Packaging 101 for Pre-seed & Seed Stage Companies

This article is written by Palle Broe, member of byFounders Collective and GTM & Pricing at Templafy.

Why is packaging important to get right?

In this article, Pricing 101, we outlined a step-by-step guide for setting your first pricing strategy for your company. In this deep dive, we’ll focus on the packaging aspect. A good packaging foundation can:

1. Create clear up-sell paths for customers and improve the win rate

2. Help you monetize new innovations efficiently

3. Define your customer journey and help customers find new use cases

4. Simplify the purchase decision

Breaking down packaging: Five key components to get right

I like to break down packaging into five key areas. Not all of them are critical early on, but over time, you should spend time on each one. 

In the early days, I recommend focusing on the first three areas as they are vital for how you go to market and will have a spillover effect on a lot of your sales motion.

Step 1 | Determining the packaging structure

All packaging structures have their tradeoffs, so it's about finding the one that fits your company the best based on your current stage. Most companies will change packaging structure many times throughout their lifetime. 

In most cases, I recommend going for a Good-Better-Best format as it’s simple and allows you to target a number of buyer personas and create a clear upsell path.

Step 2 | Defining the value proposition

Each of your packages should have a clearly defined strategic goal and objective. You need to define who you see as the buyer of each of the packages.

Example of strategic objectives for your packages:

1. Clear value propositions for each package

2. Create a compelling upsell path 

3. Increase virality of freemium product and drive higher conversion

4. Improve cross-selling 

Below is an example of goals for each of the packages in a Good-Better-Best format:

• ‍1st tier: Address the primary or foundational use case effectively. 
  Objective: Provide a budget-friendly option tailored for price-sensitive customers, avoiding the necessity for substantial discounts.‍

• 2nd tier: Enhance the resolution of the primary use case or venture into new and advanced scenarios. 
  Objective: Empower customers to oversee product usage on a larger scale efficiently.‍

• 3rd tier (enterprise): Provide extensive, top-tier features on a large scale. 
  Objective: Offer advanced customization, scalability, security, and support tailored for servicing large enterprises and key accounts.

Step 3 | Build your packages

You need to build your packages with your target personas and use cases in mind. Each feature should be specifically selected as part of the construction of the solution the customer is buying. 

McDonald's can be a good analogy to use when you’re thinking about how to put together different features (Simon & Kucher originally came up with it). 

‍Leader features (The Burger): These are the core features of the package and the reason why a customer is interested in buying. 

• Step 1: Identify the top 1-3 features for each package you create

Filler features (Fries & Soda): These are features that add value to the overall package but are not the core reason why someone buys the package and wouldn't be sufficient on its own

• Step 2: Based on the personas and the use case, select features to/that will? support the leader features

Killer features (Coffee & Carrots): These are features that a customer would want to remove from the package as they add no value.

• Step 3: Remove features that detract from the value for the buyer and add them as add-ons 

In order to create a strong upsell path, it is important to create both feature and usage differentiations.

Step 4 | Create add-ons

Add-ons are important to evaluate actively as they have the opportunity to both degrade a package and increase monetization. Evaluate the following options for features that are in consideration to be add-ons for each package offered: 

Step 5 | Signs that you might need to change your packaging

If you are seeing any of the below issues, it might be a sign that you should start reviewing your packaging design”

• Attach rates for secondary products are low (e.g., most customers buy only one product) 

• Customers or sales complain about the complexity of multi-product deals 

• You plan on charging for every new feature release 

• Your packages lack clear value propositions and differentiation 

• The top package that you sell is “unlimited” and has no room for growth

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