Business

Birchbox Business Model | How does Birchbox Make Money?

Brichbox is an NYC-based online subscription service that sends users a box containing four to five samples of makeup and other beauty products each month. 

The products include skincare products, perfumes, and organic-based cosmetics, among others.

The Birchbox subscription service provides clients with cosmetic samples each month. In addition, Birchbox’s online store offers customers the opportunity to purchase the products.

Birchbox earns revenue through subscription fees, shop sales, advertising, and the sale of aggregated data.

Birchbox Business Model

Birchbox was founded in 2010 and has raised approximately $97 million in funding. However, since the company has suffered financially in recent years, it was sold to a hedge fund in 2018.

Brichbox was one of the first companies to use a subscription-based business model to reimagine how value is delivered to customers. 

Birchbox Business Model works on the principle of creating a selection of samples that are delivered to customers regularly, making it easy to discover and experiment with new cosmetic items while lowering the friction and expense of discovery.

What Is Birchbox?

Birchbox is an online monthly subscription that offers a cosmetic subscription service that provides a package containing five to six beauty products.

The sample box contains products in small sizes. The goal is to introduce customers to new products that they can then purchase through Birchbox’s online store, among other options.

A customer’s Beauty Profile includes questions about their personal style, measurements, tone of their skin, and type of hair.

Birchbox Business Model

Customers are protected from potentially harmful products, such as those that may be allergenic.

Birchbox can also customize the box’s content based on the customer’s preferences, such as preferred scent and price.

Once you enter your address and payment information with Birchbox, the box will be dispatched every month. The five to six things included will come with a detailed description and instructions for use.

Brichtbox strives to offer a balance of well-known brands and lesser-known products.

Additionally, you can add products to your ‘Favorites’ list or review them. Links will be provided to download the full-size versions of all the items in Birchbox.

Furthermore, users can collect points for buying products on Birchbox through a loyalty program. 

Many privileges are available to customers with these points, including free shipping and priority access to sample selections.

Birchbox can be accessed by visiting its website or downloading its Android or iOS mobile app.

How Does Birchbox Make Money?

Birchbox earns money through the sales of cosmetic products from its store, subscription fees from customers, along with advertisement fees, and aggregated data. 

Let us understand the Birchbox Business Model in detail:

Sales from Stores

Birchbox earns most of its revenue from its e-commerce store. The shop offers customers the opportunity to purchase full-sized versions of the samples they receive.

The shop generates the majority of the company’s profits. In the beauty products market, profit margins are often double-digits and sometimes triple-digits. 

Typically, the majority of the money is spent on advertising those products and developing the brand.

Birchbox Business Model | How does Birchbox Make Money? 1

The monthly subscription boxes that Birchbox sends out are the company’s primary advertising channel.

The shop sells the box at a cost to attract customers to draw them into their higher-margin merchandise.

The company also sold items through physical boutiques (in New York and Paris) until 2019.

In terms of physical retail, the company has shifted its focus to partnerships with other retailers, such as Walgreens, where its products are displayed in designated sections.

The shop generated more than 30% of the company’s sales in 2015. Unfortunately, a more recent set of figures is not available.

Subscriptions Revenue

With a variety of subscription options, Birchbox caters to female and male customers. A monthly subscription to these costs between $10 and $15.

Furthermore, the price is based on the length of time an individual subscribes. Women and men (through Birchbox Grooming) pay $15 and $10 per month, respectively, on a monthly basis.

The price of the female subscription box drops to $13 per month if a customer commits to a yearly subscription. The payment would then need to be made in advance.

The customer will be required to complete a questionnaire, the results of which will determine the products included in the box. 

Birchbox Business Model

Each Birchbox box is composed differently to cater to the tastes of each subscriber (i.e., it’s customized).

Customers who sign up for long-term memberships also receive discounts and free products.

A business strategy based on subscriptions frequently employs this practice. In addition, subscriptions with longer terms significantly increase revenue predictability. 

The subscription payments can even be used as collateral for loans if necessary since they are excellent indicators of future performance.

The longer a consumer is a Birchbox subscriber, the more opportunities for cross-selling are available. 

It only provides sample-sized products and essentially uses the subscription box as a portal to its online shop, which we’ll discuss shortly.

Advertisement Fees

Birchbox earns money through advertising and the sale of aggregated data. One million visitors come to the firm’s website every month, as an example. 

Moreover, Birchbox is followed by millions across all of its social media platforms.

Cashier sections of supermarkets are considered the most valuable real estate for advertising, and their boxes are used as a gateway to wider audiences by many emerging companies.

Some of those brands may pay the price to achieve more exposure within those boxes that have not been acknowledged publicly. 

The company has also created unique boxes in collaboration with brands over the years.

These firms are frequently curious about who is buying their products besides advertising. So the company has collected almost a decade’s worth of client data, including information about the client’s average age, location, and gender.

Once the aggregated data is obtained (and anonymized), brands can determine which customers prefer their product. The information gained from this study would be used for the development and release of subsequent products.

Who is the Owner of Birchbox?

Viking Global, a hedge fund, currently owns Birchbox. An investment group acquired the majority interest in 2018 for $15 million.

The company acquired several of its previous investors due to the investment, including First Round Capital and Accel Partners.

Another key shareholder, Walgreens, has acquired a minority stake in Birchbox due to a relationship with the company.

Additionally, it is reasonable to assume that Beauchamp retains a single-digit percent ownership interest in Birchbox. Hedge funds frequently grant stock options to CEOs (and other corporate leaders) as an incentive to perform.

Barna, the firm’s other co-founder, is not known to be a shareholder. However, since she left the company in 2015, it is reasonable to conclude that she holds a minority interest.

