Episode Transcript
[00:00:00] Speaker A: So one of the things is when you're forced to do something, people don't like it. And so, generally speaking, hard bundles, hard pass.
[00:00:06] Speaker B: Yo, Mike, Check. What's up everybody? You're listening to the Street Pricing podcast, the only show where proven SaaS leaders share their mindset and mistakes in pricing. So we can all stop guessing and start growing. Enjoy, subscribe and tell a friend. Now let's break it down with your host and sought after slayer of bad pricing, Marcos Rivera.
[00:00:29] Speaker A: What's up and welcome to Stream Pricing. I'm Marcos Rivera, CEO, founder and pricing coach. Today I want to just get into a subject that's been top of mind for the last couple of weeks here. I've been getting a lot of questions on bundles. How do we think about bundles? How do we approach them? How do we do them? Right. There's lots of misadvice and some misinformation out there about how to bundle. So I'm going to talk about a couple things. One is why do we do it? What's the point? How do we do it the right way? Things to avoid, and then a couple of key frameworks on how to approach bundles for your product. Now, yeah, I focus on SaaS and software and technology, but a lot of these principles apply to pretty much anything. So let's jump right in and start talking about bundles here. So the first thing is, why do we bundle in the first place? Well, people think you bundle to sell more stuff to make more money. Yeah, on a top level, that's really what you're trying to do. But if you step back and peel the layer down a little bit more, you're really after a few things. You're really also trying to get the customer to adopt more of the value that you have to offer. And what you're doing is you're just addressing a larger breadth of use cases. Right? You're just solving more problems for them. You solve more problems for them, they use you more, they think about you more, they rely on you more. They're also more likely to buy more stuff if they already have a couple of things versus just one thing. So there's a future expansion opportunity when you bundle. So it's not just selling more more stuff right now and getting them to spend more now. It also paves the way for more later. So when you land with bundles, I think a lot of folks, this is where one of the big gotchas and traps is starting with a bundle that is too big. Combining 3, 4, 5, 6 products together can make it really hard for that buyer to consume. It could also extend the amount of time it takes to adopt the value and just get to a point where you actually feel like you're using the full bundle. So a bundle that's too big can backfire because it can make the sales process a lot more complicated, add a lot more friction, and it could take a lot longer for that customer to get to value, which then reduces their perception and overall makes it tougher for them to want to buy more. And leads to and this is the big part here I want to make sure I emphasize it leads to downsell at the end. So if there's a subscription and they're trying to renew you sell a bundle that's too big, you're going to have a pretty uncomfortable conversation at the end of that of that cycle of that subscription term because you weren't able to get them to use the whole bundle. And oftentimes that usually ushers them down to a down sell if you keep them. So be very careful with bundles that are too big. But other benefits if you're able to take a single product and sell two, maybe three, or even better maybe sell to an either a piece or some of another product to sort of ease them into it. Those are where some of the more creative bundles can come in. So you don't want to go too crazy and sell too many things in that bundle. Keep it lean and focused on one or two use cases and don't expand too far out in order to really make it effective. Now sure you can have more than one bundle. You can have the all in, let's throw in everything but the kitchen sink type of bundle for those that are ready for it. But don't expect a ton of folks to buy it. Right? You can have it sort of on the side in case you need it so you're not caught flat footed. But most customers will take a few bite sized chunks of your platform or your product suite, adapt, change and then go and invite some more after that. So plan for that to be the more frequent use case than somebody buying the whole entire thing. So here are some things that really make good bundles work or when you combine the products, make them work well. Make them sing. So I was reading an article the other day, I'm not going to name the source, but it had some advice around. You know, to do good bundles you need to know your customers and then pair up your products smartly. It's exactly what it said and it drove me crazy because it's not really actionable advice Right. I mean, duh, what am I going to do, you know, be dumb about how I combine my products? So let me give you something a little bit more actionable when it comes to putting products together for bundle. So the first thing is, is understanding the use case that product A solves product B and product C. And by combining them, are you able to either finish the sequence, meaning get to the outcome faster. Are you able to produce a new workflow or maybe a new piece of data by combining certain things? If you're, you know, take a workflow software in insurance, if one thing is analyzing the claim for the car and the other thing is analyzing for medical bills and then maybe the repair, then that's something that's involved in that sequence where you can piece those things together and craft a bundle that solves all those problems because they're all related. But the idea here is you're trying to solve the problem more holistically, right? So these are natural extensions of the problems you're solving. And by natural, that means that the buyer needs to either be doing something else to solve that problem. So what I mean by that is they're using your product, and then they're either doing something outside