Pricing: Bundles & Add-ons

A simple way to decide how to package your features

If you have a product with a lot of features you face a potential dilemma: do you offer clients a smörgåsbord of options to choose from: do you just lump them all together into one; or do you offer a mixture of the two? And if you do, how do you work out which features form the bundle and which are add-ons?

As you know there are pros and cons to each approach:

Giving customers a menu of choices means they only pay for what they want, but it also forces them to choose and, unlike going to a tapas restaurant when you are hungry, the temptation will be to under-order, especially to start with. “Do we really need all of those API calls?”, “Shall we just go for the lower number of email contacts and see how we get on?” The trouble with this is that customers might not be getting the full value that your solution provides because they haven’t seen it in all its glory. It’s a fine balance because the more utility they get from your product, the less likely they are to churn.

But bundling everything into one runs the risk of customers feeling like they are paying for stuff they don’t need. This makes them question the price or feel like they are over-paying and could lead them to look for alternatives that just do what they need but for less money.

But fear not, there is a fairly simple way to approach this that takes some of the guess-work out of it.

Step 1
List out all of the features that you provide to customers currently.

Step 2
Rank them on a scale of 1-10 against adoption: how many of them are actually used, not just paid for. If you have a feature such as video editing but only 20% of your customers use it regularly, then score it 2 out of 10.

Step 3
Next, rank them on a scale of 1-10 against ‘perceived value’. This is a bit harder unless you have actually done some research around willingness to pay. But you probably have a good idea about whether customers think a particular feature has a higher or lower perceived value. Something that is pretty ‘table stakes’ such as the ability to manage users of the service will have a lower perceived value because how could you use the platform without it? If you bought a new TV your perceived value of a remote control compared to the TV would be low, but your likely adoption would be 10.

In the example I gave above, video editing might only be used by some of your customers but they may perceive its value as being high because of the complexity and uniqueness of the feature.

You should then have a table that looks a bit like this:

Step 4
Draw a quadrant with a vertical axis that is ‘adoption’ and a horizontal axis that is ‘perceived value’ and slot the features into the four boxes based on their scores. You may end up with something like this:

The four boxes in the quadrant give you the following clues:

1. Core or ‘Table Stakes’
Most if not all of your customers use these features but they also just expect them to be here (like the TV remote). This group could be your basic or even freemium package. Enough to get people to understand what the product does and then tempting them to get more.

2. Premium or main bundle
You want these to be the features that 70% of your users currently go for. But it’s also the features that they value the most, too. This is why most of your customers have chosen you over the alternative. These things should form part of your main bundle.

3. No Mans Land
Honestly, you thought these were pretty cool when you developed them but nobody uses them and if they do they don’t think they are particularly valuable so wouldn’t care if they disappeared. You can keep them but there’s no point in putting much more effort into either developing them or selling them.

4. Add-ons
These are the features that aren’t used by the majority of your users, but the ones who do use them perceive them to be of high value. These are the things that if you included into the bundle, the majority of your customers would think that they are paying for something they don’t need, but for the others they will understand why they need to pay extra for them.

Doing this will give you a more considered approach to which features customers will feel happy about as a bundle and which they will be prepared to pay extra for as an add-on. It will also make it easier to see where your expansion revenue could come from.

Bonus Concept
Probably goes without saying, but if you are servicing different types of company (small/medium vs enterprise for example), you should repeat the exercise for each group. For example, enterprises will care about SSO, small businesses won’t.

You then have a sense of what to include in the bundle for Enterprise and what to include as an Add-on, which will be different to what you might call a Professional package aimed at Small and Medium-Sized Businesses.