How to Start a Gift Box or Gift Basket Company

According to Coresight Research, in 2021, the estimated U.S. market size for personal gifting was $1.18 trillion. Throw in another $242 billion in corporate gifting and the total market size for gifting in the U.S. was just over 1.42 trillion. With an 8.1% CAGR, the total U.S. gifting market is estimated to be over $1.5 trillion by the end of 2024.

Maybe, just like me, you are thinking that you would like a piece of that pie. You’re not greedy so it doesn’t need to be a big piece. I’ll bet you would probably be okay with just one-tenth of one percent of that market, which would be $1.5 billion.

Now, before you start shopping for private jets and luxury yachts, you need to figure out how you are going to build your gifting empire. It can be overwhelming to start a new business, and you might not know how or where to start. Desmond Tutu once said that there is only one way to eat an elephant: a bite at a time. The same is true for starting your own gift box company. When you tackle one step at a time, you will find that starting your company is much less daunting than you originally thought.

In this series of posts, I will walk you through several of the key steps of starting your gifting business, including the dos and don’ts I have learned through my journey. While this list isn’t meant to be an all-inclusive list of everything you need to know, it will serve as a helpful guide as you start down the road of entrepreneurship, helping you increase your chances of success.

Over the next six weeks, I will focus on the six steps to starting your own gift box company:

1) Conduct Market Research and Identify Your Niche

2) Identify Your Sales Channels

3) Prepare Your Business Plan

4) Establish and Fund Your Company

5) Sourcing Products and Packaging

6) Setting Up Your Operations

Conduct Market Research and Identify Your Niche

Before spending any time or money on your new venture, it’s imperative that you understand your market and determine your niche in that market. Effective market research will
help you avoid costly mistakes and will guide every decision you make as you start your business.

Many companies can help with market analysis, but they can be expensive, and thus out of reach for most startups. However, that shouldn’t stop you from conducting your own research. There are many resources available that only require your time and effort.

Conducting market research and identifying your niche is a little like the chicken and egg paradox. To effectively
conduct your market research, you need to know which niche you will be working in, however, to identify your niche you need to conduct market research. I would suggest you start with a general idea of your niche and then conduct your research to see if it makes sense. From there you can narrow down your niche, adjust it based on what you have learned or scratch it all together and start over with another niche.

One common mistake that new business owners make is trying to focus on too broad of a market. It can be tempting to think that the broader my product selection, the more potential customers I will have access to. While maybe technically correct, with limited time and finances the end result is often just the opposite. It is better to start with a narrow scope and then after you have experienced some success you can determine If it makes sense to expand into other areas.

Porter’s Five Forces Analysis

To help organize your market research, I would suggest you
use a simplified Poter’s Five Forces analysis, which was first published by Professor Michael Porter in the Harvard Business Review in 1979. This model will help guide you through your research and identify things you may not think of without it.

1. Threats of New Entrants

In this section, you will try to determine the risk of new entrants into your niche. To help you should ask yourself two questions:

1) What are the barriers to entry in this niche/market?

2) How will existing companies respond to new entrants?

Barriers to entry may include start-up costs, the ability to procure the needed products, etc. One advantage of narrowing your niche is that your market size might become small enough that some of the larger competitors won’t find it an attractive enough market.

2) Rivalry Among Existing Competitors

You should spend a lot of time on this step. This is where you will identify competitors and what they are offering. To identify competitors, you should start with a Google search for any search term that you think your customers might use to find you. Companies that are paying for sponsored ads on those terms are competitors. In addition, companies that show up in the organic search results are also potential competitors. Dig deeper than just the first page of results. You will find competitors on the next several pages.

In addition to Google, conduct your same search on Amazon and Etsy. You will find some of the same competitors but also many others.

Start to identify how you will differentiate your products and services from your competitors. Trying to compete on price will probably not work since you will not initially have the buying power your competitors have and your advertising costs will likely be higher as you build your brand, so focus on other areas of differentiation

3) Bargaining Power of Suppliers

Since most of your COGS (cost of goods sold) will come from product and packing costs, it is critical to gain an understanding of those costs in your market research. As you narrow down your niche, be sure that there are enough suppliers servicing that niche to ensure price competition and availability of products. You might want to reach out to some of the suppliers to make sure you can purchase their products and find out what is required to set up a wholesale account, etc.

