How to Build a $40M Subscription Business: An Interview With Michael Broukhim

There’s something quite satisfying about coming home, after a long day at work, to find that your subscription box has been delivered.

Unboxing a subscription box is like opening a gift, and discovering what’s inside.  It’s no surprise that the subscription box industry is thriving!

Several entrepreneurs are launching various sized subscription box services, catering to an array of buyer personas, from pet owners to wine connoisseurs.

However, with the barriers to entry in the subscription box industry continuing to fall, these entrepreneurs are coming up with increasingly creative variations to this successful business model, and taking their services global.

Michael Broukhim is one such entrepreneur. As co-CEO/co-founder of FabFitFun, Michael has sold 2,000 beauty boxes in 2 days, and is continuing to see growth of 300% year on year.

This is extremely impressive, considering the nature of the industry.

Eric asked Michael 13 questions to reveal how he ensures that FabFitFun thrives where others fail, used social media influencers to find the voice of his company, how he works alongside his brother, and much  more.

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Here’s what he said…

1) Why don't you tell us a little bit about who you are, and what you do?

Absolutely. Along with my brother Daniel, who is co-CEO & co-founder, and Katie, our editor-in- chief, we run FabFitFun.

To give you a little bit about the company, we offer a box of products every season, it's actually beyond a beauty box, it’s a whole lifestyle experience. The boxes include products relating to: beauty, fashion, fitness, wellness, household and technology. It really can be anything.

It’s a happiness membership. Some of these different memberships might personify a person: the beauty boxes might be your make-up artist or your beauty shopper, and there are fashion products, which are your stylists. We think of ourselves as being your best friend. Showing you products to make your life better, to just brighten up your day, and inspire you to try new things and stretch a little beyond what you're thinking about in that given moment. We tend to be very busy, so this is a real treat yourself, take care of yourself type of product.

That's what we do at FabFitFun.

2) How do you guys make money?

The old fashioned way, our members pay us. The subscription is $49.99 per quarter, or $180 for an annual subscription where you pre-pay. Each box has products worth over $200 in retail value.

Then there's a whole slice of content and community features that members can access. There's a lot of value for our members and that's why they pay us for it. We also have a little bit of a heritage as a media business. Also, there are brand partners and sponsors that contribute to our revenues.

3) How did you come up with the idea originally?

I think FabFitFun, was in a lot of ways, a happy accident.

I don't want to take full credit for the idea. It has been a collaboration of myself, Daniel, Katie, and the rest of the team. There have been a lot of people around us who've helped us to figure out a lot of the nuances.

In 2009, We helped Zoe, our first entertainment client to come up with a concept, and launch ‘The Zoe Report’, her online media property. That set things in a new direction. We shifted gears fully into lifestyle and entertainment.

We launched FabFitFun as an internal experiment. Initially, it was just a media business producing editorial content across all of lifestyle. At some point we said we want to be more than just media, we wanted to actually have a product, we wanted to sell something. 

So we launched our subscription box service in 2013, and the rest is history.

4) At what point was it “we're going to go all-in on FabFitFun and do away with the agency”? Was there ever that transition?

To be honest it was gradual.

When we started FabFitFun, we didn't think this was going to be it. We didn't know, we just said: “this is interesting!”There was a lot of traction as a media business. Our agency clients helped us to pay the bills and we kept that up. It overlapped for a couple years.

Where there's smoke, there's fire, and the thing starts paying for itself and more. We saw that with FabFitFun. The potential was enormous, and at some point, it just naturally just sucked up more and more of our time to the point where there was nothing left.

5) In terms of subscriber’s revenues, what does it look like?

The number that we've shared, and are really proud of, is that we did over $ 40 million in revenue in last year, 2016.

In the fall, I believe we talked about our crossing the 200,000 subscriber number.

We've exceeded that now, but we're not sharing those numbers at this point. We're excited! We're seeing a tremendous amount of growth. Our members are really, really getting something out of their experience and I think there's just a tremendous amount word-of-mouth and excitement around it that has been propelling our growth.

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6) You guys seem to be making subscription boxes work, and then you see other people in this phase struggling. What do you think sets you apart?

Whatever the underlying product or business is, most products launch, most businesses that launch fail. I think we just have some sort of high profile flame out in the subscription space, that maybe created a little bit of skepticism. I think a lot of that is misguided. There's always going to be business failure, whatever your business model, whatever your payment method is.

One of my personal business role models   is Jeff Bezos. He's done well with a subscription by the name of Amazon Prime. I think there's a lot to it. I think there's a lot to the type of relationship you can create and the type of experience you can create with the customer when your relationship isn't purely transactional.

