How Offer Stacking Works and Could Improve Your EBITDA to Revenue Ratio?

Read time: 3 minutes.

Welcome to the 35th edition of The Growth Elements Newsletter. Every Monday, I write an essay on growth metrics & experiments and business case studies.

Today’s piece is going to 5100+ founders, operators and leaders from businesses like Shopify, Google, Sage, Hubspot, Servcorp, Zoho, Apollo & more.

Happy Monday!

Serviced and Workspace Office Rental Businesses (SORB): some of the most famous businesses in this category are WeWork, Servcorp, Regus, and more. They have used digitisation and globalisation opportunities very smartly.

They have created and strategically positioned their Asset Light Model offering as a Value Ladder Offering infused within the Virtual Office and Coworking package.

Here is how Offer Stacking works

[1] Many freelancers/micro-businesses, small business owners, and startups get a “Business Address” or “Director Address” (this is SORB’s foot in the door to shake hands and start the Value Ladder offering)

[2] For these micro and small tenants, SORB pitches its Full Suite of office solutions.

[3] SORB has solved your Registered Business Address requirement.

[4] The following solution is for office and business growth needs virtual phone numbers, virtual reception, mail & courier handling and management, coworking desk and meeting room credits, and more.

Math Behind the Stack

[1] Offer stacking expanded the AOV, a $99/ month subscription turned into a $400/month subscription. Note - these offerings are asset-light, and margins are incredibly high.

[2] LTV is very high since once you have registered your business address, it is unlikely that the business owner wants to change it. Also, it is a headache to modify it. Assuming 12-month retention, LTV is $4800

[3] Now, if you want to dig into the math from the commercial POV. Using the AOV and LTV assumptions from above and assuming 100 new acquisitions per month, I estimated SORB (in a base case) would make $480,000 per year from the first cohort of NB acquisition.

EBITDA to Revenue ratio

[1] Now, most of this revenue would flow as EBITDA.

[2] I assume the ratio will expand and float above 10% mainly because their new stacking offer increased their top-line revenue. Before it, the line of revenue was their core Serviced Office product, and I believe it wasn't sufficient to compete with their OpEx.

Takeaways

[1] By strategically implementing a value ladder offering, SORB increased revenue by upselling from essential services to comprehensive solutions.

[2] This approach capitalises on an asset-light model, ensuring high margins and scalability.

[3] By meeting ongoing needs, SORBs stimulated customer loyalty and increased LTV.

[4] Diversifying service offerings not only broadens revenue streams but also has the potential to offset operational expenses, ultimately contributing to improved profitability.

That's it for today's article! I hope you found this essay insightful.

Wishing you a productive week ahead!

I always appreciate you reading.

Thanks,
Chintan Maisuria