4) Bargaining Power of Buyers

You may have some overlap with your competitor analysis when you complete this section. When you have more competitors selling the same or similar products your buyers will have more choices and power. In addition, since your niche market is likely made of many smaller companies, you might find yourself being undercut on price by several different companies. This is especially true on third-party marketplaces like Amazon and Etsy.

5) Threat of Substitutes

In addition to the competitors you identified when completing your competitor analysis, you need to be aware of substitute products that can impact your business. For example, if a customer perceives that the price of your gift b is too high or your shipping lead times are too long, they may opt to send flowers or a dozen cookies instead of your curated gift box. Making your product unique and/or custom will help reduce the threat from substitute products.

Benefits of Focusing on a Narrow Niche

Ideally, since you will be selling gift boxes you want to be at the top of the search results whenever someone searches for the term gift boxes on Google, Amazon, Etsy, etc. However, the thousands of other companies that sell gift boxes want the same thing. Some of those other companies are big
companies with big advertising budgets. In addition, they have been around for a long time and have built up their SEO so that it will be nearly impossible to bump them from their spot on the first page of organic search results.

You could pay to get to the top of those results but since everyone is bidding on those same popular terms, it will be expensive. You could end up spending $10 to $20 on advertising for every $1 in revenue. That is not a viable long-term model.

Another benefit of narrowing your niche is the savings you will realize when you start purchasing products for your gift boxes. Customers purchasing your gift boxes will want them to ship immediately so you will need to maintain inventory in stock. With a narrow niche, you may only need to keep 100 SKUs in stock versus 1,000+ SKUs for a broader niche. Managing your cash flow early on can be the difference between success and failure.

When identifying your niche don’t only focus on search terms your potential customers may use. Think about your hobbies, interests, or expertise. If you love golf, then perhaps that can be your niche. If eating healthy is important to you then maybe organic or vegan gift boxes couple be your niche. If you pick something that you are passionate about it will be much easier for you to promote your gift boxes and your expertise will be clear to your customers.

Identify Your Sales Channels

After you have completed your market research and identified your niche, it’s time to figure out where you will sell your gift boxes. Your primary sales channels will probably be digital, but you shouldn’t limit yourself to only digital channels. We will review non-digital options in more detail at the end of this week’s post.

When considering digital sales channels, you have two main options. The first is to build a website and drive traffic to your site. The second is listing on a third-party marketplace. The right digital sales strategy will probably include a combination of both options so we will review the pros and cons of some of the more popular solutions below.

Build Your Own Website

Building a website used to require programming skills that most entrepreneurs don’t possess. Fortunately, over the last 10 years, companies like Shopify have changed the way websites are built. With a wide selection of pre-built
templates, easy-to-use tools, and merchant and carrier accounts, you can have your website up and running in a matter of hours instead of weeks or months like it used to take. For as low as $29.99 a month, Shopify will host your site, serve as your credit card processor, and even let your purchase UPS and USPS shipping labels at a discount.

The biggest challenge with building your website will be getting customers to visit your site after it is built. The adage “If you build it, they will come” might apply to baseball legends but it doesn’t apply to web traffic.

For new startups, there are two primary methods of driving traffic to your website. The first is advertising. Advertising comes in many shapes and sizes, but the biggest player in the space is Google. Setting up Pay Per Click (PPC) ads, Display
ads or other types of advertising can drive traffic to your site, but it can also be expensive. Other advertising options include Facebook ads, Instagram ads, Bing, and much more.

The second method of driving traffic to your site is by improving your organic search results. Unlike paid advertising, you don’t have to pay each time someone clicks on one of your organic search links. However, that does not mean that it won’t cost you to get to the first page for your desired search results. That cost can be in the form of time or money, or generally both.

There is too much involved with Search Engine Optimization (SEO) to go into detail with this post but in a nutshell, it is comprised of two main areas. On-page optimization and
off-page optimization. Properly done on-page optimization allows Google, or other search engines, to easily see what your site is all about and then enter it in their search database, commonly known as indexing.

Off-page optimization is done when other credible websites link to your website, passing on a piece of their credibility. Link-building is a critical part of improving your SEO, but it doesn’t happen quickly. Including quality content on your website that other sites want to link to is a big part of link-building and that takes time and effort.

