Benefits of Bundling: 6 Proven Ways to Increase Ecommerce Profit Margins
How you can strategically approach your bundling strategy to improve your net income.
As your business grows, things seem to get more expensive, right? That’s why you must consider profit margins from the beginning of your business journey. And bundling is a great option when considering ways to leverage your product offerings and optimize profits.
Bundling your products together has many benefits: increasing AOV, lowering operations costs, improving the shopping experience… you get the point.
Whether you’re just starting an ecommerce business or looking for ways to increase the pricing point of existing items, bundling can be a helpful tool when used strategically.
Consider more than just conversion rate and revenue; you have to look at gross profit and your overall net income. With bundling, finding the right items to sell together at the right price is the key.
This article will dive into several benefits of bundling products together, plus how you can strategically approach your bundling strategy to improve your net income.
Product bundling benefits—and how they impact margins
The obvious win for you as a business owner is that product bundles are proven to improve net income. But these improvements aren’t just through conversions alone (since we all know a high conversion rate doesn’t necessarily mean your business is profitable).
Rather than looking at only one metric, product bundling offers several benefits for your business. These benefits will impact your profit margins—directly or indirectly. We break them into two categories:
Benefits for your business
- Customer costs: Bundles can also be used to scale customer acquisition cost-effectively. By bundling related products and targeting high-value customers, you can entice more people to purchase from you—and lower the cost of acquiring new customers.
- Revenue and AOV: Many customers will be willing to spend more when presented with an attractive offer. This leads to higher total profits, as customers tend to be more comfortable paying a single, higher price for several items than multiple, separate prices for the same items. Maev, the dog food brand, saw a 15% increase in AOV from its bundles, and women’s fashion brand M.M LaFleur saw a 20% increase, according to Shopify.
- Warehouse stock and distribution costs: Bundling items together can help reduce the warehouse stock you need to keep on hand. Since the items are usually packaged together and shipped as a single unit, you don't need to find separate spaces for each item. Creating a bundle is also a smart way to clear up excess inventory quickly. You’ll also be incurring fewer costs associated with shipping individual items. Packaging several items into a single bundle can reduce the number of shipments, leading to a smaller logistics bill.
- Marketing costs: Because product bundles require fewer marketing costs, an increase in profits can be expected. With fewer marketing costs, companies spend less on promoting each product in the bundle, allowing you to regulate your budget more efficiently and effectively.
“Generally speaking, as you add a second, third, or fourth item to orders, your shipping and pick-and-pack costs decrease as a percentage of your revenue. Voila—larger margins. So, the big benefit of bundles is that you can offer something to your customers that is more valuable to them and, at the same time, more gross profit for you.”
- Dave Rekuc, President of Bambu Earth
Benefits for your customers
- Less pressure to decide: By offering bundles, customers feel less pressure. They can look at the bundle as a whole instead of making an individual decision for each item.
- Shopping experience: Accessing multiple items on one page is more convenient. It decreases the need to search for various items, which can be time-consuming. For example, showing an entire capsule wardrobe to show customers how to style a shirt or jacket. Or create a personalized skincare routine based on a common skin concern. These bundles eliminate the research customers usually have to do before buying.
- Product understanding: By including different products in one bundle, customers can better understand how the different items can be combined. This can help customers make an informed decision when making a purchase.
- Product value: Customers find purchasing multiple items at once easier than making multiple purchases. Additionally, product bundles create the perception that the customer is getting more value for their money.
As much as we wish we could tell you product bundling is as easy as combining two products into one SKU and throwing it on your website, we both know there’s much more to creating a successful bundling strategy.
Let’s discuss how you can use bundling to your advantage and increase profit margins.
6 tried-and-tested bundle tactics to increase your profit margins
We reviewed successful strategies from our customers and spoke with ecommerce experts to uncover eight ways product bundles can improve your net income.
Consider the following tips when planning your next bundle campaign:
Pay attention to sales patterns
Products frequently purchased together indicate that you should turn them into a bundle. You can see this data in a few ways. First, use your Shopify Online store cart analysis report to see which products customers have been adding to the same cart in the last 30 days.