Success Story of Birchbox

Birchbox was launched in 2010 by Hayley Barna and Katia Beauchamp in New York City.

Business and finance were the backgrounds of both founders. As an economist that graduated from Harvard, Barna began his career as a consultant for Bain.

The rest of the team, led by Beauchamp, has an international studies degree from Vassar College and a background in finance.

As part of the Harvard Business School (HBS) MBA program, they met and became instant friends.

A personal experience inspired Birchbox. She was requested to try a selection of high-end products by a friend who is a beauty editor. 

In addition, they were undoubtedly influenced by other subscription-based firms founded by  HBS grads, such as Gilt Groupe or Rent the Runway.

They emailed hundreds of executives at cosmetic brands, asking if they would be interested in joining their new project.

Fortunately, they managed to persuade a few brands to collaborate with  Birchbox. Then, during their final semester at Harvard, Barna and Beauchamp founded the company, but the concept to the test.

Angel investors, family, and friends provided $100,000 in initial capital to help the business get off the ground.

At the same time, it became increasingly challenging to secure institutional support. Moreover, as a result of the rippling effects of The Great Recession, capital was scarce. 

Also, many venture capitalists in the 1980s (and perhaps still today) would not be familiar with female-specific consumer products.

However, even though the product had a few flaws, the initial consumer testing was still encouraging. 

The company launched its website in October 2010 and raised $1.4 million in seed funding from  First Round Capital and Accel Partners.

Even with the difficulties outlined above, the months-old firm had already attracted 2,000 customers. 

Another $10.5 million was invested in the company by Accel (and other investors) a year later (August  2011), when it had grown to 45,000 monthly members.

A subscription box for males was launched by Birchbox in April 2012, following 100,000 signups. 

The company acquired JolieBox, a similar subscription service based in Paris, in September of the same year. 

Birchbox was able to enter its first international markets following the acquisition of France, Spain, and the United Kingdom.

With Birchbox in 2014, it reached a whole new level. In April, the company raised $60 million, valuing it at $485 million. Then, in May, it released its first national television commercial. 

Birchbox’s first physical store opened in New York City in July.

However, the firm’s fortunes would soon begin to improve. In August 2015, Barna resigned as co-CEO. Then she became the first female partner at First Round Capital, one of Birchbox’s early investors.

The venture capital market was becoming increasingly limited at the beginning of 2016. This is because investors shifted from a growth-at-all-costs mentality to one that encourages businesses to achieve profitability quickly.

Furthermore, subscription boxes have become highly competitive in recent years. ipsy, Sephora’s Play! Glossybox, founded in Berlin, FabFitFun, and FabFitFun are just a few of the competitors that have emerged over the years. 

Several customers said they experienced subscription fatigue, which led them to reduce the number of subscription services they used.

Birchbox Business Model

Birchbox reduced the scope of several of its expansion initiatives as a result. The company halted national television advertising, laid off dozens of employees, and canceled future plans to open new retail locations. 

Additionally, the corporation enraged a significant portion of its client base when it revised its points system (which made it harder to earn rewards).

Birchbox (formerly Box.com) avoided bankruptcy by securing a $15 million convertible note in August 2016. 

Birchbox changed its ownership structure significantly after a somewhat quiet 2017 (for a consumer-facing firm). 

Viking Global acquired majority ownership of the company for $15 million. 

The company raised $60 million from Viking Global in 2014. As a result, the majority of Birchbox’s previous stockholders were wiped out.

Birchbox’s only objective became profitability under Viking Global’s leadership. This simply meant investing in verticals that were performing well and abandoning those that were not.

Birchbox began shifting its focus away from physical stores and toward partner locations. 

The company partnered with Walgreens (the company’s minority shareholder) to make its goods available at 11 stores around the country during October 2018. 

Birchbox announced the following month that it would not renew its lease on its New York location.

Beauchamp signed the agreement with Walgreens just before she gave birth to her fourth child. 

She returned to work less than two weeks following the birth of her child.

Birchbox’s profitability goals extended well into 2020. The company sold its French business unit (which it acquired in 2012) to the original creators in January. 

The Coronavirus outbreak resulted in a 25% reduction of Birchbox employees between February and March (mainly in the United Kingdom and Spain).

Read, Ripple Business Model.

What is the Funding, Valuation, and Revenue of Birchbox?

A Crunchbase report shows that Birchbox has raised $97.2 million in venture capital funding throughout seven stages.

Some notable investors include Accel, Harrison Metal, First Round Capital, and Glynn Capital Management.

During the firm’s Series B investment, the company was valued at $485 million. However, Birchbox’s value has dropped dramatically since then, according to reports.

The Birchbox company does not have to disclose its income figures to the general public since it is a private company. However, in the future, the corporation may decide to go public or make future press announcements.

Checkout, How Does Glovo Make Money?

Key Takeaways from Birchbox Business Model

The Birchbox subscription box service offers cosmetics and beauty products. The idea was to relieve women’s confusion about the plethora of beauty products available for purchase.

Birchbox earns money by sending clients a monthly package containing samples of selected cosmetics. Subscription prices are based on the number of months the customer is willing to commit to.

Birchbox earns a sizable portion of its revenue from full-size products sold in its eCommerce store, with some products boasting profit margins exceeding 100%.

In addition, the corporation generates revenue through advertising and the sale of customer purchasing information.

Also read, How Does TaskRabbit Make Money?

About the author

Madhav

Hey Folks, I am Madhav! I lead a team of Marketers at Tech Startup based in Australia. In my free time, I dissect the business models of various businesses. And if there's any free time, I cook some new Dish!