Most SEO efforts take at least six months or longer before you start to see the results you would like. To learn more about SEO strategies download this free SEO book from SEO National.

Advertising and SEO are not the only ways to drive traffic to your site. Other ideas include building and maintaining an active social media following, using influencers, giveaways, partnerships, etc. For start-ups that don’t have big advertising budgets, it is important to be creative and find inexpensive ways to make your website known.

Third-Party Marketplaces

There are several third-party marketplaces where you can sell your gift boxes but the two biggest in the U.S. are Amazon and Etsy.

Amazon

Amazon is the largest third-party marketplace in the U.S. Roughly one-half of all items sold on Amazon are sold by third-party sellers. To start selling on Amazon you need either an individual seller plan or a professional seller plan. If you are selling less than 40 items per month and don’t plan to advertise you are good with the individual plan. However, just like with your website, if you don’t advertise it will be very difficult for customers to find you. I strongly recommend the professional seller plan for $39.99 per month which will allow you to advertise your products. In addition to the monthly fee, you will pay Amazon a referral fee on each order which is normally 15%. You also have the option of using Amazon to fulfill your gift boxes, which will make them Prime eligible, a major selling point for many customers. If you utilize the FBA (fulfilled by Amazon) service, you will have additional pick/pack, storage, and shipping fees.

As great as it sounds to get your product in front of hundreds of millions of Amazon customers, there are some downsides to selling on Amazon too. You will need a UPC for each item you sell on Amazon. Those must be purchased separately through GS1 or another reseller. Also, without a trademarked, registered brand, you will not have access to many of the extra tools that Amazon offers like A+ content and an Amazon Storefront.

Keep in mind that while Amazon delivers orders it does not really deliver customers. You will not be able to market to past Amazon customers because you will not have their email
addresses, etc. Lastly, Amazon is all about price and competition so your margins will be lower when compared to other sales channels.

Etsy
Etsy is a third-party marketplace for “makers.” To qualify to sell on Etsy you must be selling items that are handmade,
vintage, or craft supplies. However, enforcement can be arbitrary, and you might be told you can’t sell something
that someone else is selling or vice versa. Simply kitting items you purchase from someone else doesn’t qualify you as a "maker" so you will need to make all or most of the items you are selling. The manufacturer of items not made by you, but personalized by you, must be disclosed when you create your listings.

Unlike Amazon, Etsy doesn’t require a UPC, so it is much easier to get your products listed for sale. You pay a small fee to list an item but aside from that you only pay Etsy its commission when you sell an item. However, just like Amazon, you will likely need to pay to advertise your items to get them listed where customers can find them. The best thing about Etsy is how easy it is to get your products listed.
You can create a storefront and have products for sale in a matter of minutes.

Non-Digital Sales Channels

Being found online, whether on your website or a third-party marketplace, will take time and money when you first get started.

Don’t limit yourself to these channels. Look for opportunities to sell your gift boxes outside of digital channels. Reach out to businesses in your area to offer your gift boxes as thank you gifts for clients, employee anniversary or recognition gifts, holiday gifts, and more. Bring samples with you to show them what the box will look like when it ships. Target companies that traditionally give gifts like real estate agents, insurance companies, title companies, and more. Consider joining your chamber of commerce where you can network with companies in the area.

Try selling your boxes at fairs, farmer’s markets, or other local events. If using locally sourced items in your gift boxes reach out to those companies to see if they will link to your site or promote your company to their clients.

These are only a few of the many channels you can utilize to sell your gift boxes. Think outside of the box, pun intended, and find ways to make your gifts stand out.

Prepare Your Business Plan

Before we discuss how to prepare your business plan, let’s take a step back and discuss why you should build a business plan to begin with. A business plan serves multiple purposes, and we will take a closer look at three of them in this post:

1) A Guide to Organizing Your Thoughts and Plans

2) A Roadmap to Start and Operate Your Business

3) A Tool to Secure Funding

A Guide to Organizing Your Thoughts and Plans

In the process of identifying your niche, completing your market analysis, and selecting your sales channels, you have put a lot of thought into your new business. Now it’s time to start collecting and organizing your thoughts. You likely have information in various locations and formats that need to be combined into a single, useful document.

