Scaling your business can look difficult – even intimidating – when you’re at the start of your business journey. After all, it’s right there in the name: “scaling,” as if your brand’s path to success requires climbing a mountain.
As a new subscription box entrepreneur, you might feel daunted by that climb. Or maybe you’re feeling more frustrated than nervous: doing all you can to grow your sales and subscriber base, but not moving up the mountain any faster.
Read more: Take a look at our roundup of common challenges for subscription box entrepreneurs on the blog.
However, all is not lost! Subscription-based business models are uniquely suited to scale. But to do so, you may need to rethink the way you approach scaling your business. In today’s post, we’ll outline a few ways you could be holding yourself back – and how to adapt to make things work.
1. You Don’t Know the Difference Between Growing and Scaling
In other words, it’s easy to grow your business without scaling it. Sounds a little nuts, we know. Don’t they both mean your business gets bigger? Well, not exactly.
Think of growth as a circle that expands outward; every point in the circle gets larger at the same time and to the same degree. When you “grow” your business, you’re adding revenue at the same rate you add expenses or labor. For example, let’s say you take on 100 more subscribers in a month. Now that your subscriber base is expanding, you need to devote more time overall to your business, so you hire a couple of employees to help pack your boxes and manage your social media. Their pay comes from your subscriber revenue, so any rise in profits is minimal. While your business has definitely grown, that growth isn’t reflected much in your actual profit margins.
Pro tip: Check out our roundup of 10 services to help you scale your business on the blog.
On the other hand, scaling is more like a graph with a steep diagonal line – while your costs of operating the business stay comparatively low, you accumulate revenue exponentially. In short, scaling is sustainable growth! The key to scaling is keeping your expenses in check so you can expand your profit margin as you gain more subscribers.
As you net more subscribers, you’ll need to come up with a specific, strategic plan to manage growth. What concerns or costs might come up for your business as you expand? Managing your business with that intention at the forefront is the only way to ensure your costs don’t balloon along with your customer base.
So let’s take a look at some ways you’re getting in your own way – and practical methods to streamline your work – below.
2. You Prioritize Profitability Over Cash Flow
If a higher profit margin is equivalent to the startup Olympics, your cash flow is the training you undertake every day to get there. Less glamorous, maybe, but hugely important. If you have a cash flow problem throughout the month, higher profitability overall isn’t going to help you much – even if you allocate some profits to solve your cash flow issue at that moment, doing so will only cut into your margins.
Let’s say that you earn a ton of new gift subscriptions over the Christmas season. While that’s exciting, it also adds significantly more labor to your business operations… and a time crunch, given the holiday. That means a higher volume of inventory to fill gift boxes, more staff to pack boxes quickly, and potentially higher shipping costs to expedite gifts by the holiday deadline.
If your timeline to pay expenses and bill subscribers doesn’t match up, you might not have the required funds to pay these expenses in full. Though your profits would show some growth, you wouldn’t be managing cash flow throughout the month to maintain the stability you’d need to scale.
Sit down and draft a budget that more clearly forecasts what your expenses would look like if you gained a significant volume of subscribers. (Yes, it’s that easy!)
In quantitative terms, what does “success” look like to you? How many subscribers do you need to achieve – and retain – in order to pay your operating expenses, pay yourself, and have a comfortable profit left over? In short, what dollar amount says to you, “I’ve made it”? Start there.
Pro tip: There are two primary models of accounting for small businesses, called cash accounting (which better reflects cash flow) and accrual accounting (which better reflects on-the-ground profitability). Learn more about both in our breakdown.
Sketch out a timeline of due dates for business expenses (cash outflow) and subscriber billing (cash inflow). Do this for a week, a given month, and the coming 12-month cycle. While you do this, keep in mind the lead time that your product vendors allow for invoice payment (typically, anywhere from 30-120 days after order fulfillment) as well as any charges for staffing, box printing, branding, fulfillment, or marketing.
This will give you a much clearer idea of the cash funds you’ll have available in your business account at any given time. In turn, you’ll find it easier to strategize when and how to reinvest those funds into your business.
3. Your Pricing Doesn’t Offer Enough Wiggle Room
If your price point allows you to cover business expenses but doesn’t account for the costs of scaling, you may need to rethink your financial plan. As your business expands, each part of your operations will as well, which means things can seem more complicated – and cost more. In short? Scaling takes time and money.
Do some market research on your competitors. What services do they partner with to grow and scale their operations successfully? What costs come standard for your industry niche? Gather this information and figure out how much it would cost you to take on more services (such as a virtual customer support system like Zendesk) or upgrade your existing memberships (like Mailchimp for email marketing). Keep this data and tentative budget in the same place you organize your projections for cash flow and profit margins.
4. You Haven’t Considered Investment Enough
We know how scary the word “investment” or “loan” can sound. Especially if you found it challenging to raise initial startup funds, you may feel reluctant to dive back into the search for investors.
However, avoiding the problem isn’t going to make the need for reinvestment capital go away. In fact, that might compound the problem (pun not intended). Once you’ve finessed and proven out your business model – and done the financial modeling we address in reasons #2-3 – you might want to seek funding to grow your business sustainably.
Luckily, as a small business, you’ve got a few options for raising capital to reinvest in your operations.
