Do you want Wall Street to reward your business? Consider moving to a recurring revenue model with bundled offers. Studies show that software companies on recurring models enjoy over 2x higher valuations over there perpetual licensed counterparts. For example, Adobe’s stock price has nearly doubled in the two years since it moved to a subscription-based model for the application bundles offered through its Creative Cloud and Marketing Cloud services. In the most recent quarter, revenues of Microsoft Office 365, available by subscription and bundled into seven different pricing tiers, were up 70%
How can you make bundling work for your recurring revenue business? Here are five tactics to ponder.
A simple bundle involves offering multiple items of the same product or service for a discount per item. Simple bundles, like the classic magazine subscription, offer clear value. Consider Google Play Music, the company’s streaming music service. An individual subscription is $9.99/month. A family subscription for up to six concurrent users is $14.99/month. That’s a $5 savings for a couple and an even bigger one for larger families. Simple bundles work. They are an easy step into recurring revenue and they’re easy for customers to understand and companies to manage.
Sometimes, all it takes to launch a profitable bundle is to find the right niche. Ultra Mobile designed its phone service for a very specific consumer group—the 46 million immigrants in the United States with family living abroad. Its attractively priced bundles include something its customers truly value, but that other carriers don’t offer—unlimited international calling. By filling this one niche, Ultra Mobile’s three-year revenue has grown an astronomical 100,000%. The company was ranked number one in Inc. 5000 list of fastest growing companies for 2015.
Like Ultra Mobile, Love With Food also targets a very specific customer group—health conscious foodies who want to contribute to a good cause, as each purchase helps fight childhood hunger in America. The subscription service provides different packages of high quality snacks, delivered monthly, but with a revenue-generating twist: the treats are sample tastes. Subscribers have the option to buy more of whatever they like at member discounts. This is the same tactic used by Amazon and many others to expand revenue streams.
You can get a Fitbit Flex wearable fitness device for a one-time cost of $99.95. But for 49.99 a year, a Fitbit Premium subscription will give you valuable insights into all the activities you track with your device. This commonly used bundling strategy is also one of the most effective. You’ll find it in everything from smart home appliances to manufacturing equipment to medical imaging systems.
Generally speaking, the more ways you can customize bundles for various customer groups, the more opportunities you’ll have to monetize your business. Consider Moz. It provides online analytics in four main areas—SEO, local search, content, and Twitter. It further slices its offers into distinct bundles for different customer segments within each area, amounting to more than a dozen separate service bundles.
In areas such as cloud computing, where customer needs are extremely diverse, services like Microsoft Azure and Amazon Web Services offer scores of different bundles and pricing tiers. This granular approach works. Microsoft Azure is a big reason behind the company’s steady stock appreciation in recent years, and AWS accounts for the majority of Amazon’s profitability these days.
These are just a few of the ways you can create bundles for your recurring revenue business. To make the most of them, you’ll need to ensure fulfillment, billing, CRM, and finance systems work well together and fire on all cylinders. You’ll also want to have mechanisms in place to help you glean usage data from your bundles to further hone your offers and accelerate your growth.