. Also, do you pre-purchase what you are going to include in the box, or prep the vendors you have lined up and then notify them of the # of pieces you will need for that particular month?It does tend to vary by jurisdiction; you should consult an attorney in your state of residence. I typically make final pricing and shipping agreements with vendors before giving a final quantity.How important do you feel stellar customer service is for companies – especially with a subscription box company?I’m a sucker for good customer service (having experienced such poor customer service in the past). Even if a company is selling a mediocre product, I’ll likely consider it if they have awesome customer service. Superb customer service is for me a core facet of Yumvelope’s values. When you have a problem or question, I respond. To quote our welcome email: “As a Yumvelope subscriber, you have unfettered access to me. Order problems? Email me. Need someone to watch your cat? Email me.”What are some of the challenges and pitfalls that people don’t account for when starting their service?Lots of things!Quantity of shipments sold won’t help you if you’re breaking even or only making $0.10 on each shipment!Credit Card Fees/other non-product fees: A significant amount of your subscription fee will have to be devoted to credit card fees (I think 2.9% + $0.30/transaction is reasonable) packaging materials, and shipping. (If you’re just getting started out, I’d start with USPS flat rate packages.)Website Design: This can get EXPENSIVE! I would recommend starting out with a simple soup-to-nuts solution like Memberly; it’s how I started out.What is the one thing that you wish you had known, or done differently when you first started in the business?I wish I had known that a clear message and branding had to be apparent. Although I knew that Yumvelope would send out 6 awesome full-size hand-picked snacks from small-batch producers around the country, this wasn’t always 100% clear on marketing materials in the early days.When requesting sponsorship from companies, what is the best way to go about this? Must one have a written request or is a face to face proposal better?I’m not sure I’ve ever done a face to face proposal. To get companies to appear in your box, just shoot a quick, well-written email to a sales or marketing director. You can also try a phone call! They’ll likely be able to give you a wholesale price even if you’re just starting out.How many sponsors are recommended before revealing your company to the public?I’m assuming that by sponsors you mean product partners– I’m of the opinion that you should get actual customers before approaching any brands. Brands will be much more likely to work with you if you can promise to order a case or more of their product. If all else fails, you can always order product from Amazon for your first month or two!How long does it generally take to create a subscription box company from concept to public release?Varies greatly. Some are literally started (not run, but started) in an hour, while others take millions of dollars in funding. Expect to spend lots of time and some money conceptualizing and getting your concept ready.What are the steps to effectively advertising your company aside from social media?The bad news: no subscription box that I know of has a great handle on this. The good news: there are lots of avenues to get your brand out there initially. Start by requesting listing on the major subscription box directories like MySubscriptionAddiction(!). You can also send free shipments to influential bloggers– they’ll likely write about your brand and you’ll directly reach potential customers!Does one need the backing of investors, or is it really possible to start a subscription box company from one’s own pocket?This does vary once again, but I would say that it’s best to create an MVP (minimum viable product– a simple version 1.0 version) of the site. Yumvelope has been self-funded since the beginning!What are the licensing and other legal paperwork one must anticipate when starting a subscription box company?This varies by jurisdiction; you should consult an attorney in your place of residence.What are the key points one must address in a business proposal for a subscription box company?I actually didn’t create a formal business proposal, but if regardless of the mode of planning you should definitely include things like:Planned cost breakdown (include both variable and fixed costs!)Customer acquisition strategyProduct partner acquisition strategyWebsite design strategyLogistics Strategy (shipping, packing, etc.)Do you think its necessary to hire a professional or expert if your products are beneficial to health? Such as Nutritionist.Not if you’re just getting started! If you do have a friend who is a nutritionist and could make a testimonial that might be helpful, but (in my opinion) when you’re just getting started out you don’t want to pay a fee just to gain a seal of approval from one individual.What is the amount of boxes expected to be produced the first year?In your first year, it does make sense to set goals, but you certainly can’t expect to receive a certain number of orders just because you’re offering to sell something that you think is awesome. The best way to determine the existence and size of your market is to go out and sell some subscriptions!Is a warehouse necessary for production? Some use a rented apartment to compile their boxes.Not when you’re just starting out! I’d recommend setting aside some space for storage; assuming you’re legally allowed to store your product in-home in your area this should be perfect as you begin to scale.What social medias are a must to