Multi-Product Bundling
A tale of evolution, myths, and confusing acronyms
Happy Thursday!
And to my new subscribers, welcome to the underground where we explore the rapidly-changing world of subscription pricing every other week. Glad you’re here.
I was fortunate enough to spend some time at SaaStock in Austin a couple weeks ago and wanted to quickly share a few takeaways from my visit:
AI in B2B SaaS is (not surprisingly) the belle of the ball.
If you aren’t building an AI capability in your SaaS product, you’ll at best, get some confused and condescending looks from others in the space, and at worst, find yourself losing a competitive race in the coming years. Drift’s CEO, Scott Ernst, compared this AI boom to that of the internet in the 90s. It’s not a new toy, it’s a whole new sport.
Revenue-based financing may be having a moment.
Several companies floated around the conference selling the concept of fast and seamless money borrowing without receiving equity, replacing banks & traditional VCs. Though this has been around for a while, in 2023, I have to imagine it’s an increasingly attractive offer for early-stage founders.
Austin rocks.
Few American cities rival Austin’s vibe - a refreshing blend of cowboys, hipsters, and whatever you call the man holding a python on 6th Street. Truly one of a kind.
Today, I’m going to explore the concept of product bundling, because, in the famous words of Jim Barksdale:
“there’s only two ways I know of to make money: bundling and unbundling”.
If the first SaaS company were a person, we’d be celebrating their 30th birthday this year.
Right around the same time Michael Jordan retired from the NBA (the first time), three friends built an expense reporting software product, put it on floppy disks, and sold it to the world. They later discovered floppy disks were holding them back (partially due to the emergence of a little startup called salesforce.com) and instead opted to sell their product online to anyone with a web browser… a pretty radical concept.
They went on to survive the dot com crash, the Great Recession, a global pandemic, and would get purchased in, at the time, the largest-ever SaaS acquisition.
They called the company Concur. And with the founding of Concur, so too was the modern SaaS economy born.
As one does when they turn 30, it’s worth taking a few moments to a) lament over the speed of time and b) reflect on what we can learn from the past. I’ll be doing the latter today. Let’s begin the conversation around the SaaS economy’s 18th birthday.
You may have seen the following graphics.
In 2011 there were ~150 Martech SaaS companies. In 2016 there were roughly 3,500.
So, what happened?
Between 2011 - 2016, spinning up a SaaS company became significantly easier compared to years past. Due to the massive developments of things like of Infrastructure-as-a-Service (IaaS) providers, developer tools, APIs, and decreased costs, to start a SaaS business you basically just needed an AWS account, a dev team, a large pizza, and a Diet Coke.
This led to thousands of new SaaS companies emerging.
Many of the axioms (and cringey acronyms) we associate with SaaS were developed during this period — e.g. PLG, ABM, rule of 40, etc, etc.
Something else happened too.
Many companies outgrew their initial “point-solution” founding thesis and developed other products to solve tangential needs. As the story goes, many billions of dollars were subsequently pumped into the SaaS economy which heightened the need for continued scalability.
By the late 2010s SaaS founders and operators were faced with an entirely new set of challenges — like, how does pricing and packaging change when you have more than one product?
Some cracked the code and became authors of the blueprint for SaaS growth. Others joined Gotye in the somebody that we used to know ten years ago club.
I work with some of the best minds in the niche world of subscription monetization. Here’s what they’ve taught me about bundling based on the last ten years of SaaS evolution:
1. Build bundles for your customer’s desired outcome.
Justifying bundles for your internal needs is pretty easy. Most who bundle effectively see an increase in average order value, acquisition, and retention.
What’s tougher is effectively aligning bundles with customer value.
Zoho does this masterfully. They offer a myriad of a la carte products for seemingly every manager in any company (seriously).
