How do I price a bundle when one item has a high margin and one low?

Not every product in your catalogue earns the same. One item might be a comfortable earner while another barely covers its costs. Pair them in a bundle and the margin you earn is a blend of the two. Understanding that blend stops you from discounting yourself below what you can afford.

Two items, two margins

Imagine both items are priced at Rs 500 each, but their costs differ.

• Item A has a 60 percent margin, so its cost is Rs 200 and it earns Rs 300.
• Item B has a 20 percent margin, so its cost is Rs 400 and it earns Rs 100.

At full price the bundle is Rs 1,000 and costs Rs 600. Profit is Rs 400, and the blended margin is 400 divided by 1,000, which is 40 percent.

Notice that 40 percent is simply the average of 60 and 20, because the two items have equal prices. If prices differed, the blend would lean toward the pricier item.

How much discount before the margin falls to 30 percent?

Say you decide a bundle margin below 30 percent is not worth it. Costs stay at Rs 600. You want profit to be 30 percent of the bundle price P, so:

P minus 600 equals 0.3 times P 0.7 times P equals 600 P equals about Rs 857.14

Compared with Rs 1,000, that is Rs 142.86 off, or roughly 14.3 percent. Round the price up to Rs 860 to be safe. Any discount deeper than about 14 percent pushes the bundle under your 30 percent line.

Why the discount room is smaller than it looks

The discount is taken from the whole bundle, but only item A has real margin to give. Item B is already thin. A 14.3 percent discount takes about Rs 143 off the bundle price, and nearly all of it comes from the margin that item A contributed. If a customer buys the bundle only to get item B cheaply, you have just sold item B at a loss relative to its own margin.

Practical ways to build the bundle

• Use the high-margin item as the anchor and the low-margin item as the add-on, so most buyers are there for the profitable one.
• Keep the low-margin product out of discounts and put the discount on the high-margin one. A bundle that gives a small free gift of A with a purchase of B can protect you better than a headline percentage.
• Check your numbers per item first. If you are unsure how margin and markup relate, read markup versus margin and converting margin to markup.
• Compare the bundle with selling separately. Our post on bundle versus separate profit walks through that comparison.

Do not forget non-product costs

Cost here means everything you pay to deliver the bundle: product, packing, payment fee and your share of shipping. If you have only counted product cost, the real margin is lower and your discount room is smaller. Our guide to landed cost per unit shows what to include.

A simple routine

Write each item's price and cost. Add them to get bundle cost. Decide the lowest margin you will accept. Solve for price using bundle cost divided by one minus that margin. Compare with the sum of individual prices to see the discount. If the discount is too small to attract anyone, rethink which items you pair rather than stretching the margin thin.