How big a discount can I give on a bundle?

Many sellers choose a bundle discount by feel. Ten percent looks safe, twenty feels bold, thirty gets exciting. A better method starts at the other end: decide the margin you refuse to go below, then let the numbers tell you how much discount you can give.

The inputs

You need only three things.

• The bundle's list price, meaning the total if bought separately. Say Rs 500.
• The total cost of everything in the bundle. Say Rs 200.
• The minimum margin you will accept. Say 50 percent.

The calculation

Margin is profit divided by selling price. For a 50 percent margin, cost must be 50 percent of the price. So:

minimum price equals cost divided by (1 minus target margin) minimum price equals 200 divided by 0.5 minimum price equals Rs 400

Rs 400 is the lowest price that keeps your margin at 50 percent. Compared with the Rs 500 list price, the most you can take off is Rs 100, which is 20 percent.

So the maximum bundle discount here is 20 percent. A smaller discount keeps you above your margin line, and a bigger one breaks it.

Test with a different target

Change the target and see what happens. If you are happy with 40 percent margin, the minimum price is 200 divided by 0.6, which is about Rs 333, and the maximum discount grows to roughly 33 percent. If you insist on 60 percent, the minimum price is 200 divided by 0.4, which is Rs 500, and there is no room for any discount at all.

That last case is the most useful insight. If your list prices barely give you the margin you want, the right bundle discount is zero, and you should offer a free gift or extra service instead.

Include every cost

The Rs 200 should include everything: product cost, packing and your share of payment fees. Shipping is the awkward one. If you absorb shipping, include it. If the customer pays, leave it out. Check our post on landed cost per unit to avoid missing something. If packaging looks small, remember that a bundle needs a bigger box, so see adding up packaging cost.

Leave a safety cushion

Treat the maximum as a ceiling, not a target. Returns, damaged parcels and surprise costs all nibble at profit. Offering about half to three quarters of the maximum is a sensible habit. In our example, a 10 to 15 percent discount instead of 20 leaves you something for the unexpected.

Think about how it will be presented

A discount only works if buyers see it. Show the separate prices, the bundle price and the saving clearly. Anchoring ideas in price anchoring for Indian D2C brands help. If your bundle pairs products with very different margins, read pricing a bundle with unequal margins.

Round carefully

Once you have your minimum price, round up, not down. Rs 400 is fine, but if the minimum worked out to Rs 433, listing it at Rs 429 breaks your floor. Pick Rs 449 or Rs 439 instead. The extra Rs 10 is a rounding gift to yourself.

The short formula

Cost divided by one minus your target margin gives the lowest price. List price minus that is your maximum discount in rupees, and dividing by list price gives the percentage. Do this before every promotion and you will never discover your margin was negative only after the orders have shipped.