I wouldn't focus on what are we doing right, versus what are other people doing wrong. I think there are a lot of people doing a lot right, and I'd say that the people that are doing something right are creating something really valuable. Fundamentally I think we've created just a very valuable product.

7) Just to clarify on this part, you guys started FabFitFun as a media property first. Is the steps to success here, you guys build a media property, it starts to build up a lot of traffic and then you guys later add commerce on top of it. Is that the model?

That's how we got there.

I wouldn't say  that's necessarily the recipe. There's other subscription services out there; Ipsy or Stitch Fix for example, that are doing exceptionally well and we look up to. They didn't have their roots in media. Ipsy, are doing a ton in media, and doing really impressive things. That was just part of the model at the outside, in terms of this hybrid of content and commerce.

8) I believe you guys also launched with an influencer too, Giuliana Renseck, how did that work out for you? What recommendations do you have any for people looking to partner up with influencers or pitfalls to avoid?

It worked great.

Giuliana was a great partner for us. We started the FabFitFun newsletter in a partnership with her. In a lot of ways, a lot of the brand’s DNA that she imparted into FabFitFun helped us find a voice, and an initial audience.

Two different things I'd say:

1) There’s the idea of partnering with an influencer, who's the face of the brand.

2) Influencer marketing, as a whole world now, is a lot more than that.

I think what I'd say is, with respect to the first category of partnering with an influencer maybe having them as a co-founder or initial spokesperson or launch partner, can be very effective.

We do quite a bit of influencer marketing today, working with different influencers in terms of getting unboxing going and things like that. Whenever you think of media (and this is a growth podcast so everyone's thinking about how to grow), some of that's paid, some of it's organic. People are on these social networks: Snapchat, Twitter, Facebook and YouTube, to the extent that you can get into the stream of where the eyeballs are in an organic and fun way, that's the way you want to think about how to do your marketing or at least a really big part of it.

Learn More: Influencer Marketing 101: What is Influencer Marketing? 

9) How did you go about acquiring your first thousand customers?

The first thousand were very lucky.

We already had built up the media list a little bit. We actually had a couple hundred thousand people signing up to be receiving daily emails from the FabFitFun newsletter.

When we launched the box to that group, we revealed as a spoiler, everyone was going to get a Moroccan Hair Oil bottle in their first FabFitFun box. That product itself retails for over $40. The box was going to be $50 but  $10 off your first box. Even if you just wanted that product, it made it worthwhile. We sent that email out, and we sold out of that box pretty quickly, in that first week.

10) Wow, okay. We'll call it a pre-launch strategy. Is it just a matter of having the landing page up and drumming up interest in it?

Yeah. That list for us was built over the course of years in terms of the editorial relationship that we had.

We've never been a big bang launch company. You want to: do your launches right, execute them well, and get the most out of it you can.

Success is one foot in front of the other. The best thing is,  get something up and running and you'll iterate in terms of how to do your marketing and distribution. A great one-shot thing that launches, isn’t going to make your business. You’ve got to figure out how to repeat some processes to keep growing.

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11) What do you think is the most effective thing that you're doing today in terms of customer acquisition?

It's always good to study the cancel experience in any sort of subscription service. Some people make it pain to cancel. This negative experience can spread by word-of-mouth.

We're tactically good across the board. We have best in-class, people and processes when it comes to paid acquisition, whether it's Facebook or Instagram or Pinterest or YouTube or the influencer channels we work on. We're doing a lot in a lot of places.

Our methodology revolves around just being very data driven and test driven. I think if you do that, and you do it very deliberately and have some great creativity behind it, you'll get to a great place.

12) What about in terms of struggles? What's one big struggle you faced while growing this business?

In the world of physical product there's just a steep learning curve to all of the logistics and operations about moving that product around.

Early on, we mistakenly shipped to two boxes to about, a thousand customers. That was a monumental mistake.  We also forgot to put one product in a box and that was all due to some communication issues.

Since then we've  internalized our logistics and operations. We now have our own warehouse, fulfillment service and processes.

95% of the time it's a process problem. Maybe only 5% of the time it's a people problem.

13) Your title is co-CEO so I'm sure you might have gotten this question before. How does that work being a co-CEO?

It works great.

There's no rule to it. In my situation it's not only co-CEO, it's my brother. We're 13 months apart. We're super close. We’re so committed to making this company successful so we’ve invested the time to make the relationship work too.

There's some things you have to unlearn. When you're working with your brother your instincts can be to use all the shorthand ways of communication that you learned growing up, throwing things at each other, yelling or whatever.

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