And similar to McDonald’s discovery of Big Mac buyers probably wanting fries and a drink with their burger, Zoho discovered buyers who need an invoicing solution probably also need a tool for sales orders & quotes. So they created their Finance Plus Suite:
…then they did it for Sales, IT, HR, & Marketing.
They’ve created a terrific display of product bundling by knowing their core personas and building each bundle to solve a greater need.
2. Offer a discount and a fair a la carte alternative.
If you haven’t read Shishir Mehrota’s 4 Myths of Bundling, consider this your friendly nudge to do so. Don’t think I could point to a more thoughtful and insightful breakdown on bundling philosophy.
In his third essay, Shishir argues:
“For a consumer to properly value a bundle, there must be a transparent (and reasonable) a-la-carte price for each of the products in the bundle”
If this sounds like a no-brainer, great! It probably should be. Though we’ve seen many examples of folks selling packages and bundles without offering a la carte alternatives leading to retention and expansionary revenue challenges down the line.
Let’s look at HubSpot for a moment.
Assume we’re a buyer in dire need of a marketing solution and less-pressing but still apparent need of a Sales, CMS, and Services solution.
Here are the respective a la carte options for each solution:
If we do some quick math, we’ll be looking at $2,290 / month for each product a la carte. This is a bit too expensive for us given, again, we’re hyper-focused on marketing and slightly less worried about sales, CMS, and services.
If we keep looking, though, we’ll notice the CRM Suite provides all of the products (and more) at a discounted rate of $1,600 /month.
At a 30% discount, we may look at the bundle and justify the spend to accomplish a) our core need and b) a combination of smaller, less-dire needs.
Shishir calls this the relationship between SuperFans and CasualFrans (check out Rob Litterest’s breakdown here for an equally illuminating overview).
Bundles shouldn’t be built for SuperFans (i.e. folks that would purchase each product a la carte), they should be built for CasualFans (i.e. those who need an extra push to purchase).
3. Keep it simple.
The best bundling strategies are obvious. Look at folks like Atlassian, Adobe, Microsoft, and HubSpot and you’ll notice a common thread: they’re easy to understand.
Comprehending and navigating your product bundles should take a similar amount of brain power as navigating each product individually.
Check out Adobe’s Creative Cloud bundle:
This is about as simple as it gets. All cards on the table without having to scroll through the landing page.
Despite the many nuances of your products and corresponding bundles, remember to orient the presentation of each around your buyer’s perspective. Assume you’re one of several competing solutions and you only get one shot at a first impression.
Complicating your pricing page may lead to confusion and unnecessary friction which, in turn, may evoke diminished confidence in the solution itself.
Simplicity is your friend in situations like this.
4. Test & iterate.
The deflating reality of most monetization changes tends to be the fact that they’re probably going to be out of date in some capacity within 12 - 24 months.
One of the driving forces here is willingness to pay and ascribed value changes substantially over time. This paired with changing macroeconomic climate has a significant impact on adoption, retention, and revenue potential.
Because of this, if you’re not conducting research on a regular basis, you may be adding unnecessary risk to your business.
When it comes to bundling, there are a few analyses you can run before rolling them out (e.g. Choice-based Conjoint, Menu-based Conjoint, Regression Analyses, etc) — I’ll save the breakdown for another week.
The importance of conducting studies on existing and look-alike buyers can’t be understated here. Some questions worth asking yourself before implementing:
Who is this bundle for?
What are their desired outcomes (and associated value propositions)?
How does willingness to pay vary based on the selection of each product individually vs. in a bundle?
Are we making the purchasing process easier or more complex by rolling this out?
How are we defining the internal success metrics for each bundle (e.g. adoption, retention, average contract value, etc.)?
We’re seeing an emergence of multi-product SaaS companies, if for no other reason than they’ve essentially survived the past 5-10 years. If you’re one of these companies, bundling can be a seriously effective tool to keep your monetization strategy rooted in customer value and your competitors at bay.
See you in 2 weeks!
-Evan
Great insight.