Packaging is what you sell (tiers, features, limits). Pricing is what you charge.
Packaging is how you carve your product into what customers can buy — tier names, feature gates, usage limits, add-on SKUs. Pricing is the number attached to each package. Together they're the two commercial decisions with the largest compounding effect on ARR, because every deal for the life of the company is shaped by them. Most early-stage companies underprice, under-package, and delay repricing for years past when it would have been correct.
The value metric is what your pricing scales with — seats, API calls, contacts, storage, revenue processed. The right value metric grows with your customer's success (so their bill grows as their outcome grows) and is easy for a buyer to forecast. Bad metrics: things unrelated to customer value (server count for a SaaS product). Great metrics: things the customer would grow if the product were free (Twilio's messages sent, Snowflake's compute, Stripe's payments processed).
Three-tier is the modal SaaS packaging: (1) Starter — self-serve, credit card, priced for individuals or small teams. (2) Team/Pro — self-serve or light-touch sales, priced per seat or per usage. (3) Enterprise — sales-led, custom-priced, includes SSO/SCIM/audit logs/premium support. Enterprise is where SSO, SCIM, audit logs, custom contracts, dedicated support, and admin controls live. Adding a fourth tier is usually a mistake — three is legible; four confuses buyers.
Buyers presented with three tiers typically choose the middle option — anchored between 'too basic' and 'too expensive.' This is why the middle tier should be the packaging you most want customers on. Design the top tier to be visibly premium (enterprise features, high price) partly to anchor the middle tier as the reasonable choice. Naming matters: 'Team' and 'Business' feel obvious; 'Growth' feels aspirational; 'Enterprise' signals scale.
Underpriced products are the most common early-stage packaging mistake — founders scared to lose deals price 30-50% below what the market would pay. Repricing (raising prices for new customers, sometimes grandfathering existing) is uncomfortable but almost never regretted. Standard cadence: reprice every 12-18 months once product-market fit is established, with communication to existing customers about grandfathering or gradual migration.
(a) Free tier that's too generous — cannibalizes paid conversion; typical fix is tightening free-tier limits over time. (b) Per-seat pricing on products with viral team-adoption dynamics — you're punishing growth. (c) Enterprise SKU without hard justification for the premium — buyers feel priced-gouged rather than premium-served. (d) Add-ons proliferation — every SKU is a decision the buyer has to make, and complexity kills deals.
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