Written by Nathan Watt

Do you want to know how smart businesses use one simple strategy to massively increase their profits?

We all know that it costs less to keep a customer you’ve already got, than to get a new one. But did you know that it’s also way easier to get a customer you’ve already got to buy one more thing, than to get another customer to buy the first thing?

So how do you do that? Just ask a simple question;

"you want fries with that?".

By bundling: selling two or three products for a single price, you can make everyone happier - if you get the right mix of things in your bundle

It's not just about getting your customers to buy more. It's about creating a win-win transaction. 

You’re not selling anybody anything.

You’re not being pushy.

You are simply offering them a good deal, to get something else they might be interested in for a discounted price.  They can either accept it or politely decline.

And this one little line could propel your business to a whole new level. In this blog we will show you what to do, what not to do, and how the numbers work to massively increase your profit.

But slapping two products together won’t cut it. There has to be value in the bundle, or customers won't buy it or if they are forced to because you’ve got a monopoly – they’ll hate you.

Remember way back in the dark ages when you needed a phone line to get the internet – even broadband?. Nobody really used the phone line, but the big telcos still wanted to slug you $25 a month just to have the line even though no handset would be plugged into it.  Then came along iiNet, and naked ADSL and they took massive chunks of Telstra’s market share because Telstra’s bundle did not provide value.

Bundling’s great – provided you get it right.

Get it wrong and you’ll either annoy/rip off your customers or give them so much value you’ll lose money & go broke – and in the process annoy your customers because you’re not around anymore!

It’s a fine line but get it right and bundling is great for everyone involved.

What Is Bundling?

Taking two separate products or services and selling them together to your customers at a single price is called 'bundling'. While it's a simple concept to understand, it's hardly ever a sure thing. In order for a product/service bundle to be considered successful, it must both;

  • raise your profits, and
  • add value for the customer

What Are the Benefits of Bundling?

When done correctly, you and your customers come out winners.  Bundling has the potential to be a win-win transaction.

Yes you’re selling things at a discounted price, which means you make a lower gross profit than if you were to sell them individually, but get it right and you’ll sell more of the bundle than you would ever sell of the products individually.  The volume not only increases your sales – but more importantly increases total Gross Profit (as opposed to gross profit per item).

Huh?

Let’s use some numbers

Profits from bundling

You sell men’s ties (is there such a thing as women’s ties?). You also sell pocket squares.

The average tie $50. The average hanky is $30.

You currently sell 100 ties a week & 20 hankies.

Ties Cost you $10, hankies $5.

So your Gross Profit is $40 per tie ($50 - $10) and $25 per pocket square ($30 - $5).

Your current profit & loss looks like this (let’s party like it’s 1999 and pretend GST doesn’t exist)

Header

Ties

Hankies

Total

Sales

$5,000

$600

$5,600

Costs

$1,000

$100

$1,100

Gross Profit $

$4,000

$500

$4,500

Gross Profit %

80%

83%

80%

Spring racing season is coming up and you’ve decided to give bundling a go.

You put together a bundle so customers can get a tie & a hanky for $70 (tie $50 – hanky $20). You pitch it as 1/3 off pocket squares.

Turns out hankies in your pocket are cool and with a little tweak in your sales process to offer the deal to EVERYONE (more on this later) - the bundle hits the spot – so everyone who bought a tie that week took up your deal and you sell 100 bundles.  Your P&L now looks like this;


Header

Ties

Hankies

Total

Sales

$5,000

$2,000

$7,000

Costs

$1,000

$500

$1,500

Gross Profit $

$4,000

$1,500

$5,500

Gross Profit %

80%

75%

78%

Your GP % on hankies has dropped 8% (from 83% to 75%) and the total GP % has dropped 2% (80% to 78%). But the increase in volume sold puts an extra $1,000 of Gross Profit in your hanky pocket that week. $1,000/ $4,500 = 22% more cash in your skyrocket. Nice.

Besides the increase in Gross Profit on the actual sale, there are other benefits to masterfully bundling your products. Below are a few of the big ones:

Benefit One

Selling two or more products together reduces your inventory, distribution and marketing costs.  The less time you hold inventory the better it is for your cash flow.  So not only do you save on distribution & marketing costs, you will also improve stock turn and cash conversion cycle.  And selling more volume of products might also allow you to access discounts from your suppliers, thereby reducing your costs more.  All of this can work to increase Gross Profit, and Cash Flow.

#winning

Benefit Two

You don't have to be Amazon to enjoy this strategy. Brick and mortar storefronts and small online businesses can reap the benefits of freeing up sales staff and increasing revenue by focusing their efforts on one cohesive product instead of several distinct items. When you bundle correctly, your salespeople can focus on one product in the bundle and let the package deal sell the others.