of your product or using a different product to go further to solve the problem. That's the golden opportunity for bundles. You want to solve the new problem and you want to create that sequence of use cases that make sense. But at the same time, you're typically displacing something else, maybe manual process, maybe again some legacy product they're doing, or even Microsoft Excel in some cases. So make sure that if you're putting a bundle together, what product A solves and product B solves naturally go together. And oftentimes they're doing something else to solve product B, if you know what that is. And then you're able to position your bundle as a better option between your product and something else. Oftentimes that's one of the best, highest leverage bundles you can hope for. Naturally, speaking as humans, we don't really like to context switch between all these different things. It creates error, it creates inefficiencies. There's lots of chance to drop something in between. Often the two things need to stay in sync somehow or somehow be able to stay connected. So if you're offering a bundle that connects those dots in a much more seamless fashion, that is a winner in my book. The other piece to that, if you're able to connect A and B, product A and product B to again solve deeper into the use case and then you display something. The third thing is if you're able to create some type of economies of scale and ramp up an implementation, meaning if you're already configuring for the accounting software, it's not that much harder to configure for the invoicing, reconciliation software or something else since you're already in there, so to speak, the patients on the bed. Right. So in those cases, you're able to get them up faster, have a much more powerful impact quicker. Again, where bundles go bad is if you put too much in the bundle, they're not well connected and they actually increase the amount of time and effort and implementation. And that can be a number one killer to any type of bundle there. So if you're able to again solve a very connected sequence of use cases, then you displace another product and then you're able to create some type of economies of scale and ramp up. Oh, those are. That's the golden bundle right there. So all that together, I think, creates the perfect bundle. Try to avoid the things that I mentioned. Team, I want to take a quick pause here to ask you for a huge favor that'll mean a lot to me. Please review and share the show. Share it with your team, your friends, your peers. Not only will it help them stop the guesswork in pricing, but it'll also help you and increase the chances that you'll take action and change for yourself. All right, much love. Now back to the show. Now, taking that a little bit further here, how do we think about ways to bundle? What are some of the options that are out there? There are a few common ones, but I'm going to break it down to just the, I think most common four that are that are out there. So the first one is the ad hoc bundling, which unfortunately most companies fall into, that is selling products A and B whenever it seems like the customer might want. It creates a lot of inconsistency, a lot of variability, discounting all over the place to try to make it work. And it's not the best place to start your bundling strategy. Bundling has to be done on purpose. Again, solving a very specific problem, displacing another alternative, and again creating scale. So those are the big three things that you want. You want to do it on purpose, not reactive. And so if you're in this place right now where you're bundling and say you're being very reactive, you want to move to either a framework, bundles, soft bundles, or hard bundles. Let me explain each one so A framework is simply we have these collections of 10 products, but we only bundle these products and these products, we only bundle these with those, we never bundle these two. So at least it gives you an idea of what really comes together and what bundle combinations you can attempt to put together and combine four codes for a customer. So again, the idea behind a framework is to create the conditions around how do we bundle, when do we bundle, what products do we never bundle? And then using that to at least start aligning and driving towards again, the right use cases, the right amount of scale and your ability to display something else. So use the framework if you can't get started anywhere else. But I prefer to push a little bit further than the framework. I like to go into soft bundles and soft bundles. Some people call them mixed bundles as well. But the idea here is you have defined bundles. Take an example from McDonald's where they have a Big Mac fries and a Coke. You can buy them individually, but you could also buy them together. HubSpot does this as well, where you can buy their sales hub, their marketing hub, their operations hub separately, or you can buy them together. And HubSpot really does a lot of work behind bundling across all of their hubs to try to create what I call horizontal slices. So a horizontal slice is if you buy all of sales or if you buy all of marketing, those are vertical slices. But if you buy some of sales and some of marketing and some of ops, again maybe for a company that is just getting up and running and they don't need like the full fledged everything behind sales and marketing just yet, but if you're able to to give a little bit of different products and create a bundle there, that's another way to take advantage of different maturity levels in your customer base and be able to get them started and again get them started on multiple products, which can lead you to expand in multiple ways. And that's one of the keys there. So soft bundling is super powerful because you can create these bundle combinations, predefined them, they're usually targeted towards the same buyer, the same set of use cases you're trying to solve, and you usually want to charge for the same metric. If you're charging by user or GB or per device or