Nature Box. Ipsy. Stitch Fix. There’s a new SaaS sheriff in town, and it’s not software. Since 2010, with the debut of beauty service Birchbox, subscription box services have popped up in a frenzy. It’s easy to see the allure of subscribing to a box service: for $10-$40/month, consumers will receive monthly surprises at their doorstep, filled with curated goods that they’ll enjoy and often exceeding the value that they paid for the box. Today, boxes have entered nearly every market vertical from groceries to pets to fashion. Subscribe to Blue Apron and you’ll receive a weekly delivery of fresh, easy-to-cook meals. Bespoke Post ships a monthly themed box of men’s lifestyle gear, while Julep Maven offers nail polish and beauty products. Simply name a need, and you can find a subscription for it.

One of beauty service Birchbox's monthly offerings.

One of beauty service Birchbox’s monthly offerings.

It’s easy, however, to be swept away in subscription box mania. While new services seem to launch every week, running a subscription service is more than collecting products and shipping them away in boxes. Here, BVP’s Kent Bennett outlines the five criteria for subscription service success: entertainment value, enrichment, quality of product curation, cost efficiency, and consumer convenience. Even when these five boxes are checked, however, running a successful subscription business is no easy task. Profit margin is key, as always. Gross margin per box must be carefully calculated through a sustainable pricing model that attracts customers but covers COGS. Fixed costs can pile up through labor, product selection, and advertising, while customer acquisition must be effective enough to generate traction yet cheap enough to be offset by revenues. Logistically, orders and subscriptions must go off without a hitch, and services such as Cratejoy now offer software solutions to manage a service’s shipping, design, and more.

Unsurprisingly, subscription boxes have not flown under the radar of VCs. Birchbox, Nature Box, and Dollar Shave Club, among the most successful services, have raised $72M, $60M, and $150M in funding, respectively. Such funding is not misguided. As mentioned previously, given a unique product that attracts a loyal customer base, subscription boxes offer a reliable source of recurring revenue. Given the myriad services that exist to help manage a subscription business, overhead costs are often low, and some industries, like beauty products, boast killer margins. What’s not to like?

The question that remains for VCs is whether or not the subscription box model can generate acceptable ROIs. Little press has been had regarding exits; the first that comes to mind is Nordstrom’s acquisition of Trunk Club but little else does beyond that. As a unique business model, the subscription box faces unique challenge on its path to greater success. While there’s nothing wrong with subscriptions springing up in every industry, it’s unlikely that boxes in niche markets like wine and intimates will ever see levels of traction that takes them to the next level. Furthermore, the subscription-based service allows customers to cancel their purchases at any time should product curation not meet their standards; unlike a software package that simply sits in a computer, boxes are physical products that take up space and will be held to a higher standard.

Even the most successful boxes are vulnerable to these risks. Heavy emphasis must be placed on product branding, so that when a package arrives on the doorstep, its arrival is like that of a welcome face. Boxes must ingrain themselves into the lives their customers and become commonplace items in a household in order to achieve long-term success. And while companies like Nature Box have gained widespread popularity, it’s hard to see the merits of a public company built solely on boxes of healthy snacks. Profitable box services looking to exit should instead look to the M&A markets where they would fit nicely within larger marketplaces like Amazon. Either that, or don’t raise capital and stay private as solidly built business.