Term
Bundling
Selling several products or services together as a package for less than their separate prices, such as bookkeeping plus payroll. It raises average order value, but for VAT you need to know how to split the price when components carry different rates.
Updated
What it means
Bundling is selling several products or services together in one package for less than they would cost separately. Examples are bookkeeping with payroll and the tax return, software with support, or a mobile plan with a phone.
The aim is to raise average order value, move less popular items and make the customer's choice easier. A bundle also makes direct price comparison with competitors harder.
Pure bundling means the items can only be bought together; mixed bundling means they are also sold separately. Bundling is part of pricing and cross-selling strategy.
How it works in practice
Service firms bundle through pricing tiers such as basic, standard and premium, each adding services. Customers often choose the middle one, which lifts average revenue.
For VAT you must decide whether the bundle is a single principal supply with ancillary elements or several separate supplies. If components carry different VAT rates, the bundle price must be split appropriately.
In the accounts, revenue from a bundle of separate supplies is allocated among the components according to their standalone prices. This matters especially when parts are delivered at different times.
What to watch out for
A bundle discount cuts the margin on every component. If customers buy the bundle when they would otherwise have bought only the most expensive product at full price, the company loses out.
Tying products can raise competition law issues for a dominant firm. Consumers must be told clearly what the bundle contains and the price of each part if they are also sold separately.
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