As you work through the various sections of your business plan you will have new ideas and questions that will help refine or even change some of your plans and assumptions. There will likely be several things that up to this point in your journey you haven’t considered. Taking the time to prepare a well-thought-out business plan is probably one of the most important steps in launching a new business and can save you time and money, the two things a new business owner never has enough of.

A Roadmap to Start and Operate Your Business

As you progress with your plans to launch and run your business, you will find yourself pulled in many different directions. There is always a fire to put out, a new idea to run down, or an opportunity to capitalize on. Your business plan can serve as a compass or your north star to ensure you are always on the right path. It can help you decide where to commit resources, which opportunities to pursue, which to pass on, how to prioritize competing tasks, and where to spend capital. Keep in mind that a business plan should be a living document. There will be times you will need to update your plan to allow for new opportunities or challenges.

A Tool to Secure Funding

Unless you are self-funding your business, you will likely use your business plan to apply for loans, seek investors, or ask family & friends for funding. In some cases, your business plan will be the first impression these institutions and individuals have of you. You want to show them you are serious, have thought of all the risks and opportunities, and are set to succeed. Most new businesses don’t get funded because they have the best idea, but instead because the lending institution or investor has confidence in the prospective business owner.

Seven Steps to a Successful Business Plan

Your business plan should include at minimum the seven sections listed below. Of course, depending on your specific business and your financing needs, you might need additional sections or appendixes.

The seven key sections of a business plan are:

1) Executive Summary

2) Business Description

3) Market Research

4) Company Structure

5) Products or Services

6) Marketing and Sales

7) Financial Forecasts

1) Executive Summary

This is your elevator pitch, and it should be clear and concise. Included in this section are the who, what, why, where, and when of your business. Who will run your company, what service or product will your company offer, why will your company be different/successful, where will you operate and when will you need funding, when will you start operating and when will you start making a profit.

2) Business Description

This Is your first opportunity to really explain your new business. You should go into detail about the products and/or services you plan to offer, the markets you will serve, the competitive advantages your company will offer and the consumers you plan to target.

In this section, you don’t want to be humble. Make sure your reader knows all the reasons your business will be successful including the industry expertise you have or will be hiring.

3) Market Research

Having already completed your market research this should be an easy section to complete. This is your chance to show your reader that you have a strong understanding of your
market and how you will thrive in it.

Talk about trends you see in the industry and how you will
capitalize on those trends. In this section, you should include charts and graphs as needed. You need to make sure your reader understands how well you know your market.

4) Company Structure

Since you may be the only employee of your new company, this section of your business plan will likely be small. Talk about how your company will be structured (i.e., sole proprietor, L.L.C., or other) and focus on your expertise in the market. You might want to include your resume to show your previous experience and how it will benefit you in this new company.

5) Product or Services

This is your opportunity to go into more detail about the
product or service you will offer. Describe what makes your gift boxes unique, how you will source your products
and packaging, and how your boxes will be assembled and shipped.

If applicable, you may want to talk about how you will protect your boxes/niche with exclusive supplier contracts or intellectual property protections like trademarks or patents.

6) Marketing & Sales

Use the information you previously gathered when considering sales channels to explain how you will acquire customers. Be specific and include plans for paid advertising, SEO efforts, affiliate marketing, and any offline plans to attract customers or build word of mouth.

Acquiring new customers is only the first step. You should also talk about how you will market to existing customers to increase the value of each customer and decrease your customer acquisition cost.

7) Financial Forecast

This is one of the most important sections of your business
plan, especially if you are seeking funding. You should include monthly P&L, balance sheet, and cash flow forecasts for the first 12 months and annual forecasts for the same information for the next five years.

Don’t just include the forecasts but provide a narrative to
show how you came up with those forecasts. Include where your initial funding is coming from and if seeking additional funding, explain what personal assets or collateral you have for security. If your funding will be in the form of a loan, explain how you will pay it back.

Be realistic with your forecasts. Building a new business takes time and profitability might not come for a couple of years.

After you have what you think is a good draft of your plan completed, give it to friends, family members, or other colleagues and ask them to play devil’s advocate and try and poke holes in it. It will likely take you several drafts before you are ready to take your business plan to potential investors or lending institutions.

Check back next week when we will look at establishing and funding your new company.

August 31, 2022 — Matt Graham

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