use as promotion if any?You should start out with one or two social networks– Yumvelope is active on Facebook and Twitter. Be sure that your strategy is focused– what do you hope to gain from posting regularly on Facebook or Twitter? Exposure? Engagement? Feedback?Do you really need to hire a graphic designer for logo and web designer for website?If you have graphic design experience or know your way around computers, you should be able to design a logo. For low cost self-serve options, take a look at Memberly or Shopify for web design and Adobe Illustrator for logo design. If you have a small budget for designers, take a look at 99Designs for both logo and web design– you’ll set a budget and then have designers competing for your business.In advertising, do you promote the companies used? Is there an agreement made where the companies whose samples you supply get free advertising? Do you offer them a deal such as a link to their websites or do you offer a place where their product can be purchased?We love to promote included companies, if only because they’re the cream of the natural product crop! All included brands are looking to get new customers, and we often do run special coupon deals to encourage reorders.Paper costs, is it better to have less paper with few coupons or does it matter?I think coupons are great, as they encourage subscribers to follow up with awesome included brands!How long did it actually take to get company fully operational? What to expect?That’s an ever-evolving process. My first step was to get a basic plan and orders– that’s what I would say any entrepreneur should do!Is it important to have consumer input readily available for them? Such as a questionnaire, suggestions, complaints etc.From customers– absolutely. If nothing else, you should make it clear that subscribers can/should email you at any time with any questions, comments, or suggestions.Shipping costs it an important factor since postal rates increase all the time?Absolutely! Other than product costs, this is consistently the highest cost, and even the post office raises rates often. I’d recommend starting out with Priority Mail flat rate which provides services like insurance and tracking at no additional cost. Your costs won’t vary state to state like they might with UPS or FedEx.What is an ideal percentage of profit to have in order for a great investment in regards to sample companies? I see a lot of sample companies that will sell a box for $35 a month and have $75 worth of products in box. Is this a risky tool for a company to promise or should this instance be varied over time?YES! Far too many companies over-promise. The companies that do succeed with this model have slim models and are forced to send out overstock or undesirable merchandise. Be sure to provide a great value, but don’t get too hung up over retail values.I’m sorry for the abundance of questions, I’ve been contemplating this for some time. Thank you for offering the information and providing this blog! How did you feel when your idea for the box first started to take off?Fantastic! Entrepreneurship is one of the most rewarding jobs you can have as success is completely correlated to how hard you work.How do you feel about Yumvelope as it is now?Great! Yumvelope is still growing almost every month and we’ve still yet to have a customer return despite a 100% guarantee– I think this alone is pretty incredible!Was starting Yumvelope difficult or was it easier than you thought it would be?More difficult, BUT also more fun! I love being able to work with awesome, small brands and hand-pick 6 awesome snacks from them each month.Do you need to have an expert on hand to validate your items. Like if your samples are healthy, do you need a Nutritional expert on hand for questions or promotional reasons?I’m not sure– Yumvelope sends out all-natural and delicious snacks which are pretty easy to validate and confirm . Depending on the product category, though, you might.What percentage do you calculate as a ideal profit?The formula I use is: 1) Find the amount of money you’d like to make in a given year. 2) Divide by number of shipments per year. (For us, 12.) 3) Divide by acceptable # of subscribers. If the profit/subscriber is too high, rework your plan!There are some sample companies that work out of a rented apartment. Should a warehouse location be invested?From above: “Not when you’re just starting out! I’d recommend setting aside some space for storage; assuming you’re legally allowed to store your product in-home in your area this should be perfect as you begin to scale.”Along with startup costs, what other costs should be considered?Variable costs (i.e. shipping fees per subscriber) and ongoing fixed costs. (i.e. website maintenance) So there you have it. I hope this proved helpful to you! If you’re interested in trying out Yumvelope, we’re taking November orders until the 10th. November will bring awesome full-sized treats from brands like Madecassé Chocolate, Nature’s Bakery, and JJ’s Cocomels. Interested in signing up? Here’s a bonus: we’ll donate 10 meals through Feeding America and give you $2 off if you sign up using code ‘mysubaddiction’ More questions about the subscription business? Comment below!Nature Box Review & 50% Off Discount!My Subscription Addiction Questions & Answers!Yumvelope Monthly Food Subscription Box Review and Exclusive Coupon Code!All views in this review are the opinion of the author. My Subscription Addiction will never accept payment in exchange for a review, but will accept a box at no cost to provide honest opinions on the box. This post may contain affiliate/referral links. Read the complete My Subscription Addiction disclosure.