3
Jul
2015
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Guide to Subscription Box Product Sourcing

One of the questions I get asked the most is “How do I get/source product for my subscription box?” or “How do I approach vendors and ask for a discount?”. Product sourcing or ‘procurement’ as I like to call it, can seem like a daunting task in the beginning, but when you’ve got a good system down it can become the most enjoyable part of your business.

Note: This guide is about product sourcing and purchasing product. Read why I think the free sample subscription box model doesn’t work anymore

 Step 1: Identifying The Products You Want

product sourcingChances are, even if you’re just in the beginning stages of planning your new subscription business, you’ve put at least some thought into what types of products you want to include. If you’re not sure yet, now’s a good time to start brainstorming. For my subscription, Yogi Surprise, a simple trip to my local Whole Foods will help me come up with new ideas for the next month. I recommend starting with a local store that carries the types of brands you’ll want for your box. Bring your smartphone and snap pictures of brands/products you want to contact later!

Don’t forget to find a good variety of products. For example, with Yogi Surprise I keep the product selection or ‘box build’ as I like to call it, pretty diverse each month. Customers will get at least 1 food item or something they can consume right away. They’ll also usually get a yoga tool (something that they can use in their practice), maybe a piece of jewelry, and then a general natural lifestyle item. I have 6-8 products in every box. Dialing in on this ‘experience’ is extremely important and will be a major factor for whether your customers stick with you month after month.

Step 2: The Initial Reach Out

Once you’ve got a good list of brands you want to reach out to, it’s time to start communications! You might be surprised to hear that I never pick up a phone. Over the past 5 years of doing this, I’ve done it almost entirely by email (makes it easier to work in coffee shops!) I’ve tried every email template imaginable, from extremely long pitches to short and sweet messages. With Yogi Surprise, my emails have been much shorter and straight to the point, mainly because I’m buying product and don’t really have to send a ‘sales pitch’. My current favorite email template looks a lot like this:

Subject: Bulk-order inquiry

Message: Hi name, I’m with Yogi Surprise – a monthly care package for yogis. I’m interested in buying around 2000 units of the product name. I’m curious what sort of pricing you can offer and how much lead time you need. I’d like to send these out for my August 5th shipment (we’re located in Portland, OR). Let me know if this is doable!

Thanks!

This email template tends to get me pretty far. It’s very important to stress that you’re interested in actually paying money for their product or they’ll immediately write you off as just another ‘donation request’.

Step 3: Negotiation

Once you’ve gotten a response and are recognised as a serious buyer, it’s important to get a quote from them first. They’ll often quote you their standard wholesale prices initially, especially if you’re working with a smaller volume (under 500 units). From here, I try to push the price down closer to their cost, some vendors have another price point below wholesale referred to as ‘distributor pricing’. Often, I can get the price down by simple being totally transparent about my budget. I’ll say something like “Thanks for the quote, I’d really like to make this happen, but my budget is capped at around $1-$3.00/per unit. Is there any way you can meet me in that range? I’d also happily let you guys include an insert in each box with a coupon code and call to action

As you get more and more experienced sourcing product in a specific niche, you start to get a really good sense for actual product costs and how far you can reasonably drive a price down. Getting a product at cost (or even below cost in a ‘cost share’ arrangement) is great, but I like to maintain really good relationships with my vendors and often try to get the price to a point where they’re at least making a little bit of money.

Don’t get me wrong though, I do believe there’s a lot of promotional value here for the vendor, but there are pros and cons to ‘selling’ this value to drive the price down. The more you sell the promotional value in exchange for a great price the more the vendor expects from you. Follow up promotion for vendors who’ve given you great below cost pricing can easily add up to a lot of extra burden for you and your team. Personally, I prefer to drive the price down as far as I can without promising anything.

Step 4: Payment and Delivery

Because of the unique cycles of a subscription box company, paying for product can sometimes become a juggling act. My re-billing date for everyone is on the 14th, it takes 3 days for the cash to hit my bank and I don’t have the money to pay for the product till the 16th or 17th. My shipment date is on the 5th of each month. I’m able to pay the vendors in full before they ship to me, but now that I’m in the thousands of subscribers the actual manufacturing of my product needed to start closer to the 1st of the previous month. Most medium-sized vendors are willing to start production without a deposit, but for the smaller ones it can be tricky – they literally need the money to buy ingredients. By the time you get to the size of Yogi Surprise, most banks will issue you a business revolving line of credit to help make purchasing easier. I now run all my businesses transactions through a line of credit and walk away with up to $2,000 in ‘cash back’ each month!

To make arranging and payment as easy as possible, we’ve designed a nice PDF that has all our shipping, billing and payment details on it. When I’m ready to purchase product from a particular vendor, I simply use an email to communicate a purchase order and attach the shipping and billing details PDF to the email.

There you have it! That’s my process in a nutshell. Hopefully this guide has made the procurement process a little more approachable. Soon I’ll be covering the topic of importing and negotiating with international vendors.