Or, if there are specific products you want to track, you can set up segments using a filter that tracks when a customer purchases product A and product B in the last X days.
How often should these items be purchased together? Dave Rekuc, President of Bambu Earth, explains, “If you find a natural fit between two items—they're purchased together 5-10% of the time—that's a sign that a bundle with a discount could do very well. You can move that take rate to 30%+ if you offer a nice discount on that second product because you're reducing your pick and pack and shipping costs as a percentage.”
If you don’t have a lot of historical data to pull from, you can start by testing based on your intuition first and then iterating based on your sales performance.
Understand your take rate and act accordingly
Take rate in ecommerce has multiple meanings. You may understand it as the fees you pay to third-party sellers or service providers. Or, you may refer to it as “the number of users that complete a certain action.”
For product bundles, take rate means the rate at which your customers take the larger offer via your bundle.
Understanding this metric is important because your take rate can help you plan your bundle offer. For example, Dave Rukuc says if you already have a higher take rate (30%+), you can offer a gift with a purchase. This strategy is for brands with higher product margins (your margins on just the product, excluding order-level costs).
“You can offer something that appears very high value but costs you a fraction of the perceived value. This can work wonders at moving the rate on the bundle. We did this and saw an increase from 30% take rate to 50%,” he said. “This improved the gross margin on our first order considerably.”
Here’s an example of this offer, which appears on users’ skin results page when they take Bambu Earth’s product quiz.
Note: Bambu Earth’s take rate of 30% may be considered high to them, but a “high take rate” for your brand may be a different number. If you have historical data to lean on to understand your take rate, start there. If you’re just starting out with product bundles, you may want to do some testing with cheaper freebies until you understand your profit margins better.
What if your take rate is less than 30%? You can offer digital freebies instead. (Think of ideas like downloadable templates, access to a community, or an NFT.) This way, you’re offering an extra gift with a purchase—but one that doesn’t cost you extra. 😉
If you want the flexibility of a bundling tool that allows you to experiment with bundle contents (free gifts, more of the same product, or customizable add-ons), Simple Bundles will enable merchants to do this to improve their take rate. There is detailed bundle analytics to help you see which bundles are selling the most.
Add digital bonuses to your bundles
If you don’t want to add additional free physical products, another option is to use digital products. These are inexpensive to create and don’t impact your shipping and picking-and-packing costs.
Matthew Larsen, Co-Founder of Conversion Pages, has seen success with this tactic before:
“I aim for 4-6 free bonuses that are interesting or valuable to my target audience. You will make more money using bonuses to keep the same conversion rate with a higher AOV bundle. The best way to create these bonuses is to brainstorm common objections people might have to buying your product and build the bonuses to address and overcome those objections.”
As an example, Matthew explained that a common objection to buying many supplements is customers forgetting to take them daily. To address this concern, you can create a digital bonus for the bundle that offers to send daily email reminders to the customer to take the supplement.
Advertise your bundles across channels and landing pages
We mentioned this near the beginning of the article, but you can’t create bundles and expect them to work their magic independently. Like every wand needs a wizard, every product bundle needs a marketer behind the scenes to promote it.
At the very minimum, you should share your bundles
- On landing pages from paid ads
- In in-cart upsells
- In post-purchase emails
- In a “frequently bought together” section on product description pages
Source: Drink Surely
And, for your paid ads, make sure your bundle cost is higher than your cost-per-click.
“It’s very important to consider your profit margins when running paid ads. The reason is that a typical CPA on Facebook is $40 or more. If you run ads for a product or bundle that doesn’t have at least $40 worth of gross margin, you will lose money on your ad spend. If you create a bundle with a $60 gross margin, you can get a higher CPA and still be profitable,” said Matthew Larsen of Conversion Pages.
Boost AOV by highlighting the “best value” bundle
One of the most common bundle types is selling more of the same item. If you sell supplements, you can offer a single bottle, three bottles, or six bottles. As customers purchase a larger volume, they see a better discount.
