Your guide to SaaS packaging 201
Read this before you give away that new feature for free
👋 Hi, it’s Kyle. Welcome to another edition of Growth Unhinged, my newsletter that explores the unexpected behind the fastest-growing startups.
One of the first topics I covered in this newsletter was SaaS packaging, how to assemble your features and services into different editions/SKUs that customers can buy. Since then the topic hasn’t gone away and, if anything, has gotten more complicated given the state of product innovation. Below I’ve revisited and refreshed my advice into SaaS packaging 201.
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Should you sell your new product as an add-on or include it in an existing package? Or is it the right time to introduce a new package altogether?
These are the Groundhog day discussions of SaaS companies everywhere. Each stakeholder has their own opinion about what’s best, but there’s rarely data or a framework for decision-making when it comes to SaaS packaging.
To help make these everyday decisions a little easier, I’m sharing my guiding principles for designing SaaS packages. As a disclaimer, keep in mind that these principles may not apply to all situations and some may even be in conflict with others. Please use your best judgment about what’s best for your specific context.
1. Good-Better-Best is the de-facto starting point.
When it comes to SaaS packages, you could keep things extremely simple with a one-size-fits-all offering. But simple also means inflexible and lacking any upsell path (think: the classic Bloomberg Terminal in investment banking).
Alternatively, you could make packages extremely flexible and allow customers to build-their-own ideal package (think: Twilio’s endless customization). But that can overwhelm customers with decision paralysis and leave folks feeling nickel-and-dimed. Plus, it gives more line items for procurement to pick apart as they negotiate a discount.
It’s no surprise, then, that two-thirds of SaaS companies meet in the middle with a Good-Better-Best packaging line-up. You can find this style of packaging at Salesforce, Figma, Airtable, Slack, Notion, and (almost) everywhere else. And there are good reasons why:
It makes purchase decisions fairly easy for the buyer (and for sales).
It allows you to differentiate pricing based on a customer’s sophistication and willingness-to-pay.
It presents a clear upsell path as customers deepen their usage of the product.
It helps fund new product development by providing a path to monetizing new products.
When in doubt, default to Good-Better-Best.
2. Leave room for add-ons – but be selective about it.
Not every feature or capability needs to be included in one of your pre-built packages. In my experience, offering selective add-ons can increase deal size and give sales more flexibility to expand an account over time.
So, what makes a product a good fit for being sold as an add-on?
It’s polarizing. Some people love it – and highly value it – but the average customer doesn’t need it. Bundling it for everyone wouldn’t increase the overall willingness to pay for the package and might leave some folks feeling oversold.
It appeals to a different buyer or budget. You may be able to tap into different budgets outside of the scope of the initial purchase.
It’s something the customer could use a different vendor for. Related to the point above, the customer may already be spending money on this feature through a different vendor or service provider. Charging for the feature, too, could help you tap into pre-existing budgets and maintain a low price for your core packages.
It’s needed at a different time. Sometimes customers aren’t ready to adopt everything all at once. If you’re finding that customers defer adopting a feature until 6-12 months+ after the initial purchase, you may be better off selling that feature later.
It’s something you don’t want everyone to use. While I’m not a fan of cost-plus pricing, there are certain capabilities that may require real costs or work from your team. You may wish to discourage folks from adopting such features unless they’re actually willing to pay for them.
Don’t go overboard with add-ons, though. The average customer shouldn’t need to purchase more than one or two add-ons during the initial transaction. Meanwhile, sales should be able to clearly communicate what each add-on provides and when they would plan to sell it.
3. Each package needs a job in your revenue generation.
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