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29 Responses

  1. Hi Jameson!

    This is so helpful! Thanks for sharing! Would you mind giving us a sneak peak into your organizational resources, such as the shipping PDF you mentioned?

      1. Lindsay

        Hi Jameson,
        Thanks for sharing! This is extremely helpful! Would you mind sharing the PDF with me as well? I would really appreciate it!

  2. Tanya

    Jameson, this article is very helpful, thank you. What are your thoughts with working with small businesses. I have reached out to a small businesses who are not flexible with their wholesale prices which then effects profit margins.

    1. Jameson Morris

      Small businesses can either be amazing to work with or a nightmare. There definitely is that group that guards their costs quite aggressively, but I’ve found most are willing to work with you. Once you get over a couple hundred subscribers though, negotiating gets a little easier.

  3. Alysha Hoogestraat

    I’m just in the process of getting started with a subscription company in Canada and this article is so helpful. Thank you so much for sharing this information!

  4. Ed

    Hi Jameson, all of your articles have been super informative and I feel like I’m an inch a way from starting my pre-launch. Few questions though, When’s the best time to purchase product? If I have product in mind and a priced out per unit cost, when do I send the order? Let’s say I discover I have 1500 presubscribers who turn into 100-200 purchasing subscribers. What an appropriate time frame to order the product? And how soon will I order the next month’s product?

    Thanks again for all the great help in general.

    1. Jameson Morris

      Hi Ed, congrats! Generally vendors need at least 2-3 weeks of lead time (maybe less for only a couple hundred). I usually place my orders at least a few weeks out, then I don’t actually pay for them till right before the vendor ships (most will agree to this if you explain how your business works). Hope that helps!

  5. Tiffany

    Hi Jameson! Thank you so much for willingly sharing your subscription box wisdom: with the rest ofus. As I start planning a big question I have is do I manufacture or go through vendors? It seems to me businesses like Kiwi Crate manufacture most of their own supplies. So, as a similiar business but much smaller, is manufacturing the way to go and if so, where do I even start? I am able to find lots of info on vendors and sampling but not much on creating your on products for your box.

  6. Elizabeth Chappell

    I’m curious about the physical box that you send out each month. Can you share information about where to order boxes from (keeping in mind we want to design them)? I’m obviously pretty new to this – it might be right in front of my nose. But I appreciate any guidance I can get! Thanks so much – you are awesome for helping the newbies out!

  7. acircleda

    Hi. Two questions about getting goods via wholesale:
    1. Most wholesale companies I have contacted require Certificate of Resale and other business licenses. Is it standard practice to procure these?

    2. Many wholesalers I have spoken to do not ship. They send only by freight. I’ve looked at LTL freight companies, but the cost seems prohibitive, at least, in a start-up/pre-launch phase. How do most companies deala with this?

    1. Jameson Morris

      Hi there! Yes, it’s likely you’ll need an EIN number (Tax ID) and Resale Certificate. The requirement of a Resale license however, is determined by your State. Your issue with wholesalers only shipping orders large enough to justify freight shipping is something I’ve never seen. Make sure you’re contacting the vendors/manufacturers of the products you want DIRECTLY. So called ‘wholesalers’ are not the route you want to go.

  8. Monika

    Hey-

    I was wondering, as you approach vendors looking for wholesale costs or below on their products, is it necessary to have already secured a business license in order for vendors to work with you?

    Thanks-
    Monika

    1. Jameson Morris

      Hi Monika, I approach this with a very simple, straight to the point email asking for special pricing on a ‘bulk’ order. Once I get an initial quote out of them, then I start negotiations. My favorite way to negotiate is to be super transparent about your budget (if their quote is higher than your budget). Resale licenses aren’t always necessary with these types of business, however, you may want to get a EIN number (Tax ID). You can get them immediately by requesting one from the IRS here: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Apply-for-an-Employer-Identification-Number-(EIN)-Online

  9. Landon

    Hey Jameson, thanks for all the info you have put out on the sub box biz. Question, I know all these are different but did I read it right that, when you wrote this you had about 2,000 subscribers and you net profit was about $2,000? Thanks for the insight

  10. Yvette

    Hey Jamison,

    I’m curious what type of business license you procured, I’m also in Oregon but am a bit stuck when it comes to an online business ie. Domestic (while in Oregon), Foreign (since we’ll be shipping to other states), I’m going for a licensing under a corporation but then am stuck with how many shares to give ourself. Any help would be greatly appreciated!

    Thanks!

    -Yvette

  11. Sarah

    I just watched the product sourcing video on Subscription School. On the slide about step 3 negotiating prices, one key point was that you aren’t the usual retailer. You do not sell products 1 by 1. What if your subscription service has the option to buy it for retail cost (or have it discounted for subscribers only,) Like if you have an online store for one time purchase customers and for monthly subscribers. Can you still go through esty to get your products?

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