One of the biggest mistakes you can make with your Subscription Box is pricing it too low.
When you do this you are putting yourself in a position where it is nearly impossible to make your Subscription Box a success.
It doesn’t matter how smart you are or how hard you work. You will not be able to outwork bad maths. Eventually it will catch up with you and put you out of business.
Normally, one of the biggest drivers of bad maths in a Subscription Box business is caused by not pricing your box correctly.
When a box is priced too low it usually leads to a bad margin..
Let me explain what usually happens when this is the case.
1. Can’t afford to advertise.
You quickly find yourself in a position where it isn’t possible to advertise across different channels and your ruling them out 1 by 1.
Advertising costs are increasing all the time and if you have a business which can’t afford to advertise on FB, Google, TikTok, Influencers etc.. You don’t have much of a business because you won’t be able to get customers.
2. Not able to hire help
If you have a bad margin you will struggle to afford to get employees to help you scale. As you start to grow, you will need to hire help to do things such as customer service. If you can’t afford to get these people your business will struggle and you will burn out as you can’t keep doing everything yourself forever.
3. Can’t pay yourself a decent salary
Let’s face it, one of the main reasons you set up your company was so you could earn a good salary and have a better life. If you have a bad margin in your business, you will struggle to pay yourself a good salary.
This may be ok at the start but eventually it will become a big problem. Especially if you are working 7 days a week for years and you can’t afford a good quality of life.
4. Can’t pay general business expenses which are required
Things such as insurance, warehouse space, software etc. are all required. If you have a bad margin you will find yourself struggling to pay some of this stuff.
As you can tell pricing your box wrong and having a bad margin isn’t good at all. You should save yourself a lot of hassle and price your box correctly from the start and avoid all of these problems. (If your box is going awhile and is priced too low don’t worry you can still fix it)
Let me explain to you exactly how you can do this so you can ensure your Subscription Box is a massive success and you get the life you deserve from it.
This is how a lot of Subscription Box company’s determine their prices.
You are about to launch your new Subscription Box company and you decide to do some pricing research to understand what you can charge.
· You google a few of your competitors
· You see what they are charging.
· You decide to price the same or slightly under it so “customers will sign up for you because your cheaper”
· You launch your business without any further price testing.
I am afraid this approach to setting your pricing is completely wrong.
If this is all you are doing to determine what you can charge for your box you are 100% leaving money on the table.
This is because basing your pricing on what competitors charge is actually extremely dangerous.
This is why..
1. You don’t know if they have some kind of competitive advantage that isn’t clear.
2. They probably didn’t do the correct research themselves when deciding on their own pricing.
(Number 2 is extremely common and the by-product of this is you end up with a number of companies in the same niche who all copied each other’s pricing and every single one of them is charging too little and struggling)
The correct way to do price testing is following.
You should do some market research and figure out roughly what you think you can charge. You will then go with that as your initial pricing to start.
You then need to then ensure you have google analytics set up on your website and you are tracking your conversion rate and your CPA (Cost per acquisition)
You will then run traffic to your website for a week and you will write down what your conversion rate is and what your cost to acquire a customer is.
You then increase your prices by 10 – 15% and see what happens.
Has your cost to acquire a customer gone up? (If it has only gone up slightly the increase may still be worth it with the higher CLTV you are now getting)
Has your conversion rate dipped?
Have your sales fallen off a cliff?
Has it made absolutely no impact whatsoever and you are now earning more money on each sub? (Highly likely when you are just raising it slightly at the start)
You then repeat the process the next week and increase your prices by 10-15% again and take a look at the data and see what happens.
You will then keep doing this every single week until you finally hit that price barrier where sales completely fall off a cliff and it is no longer worth it to charge a higher price.
You will then know 100% what is the maximum you can charge for your Subscription Box and you can stick at that amount.
My guess is you probably have some assumptions what people are willing to pay and you may be close, but you are probably still leaving money on the table.
I highly recommend you do this because when you start scaling up even a couple of dollars makes an enormous difference to how profitable your business is.
Something else which you should bear in mind is market conditions change all the time, so you shouldn’t settle on your existing prices for good.
We have found in our own business the price people are willing to pay now compared to what they were willing to pay a few years ago is completely different. (This is probably down to the increased cost of living)
This means you should be willing to do price testing regularly to ensure you are staying on top of things and maximizing how much you can earn from each box.
I hope you found this article helpful. As you can tell pricing is extremely important when it comes to having a successful subscription box. So do yourself a massive favour and get it right as soon as possible. If you have any questions about Subscription Boxes or pricing in general, please let me know.