How To Make Money With Small Online Clubs

Submitted by Dmitri Davydov on Tue, 2007-01-02 11:37.
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As a former lawyer who dreaded tie-shopping, Greg Shugar of Naperville, Ill., knew other businessmen probably shared his feelings. So not long after founding an online store called the TheTieBar.com with his wife, Gina, in 2004, he added a service to make shopping more convenient for customers -- not to mention, lucrative for his own business.

He started a Tie-of-the-Month Club.

For $199 a year, customers signed up at www.thetiebar.com to receive a silk tie each month. So far, the Tie Bar, which designs the ties and has them manufactured in China, has more than 150 subscribers, with more than a dozen on their second year.

Aided by the Internet, a growing number of small businesses are offering clubs that provide goods to subscribers monthly, either as an add-on to their existing business or as primary means of sales. For entrepreneurs, it's a way to cut the costs of starting a business as the rise of online shopping has erased the trouble of setting up a brick-and-mortar store.

There are other incentives, though. For one, business owners say their cash flow is more stable because they have guaranteed sales each month, through a yearly or other set-time subscription, because most of their customers pay up front. They also have better control of inventory because they know ahead of time exactly how much to purchase each month and at certain times of the year. Such freedom to plan is a valuable asset for ferreting out cost efficiencies and stabilizing sales.

Plus, entrepreneurs say with club-of-the-month models, they don't have to carry such a wide array of different items because they only have to fulfill a set amount for each featured item each month. In most cases, owners choose what item to give customers rather than have their clients do the picking.

The proliferation of clubs inspired Steve Schaffer to create Club-Offers.com, a shopping comparison site started two years ago that now offers a selection of more than 120 different monthly clubs. For example, fruit clubs can go anywhere from $19 to $38 a month. The most expensive club the site presents is a "Caviar of the Month" Club, which sells a year's supply of eight ounces of caviar a month for $3,880.

"Fruit is the most popular," Mr. Schaffer says. "But the other clubs are growing in popularity."

Setups Vary

How these businesses are set up varies. Some have only an online presence; others have a catalog or work with boutique shops. Some clubs, such as the Tie Club, are add-on services for their main online site, where customers can purchase items individually without joining the monthly club.

So far, the Tie Bar has generated $500,000 in sales in its recently ended fiscal year from $100,000 a year earlier. Mr. Shugar says they don't break down how much the Tie-of-the-Month Club has helped their sales but it has helped form the company's identity.

Other companies rely solely on running these monthly clubs -- sometimes multiple ones. Doug Doretti, owner of Clubs of America Inc., runs eight gourmet monthly clubs, from Chicago-style pizzas and international wine to microbrewed beers, and has shipped more than 1.5 million packages from a 20,000-square-foot Lakemoor, Ill., facility to members since opening his first club in 1994.

The company now has 18,000 members, up from 15,000 last year, and is approaching $10 million a year in sales from his Web site www.greatclubs.com.

Marketing Methods

As clubs have expanded, so too have marketing approaches. For instance, Kris Calef, owner of C&H Clubs Inc. of Lake Forest, Calif., started his business in 1994, with a monthly club for microbrewed beers -- then added wine, cigars, cheese, chocolate and flowers.

C&H's business model now allows a consumer to alternate between the product lines, such as switching between a beer and cigar gift every month or wine and flowers. Customers can also determine how long they want the gift to last, from a one-time gift to every month of a year. Depending on the service, the cost can range from $29.95 a month to $38.95 among all six lines of Mr. Calef's business.

For the past five years, C&H has grown about 25% a year and recently launched a new division focusing solely on corporate gift givers -- employers offering monthly gift clubs for their employees or clients. This division currently accounts for about 10% of the business's sales. Mr. Calef declined to cite total sales figures.

Keeping Customers

While cancellations aren't a problem, winning renewals can be because most recipients get the memberships as gifts, and aren't the actual purchasers. Mr. Calef says about 10% of C&H's gift memberships convert to personal memberships, which is a renewal by the recipient.

In Norwalk, Conn., Patrick Moore, a former marketing consultant, launched eBeanstalk.com with his partner Brian Gordon in mid-August. The online site sells age-appropriate toys in quarterly segments. The company offers several packages, which include shipping and handling and range in price from $20 to a $300 four-toy "ultimate" package. They purchase the toys from various suppliers ranging from big -- Mattel Inc.'s Fisher-Price -- to small ones such as puppet-maker Folkmanis Inc., in Emeryville, Calif.

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