Benefit Three

Bundling products will also save you shipping costs. Shipping two to three items together will always cost you and your customers less than shipping two to three individual packages. You can also pass part of these savings on to your customer to make your bundle even that much more irresistible.

Benefit Four

When done right, your customer feels like they are getting a good deal. If your bundle adds value to their purchase, it will build their trust, and your site or store will be the first place they look the next time they need something.  And as we all know keeping a customer buying is a lot cheaper than marketing to get another one.

What Are the Different Types of Bundling?

There are two basic bundling strategies a company can adopt. While they both serve a purpose, it's important that you take the time to get to know your customers and products well enough to know which one will work for you and your business. We've listed these strategies below, along with some benefits of each, but it will be your job to know your customers well enough to choose the right method for your business.

The Pure Bundle

A pure bundle is comprised of two products that are not offered separately. A good example of this is Foxtel. Hundreds of channels you don't ever watch just to get the ones you want, this is pure bundling. It's the idea that to get what you really want; you'll be forced to buy other products you really don't care for.

If you decide bundling is the right move for your business, we have a few words of caution: typically, companies see a decrease in sales of about 20% when implementing this method. When Nintendo bundled gaming systems with customers' choice of a video game, their sales went through the roof-they were up by over $1,000,000. As soon as they took away the choice of what game came in the bundle, sales plummeted over 20%.

Mixed Bundling

Mixed bundling allows the customer to buy the products separately, but if they purchase both, they do so at a single, discounted price. Unlike the pure bundle, this strategy allows the customer to make the choice. It's like telling them, "You can purchase these two items separately, but if you buy both now, you will save money." It gives the customer incentive to bundle, while also increasing your sales and moving inventory. There are two types of mixed bundling:

Joint bundling is when customers can purchase the products separately, but they receive a discount when they purchase them together. A great example of this is value meals. You can purchase your burger, fries, and drink separately, but if you buy their value meal that includes all three, you save a few dollars. It's often a great choice even if you don't want one component of the meal.

Leader bundling is a similar concept in that the items can be purchased separately, but leader bundling goes a step further: it usually has a specific purpose, which is to move unwanted inventory. You have created a leader bundle if you give the customer a discount on a popular item if they purchase a not-so-popular one – but be careful you’re not flogging crap

How Do I Make Bundling Work for My Business?

Overall, bundling is a simple concept, with the potential to make your business boom. Think about it, though: it is not something you want to tackle before doing your homework. To help you with this, we've put together a to-do list. After all, you can't bundle your way to the bank if you don't know how!

Natural Compliments

Burgers, fries and a drink just make sense. They are natural compliments – natural extensions of each other. What are natural compliments/extensions in your business?

Know Your Numbers

You need to know what the expected impact to your profit is going to be. So once you’ve worked out what you’re going to bundle, you need to work out the price point.  From there you need to make an educated forecast on what you expect the take up of the bundle will be then whip out the calculator and work out what all that is going to do to your profit & loss.

Offer a Variety

When coming up with your bundle, don't stick to just a single option. Allow your customers choices, everyone likes to feel like they are in control. If a customer feels you are locking them into a single bundle option, they may rebel and go elsewhere.

Train your sales staff

The single biggest factor of getting traction on your bundle is your sales staff. Train them and embed in your sales pitch to ask the customer Every. Single. Time “you want fries with that?”

Monitor it, make sure they are doing it. Keep track of the bundles being sold and which sales person is selling the most. Gamify it, set KPI’s. Reward them for beating the KPI.

Advertise, Advertise, Advertise

After working so hard to come up with just the right bundle, you need to let your customers know about it. Display them at the front of the store or on the first page of your website. Make the potential savings a big deal. Use bright and bold advertisements. Phrases like "save 20%!" or "two for the price of one" are eye-catching and might make the customer choose a different product before they get to the sales staff.

Check-out Counters Hold Power Even Online.

Offering your customer a last-minute bundling deal can be a very effective tool. You've probably seen this done at check-out lines before. For example, when you are buying two of an item, the cashier might mention that a third would be half off. This prompts a quick decision, and most customers will take the deal. This can also be done in online check-outs.

Yeah, we're talking about them a lot, but just ask Amazon. When checking out, they always show you what others have bought alongside your purchase, and then offer you savings if you add the item to your order.

Conclusion

Overall, bundling is a powerful tool for most businesses. Any time you and your customer win, it's a good day. Make sure you know your customers and what they like before carelessly bundling your products. Crunch your numbers and work out the price point and the expected take up rates. Train your sales staff, set KPI’s and announce the reward if they’re met (announce this at the start – and deliver when they hit it!)

If done right, you'll find that everyone wants a deal: they'll pony up their money if they feel that the gain is worth it. If you're smart about it, you'll bundle your business all the way to the bank.

If you want help crunching the numbers, hit us up here

Do you bundle? If you do let me know your experience, if you don’t – why not – let me know!

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