In a recent educational video titled "Semantics of SaaS Pricing: Packages, Add-Ons & SKUs" from the Monetizely channel, the presenter clarifies essential terminology used in SaaS pricing structures. The speaker recognizes that inconsistent terminology can lead to confusion and takes time to establish clear definitions for the fundamental building blocks of SaaS pricing models.
The Building Blocks of SaaS Pricing
When designing a pricing strategy for your SaaS product, understanding the correct terminology is crucial for effective communication both internally and with customers. The presenter acknowledges this importance by stating, "I wanted to make sure that we are all on the same page in terms of semantics."
What is a Package or SKU?
At the foundation of SaaS pricing is the package, often referred to as a SKU (Stock Keeping Unit). As explained in the video, a package is "one set of functionalities that has a price point attached to it." This represents the smallest unit of your product offering that can be priced independently.
When questioned about the term SKU, the presenter clarifies: "It is kind of the smallest set of functionality that we can provision." Another participant adds that it stands for "stock keeping unit," originating from the world of physical goods.
The speaker further elaborates that in the SaaS context, a SKU is "the smallest unit that will be sold" or "the smallest thing on which a price point can be applied."
Understanding the Lineup
When you combine several packages or SKUs, you create what's referred to as a "lineup." According to the presenter, "If you have set of those, usually three, sometimes four, that's the lineup." This is typically what customers see featured on the main pricing page of a SaaS website.
The lineup forms the core of your pricing strategy, presenting different tiers or levels of service to accommodate various customer needs and budgets.
The Role of Add-Ons
Add-ons exist as complementary elements to your main lineup. The presenter defines them as "elements that exist alongside the lineup because they are not incorporated in the main lineup."
These optional features or services allow customers to customize their experience beyond the standard packages, providing additional revenue opportunities without complicating the main pricing structure.
Bundles: Marketing Integration
The final component discussed is bundles, which the presenter describes as "taking two products that are perfectly fine standalone and giving them kind of—it's more of a marketing rather than technical integration—and selling them as a set."
Bundles represent a strategic approach to increase average deal size by combining products that might otherwise be purchased separately, often at a slight discount to incentivize the combined purchase.
Why Terminology Matters in SaaS Pricing
Clear terminology is not just about semantics—it directly impacts how effectively you can design, communicate, and implement your pricing strategy. When everyone in your organization shares the same understanding of these concepts, it becomes much easier to:
- Design coherent pricing structures
- Develop clear product entitlements
- Create effective pricing pages
- Train sales teams on product offerings
- Track revenue attribution accurately
As the presenter notes, "I have seen different terminology. So I wanted to make sure that you understand what I have in mind when I use these terms."
Conclusion
Understanding the fundamental building blocks of SaaS pricing—packages (SKUs), lineups, add-ons, and bundles—provides a solid foundation for developing effective pricing strategies. By ensuring everyone shares the same terminology, SaaS companies can avoid confusion and create pricing models that are both internally coherent and easy for customers to understand.
Whether you're redesigning your pricing strategy or communicating with stakeholders about your current model, these clearly defined terms will help ensure everyone is speaking the same language when it comes to SaaS pricing structures.