Bundles are truly like the Costco of ecommerce.
These offers are standard, but Matthew Larsen encourages brands to take these one step further by showing each bundle across a landing page screen. He recommends placing the highest-value bundle in the middle of the three options.
“We have found that if you do the middle bundle on the left, the highest value bundle in the middle, and the single product bundle on the right, many people choose the middle and highest value bundles, and your AOV goes up quite substantially. This data has remained true across about a dozen tests,” he said.
Balance profitability with what’s attractive to customers
You can come up with plenty of attractive offers your customers will enjoy. Who doesn’t love a freebie or a good sale? But since we’re speaking about profitability today, make sure your offers aren’t giving away too much.
“I create a bundle builder in a spreadsheet. My pick-and-pack costs mirror my structure, and I estimate the shipping cost for each item added. This helps me play with different combinations and find the ones at the intersection of what’s both profitable and attractive to customers,” explained Dave Rekuc of Bambu Earth.
Using this strategy. Dave created a simple bundle for Modern Fuel that asks customers if they want to add a pen to their pencil order. When buying these together, customers save $25. As a cherry on top, an additional upsell asks customers if they want to get a free engravement.
According to Dave, the take rate on this bundle is “exceptionally high.”
Another option to calculate your bundle profitability is to use a tool like Simple Bundles, which helps merchants streamline their fulfillment and picking-and-packing processes to save money and time.
“We’ve been using Simple Bundles for about six months, and it works perfectly. It allows us to break down products into individual components, which simplifies inventory tracking and order packing. Powerful yet simple.”
- SLAB Racks
You can try Simple Bundles for free by installing the app from Shopify.
Example: how to review profits from bundling
When creating bundles for acquisition, gross profit per session (total cost of the sale minus the total cost to produce the good) should be your north star metric.
“That's how you create enough money to pay for your acquisition costs,” explains Dave Rekuc. “So, either a loss in gross margin is more than compensated by an increase in conversion rate. OR, you aim not to lose much conversion rate and increase total gross margin. Either path can result in more gross profit dollars per session.”
Let’s crunch some numbers to explain…
You operate a cosmetic brand that sells foundations and concealers. The foundations run at $45 (and cost you $15 to make), meaning your gross profit for your foundation is $30.
Your concealers are priced at $20 (costing $7 to make). The gross profit is $13.
Every week, you’re selling roughly 200 bottles of foundation and 50 tubes of concealer. That means your weekly gross profit for your foundation is $6,000. For your concealer, it’s $650.
After noticing your customers consistently purchase concealers and foundation, you create bundles for Black Friday. One bundle combines your foundation and concealer for oily skin. The other bundle is for the foundation and concealer for dry skin. Customers can purchase the bottles of the foundation and concealer for their skin type together for $65 (the total cost of buying each item separately but grouped by skin type for convenience).
For this scenario, let’s pretend your weekly purchase rate of 200 bottles of foundation stays the same (although in true Black Friday season fashion, this number would likely increase. But let’s keep things simple).
With shoppers buying the bundle instead of the items separately, you’re looking at these numbers…
- $6,000 gross profit for the foundation
- $2,600 gross profit for the concealer
That’s a 300% increase in gross profit for your concealers just by bundling products based on skin type.
With such a high increase in gross profit per session, you can safely add a $5-$10 discount on the bundle. This will make your bundle even more enticing, driving even more conversions.
**These scenarios don’t take taxes or other operational costs into account.
Create bundles that actually improve your profit margins
Gone are the days when product bundling had to be complicated.
Simple Bundles allows merchants to offer and compare bundle discounts against the bundle value. These discounts appear directly on their PDP to show customers the value they’re getting by purchasing a bundle rather than an individual product.
Detailed analytics also allows you to experiment with steepness in your discounts and respond quickly to fit what customers are looking for.
Visit us at Simple Bundles to learn more, or install Simple Bundles for FREE on the Shopify app store.