- Crowdfunding. You might be familiar with this from raising your startup costs. If you’ve ever donated to a campaign on sites like Kickstarter or Indiegogo, you’ve been part of the crowd that funded that project! This route is best for businesses that want to launch a new product (like, say, a new sub box tier), build a stronger community around their box, or who have lower annual revenue. Like with any crowdfunded project, you will need to create an engaging story around your business goals to engage readers, as well as convert readers into donors. Publicize rewards for various donation levels and post on your campaign page regularly to keep investors in the know!
- Apply for a small business loan. At the click of a button, sites like NerdWallet or Credit Karma evaluate your personal or business finances to find lenders that would likely approve you for a loan (and at which rates). NerdWallet goes a step further by reviewing various lenders, institutions, and rating them based on a range of business needs you may have. If you want to double down on researching potential lenders, we recommend Trustpilot.
- Apply for funding with Kabbage. Kabbage is just one shining example of what technology can do for the future of private lending. Instead of going through a bank, filling out complicated paperwork, and paying back tons in interest over the course of the loan, Kabbage makes your borrowing process easy. You can apply in <10 minutes and take as much or as little of the approved limit as you wish – and you only pay a simple monthly fee on whatever amount you take. So you can take the lump sum right away or transfer small amounts from your approved loan whenever you need more funds. To qualify for loan consideration, you’ll need to have been in business at least 1 year and earn either $50,000 in annual revenue or $4,200/month over the last 3 months.
5. You Don’t Have the Staff
If you’re a one- or two-person operation, there’s only so much your business can handle. That’s just math. Especially if you keep a day job in addition to your subscription box business, there are only so many hours in the day for you to handle marketing, sourcing products, customer service, ordering & designing boxes, fulfillment, shipping, and so on.
Chris, from the popular mystery subscription Escape the Crate, agrees. “If I have learned one thing with running a subscription box, it is that you can’t run it all by yourself as you grow. You need help… and trusted help,” he tells us.
“At the beginning, when we had a few hundred boxes that went out a month, I could manage the business from my living room, but after we began to get into the 1000s, I found that I was spending up to 13-14 hours a day and abandoning my social life just to get boxes out in a timely manner.” –Escape the Crate
As your business scales, your priorities as a company – and where you exert yourself – will shift by necessity. For example, you’ll likely need to put more time and effort into customer support, as a greater volume of subscribers virtually guarantees a higher volume of support questions. “Customer service becomes a nightmare as you grow, particularly in the holiday seasons,” Chris confirms. “There have been days where we have received over 1,000 emails, many asking the same questions.” Even a direct, well-written FAQ may not deter all of these.
It’s clear that as you scale, customer support and box fulfillment will become more time-consuming by default. (We’ll dive more into the latter below.)
Alone or with a co-founder, decide what your priorities will be as your subscriber base gets bigger. This depends on your business niche, target customer, and value proposition. Perhaps you’ll need to spend more time on customer communications, marketing and social media, sourcing products, building your box, or creating a detailed FAQ to preempt (some) common customer questions.
Once you have a clear idea of how to allocate your business’s time and funds, decide how many people you can afford to hire to help with specific business operations. “As [Escape the Crate] began to scale,” Chris says, “I needed to find 2 outside sources to help me out… a fulfillment center and a customer service manager.”
Kevin, the founder of Adults & Crafts, seconds the importance of maintaining quality customer support as you scale. “The most important lesson we have learned is that you cannot over-communicate with your customers,” he says. “We have been able to avoid multiple issues simply by being transparent and honest with our customers. This has helped us immensely while we get better at forecasting and inventory management.”
Pro tips: Find freelancers to help with your marketing, virtual assistants to help with customer service, and more on sites like Upwork. Alternatively, consider implementing a virtual support desk like Zendesk or Freshdesk for customer inquiries.
Unless you take on outside help, extreme subscriber growth could topple your business instead of making it thrive. Consider where you need the most help, who you know that would volunteer, and which roles you’d need to hire.
6. You Do Fulfillment In-House
This is a subset of issue #3: too few people, too few hours, and too much work. While it makes sense to keep your packing and shipping operations in-house (even in your literal home) in the early stages of your business, inventory will eventually take up all your space – and time – as your subscribers multiply.
Outsource your fulfillment to a warehouse or fulfillment center. We understand it can be hard to give up control over the packing process, and that outside fulfillment services can feel potentially cost-prohibitive at first, but in the long run, outsourcing will streamline your operations and allow you to scale.
When they looked for a fulfillment center, Escape the Crate kept in mind what was necessary for their partnership. “It was very important to be local, as I had a chance to examine the facility, talk face to face with the line managers, and, since many items I have are handmade, even drop items off at the facility myself and pick up extra stock,” Chris says. For his business, finding somewhere local “ma[de] it a bit easier to give up control.”
When you do find a fulfillment partner, Cratejoy’s API allows you to integrate all your data with your center. And if you work with Pirate Ship or ShipStation, your subscriber information will already be set to ship.
Keep in Mind
There’s no set timeline for scaling – or even growing – a business. You know your business best, so only you can determine a feasible schedule to scale. Just remember to evaluate your subscribers’ satisfaction, identify pain points, and do your research to find solutions.
The foundation of any business, even a small one, is meeting customers’ needs and setting clear, reasonable expectations. So everything you do to scale your business should meet that objective! Keep that in mind, and you’ll have a place to start whenever you feel daunted.