per vehicle or whatever it is, you want to try to stick to that same metric to keep the bundle easy to understand. But you do all that right and then you have a nice clean defined discount for the combination of products. That is a winner bundle. But if they don't want the bundle, if they're not ready for everything, they're not ready for the horizontal slice. Then you can always fall back on a standalone. Get them to buy one thing, get your foot in the door and then have them move from there. The only thing is, when they do buy it standalone, it's more expensive and make sure it's very clearly more expensive. If you're thinking about, well, gee, how much should I discount when I combine products? What's a bundle discount? What's normal? I always go with a 5% per each product in the bundle. So if you have two products, that's a 10% discount. If you have three products, that's 15, four products, 20 so on. Right. So use that as kind of a rule of thumb. And then you can always discount more or less, depending on how valuable the bundle is to you. So soft bundling, big, big fan of it. I've seen it work super well in a lot of companies and it typically increases your asp, increases your ACV as well. So your sole prices, your average contract values all go up and you also get a retention bump as well. People stick around with the more products that they buy. There's a third way to bundle and it's something called hard bundle. So you have the soft bundles I just talked about, you have the framework which is just kind of getting the idea of what to bundle and whatnot. But hard bundling is where you can only buy product A and B together, or you can only get access to product C if you buy product B. And those hard conditions don't really, I could just say it's worth in a much too competitive environment to really dictate and say you can or cannot buy this thing, typically speaking, they'll just go somewhere else and get it. But when it comes to hard bundles, typically you have A, either some sort of IP or contractual or government advantage, something that is really hard for others to compete on, and then you can really force a hard bundle together. So if you're saying, for example, this happened to me when I was trying to purchase an upgrade to my license, I was working with the DMV and I had to buy, I had to buy the license. I also had to go back and purchase some, some other address update thing they made me do. So one of the things is when you're forced to do something, people don't like it. And so generally speaking, hard bundles, hard pass, I would say that stick with soft. If you can't even get to that point, at least have a framework and that's going to get you much further than just doing bundles reactively in ad hoc. So big things to think about when you're looking at doing bundles is you don't want to pair a, well, good performing product with a bad performing product. So if you got something that's really profitable, really selling like hotcakes, and then you get something else that just, you know, it's just not performing all that well, maybe it sucks, maybe it's immature, it's early in its life cycle. Whatever it is, when you put them together, you actually bring down the value of the good product. All right, what humans tend to do is average value between multiple things. So if you have an expensive bottle of wine and cheap chocolates, they're going to average it down, it's going to pull down the value of the wine, it is not going to raise the value of the chocolates. So just be very careful because this is a big mistake a lot of companies make. They'll try to take something that's just not selling, bump it up and bundle it with something that is. And oftentimes they end up just giving up a lot of money. The other thing you want to do is be careful not to bundle things that have that require very different buying and usage behavior. So this is, you know, I call it hot tomato soup with an ice cream sundae. Both great things, but very different contexts, very different reasons. You buy them sometimes very different conditions. And by selling them together, you create a lot of friction. Sometimes you need to bring in multiple buyers into the sales process. Hey, when are we going to use this thing? Maybe one wants it more than the other. It creates a lot of noise in the system. So try not to pull together things that just have completely different buying reasons, triggers, conditions, all those kind of things. And then third, I think you should be very careful again with that implementation and onboarding. And it's very sneaky because you don't think about it when you're putting the bundle together. But if it takes about a week to get up and running with your product and your bundle creates it or extends it to two weeks or three weeks, you just triple the amount of time it takes for them to get to value. That can really be harmful in not just closing the deal, but also renewing that customer. So be very careful about adding way too much heavy, complicated configurations, implementations, set up all that thing training, all of that. Humans, you know, can only absorb so much when we're about to undergo some change. And so try to keep that consumable and not try to blow it up as much as you can. All right, so those are my big things around bundles again, going back to my original point of solving a set of use cases that are well connected, of creating some scale, all those key things. I just want to make sure that those come to mind when you're trying to make the right combinations to sell. All right, so let me know if you like these. I'll keep giving you these knowledge bits to help you move 1% to get 1% better every day. Move away from that guesswork and more towards growth. Until next time, thank you and much.
[00:16:41] Speaker B: Love for listening to the Street Pricing podcast with Marcos Rivera. We hope you enjoyed this episode. And don't forget to like and subscribe. If you want to learn more about capturing value, pick up a copy of Street Pricing on Amazon. Until next time.
