Define the packages before testing the mix
| Input or boundary | Unit and source | Decision use |
|---|---|---|
| Package scope | Named deliverables, usage or service boundary; business record | Shows what the customer receives and prevents a cosmetic tier. |
| Package price | CU per package on one indirect-tax basis; user scenario | Provides the revenue side of package contribution. |
| Variable cost to serve | CU per package; reconciled record or labelled assumption | Includes only costs that belong to the declared package boundary. |
| Customer mix | Customers or orders per period; observed record or explicit scenario | Weights package contribution without pretending to forecast demand. |
| Capacity and support boundary | Hours, units or service commitments per period; operating record | Stops a package that cannot be delivered at the modelled cost. |
package contribution = package price - package variable cost; period contribution = ฮฃ(package contribution ร package customers)
- package price
- Entered price for one package on the declared tax basis (CU/package) โ user input
- package variable cost
- Cost that changes with delivery of the package inside the stated scope (CU/package) โ business record or labelled assumption
- package customers
- Observed count or explicitly labelled mix scenario (customers/period) โ business record or user scenario
The sum is a contribution comparison, not complete accounting profit. Shared fixed costs, implementation cost and capacity constraints remain separate unless explicitly assigned.
Worked example: compare two package-mix scenarios
The business tests 100 customers in one period. Prices and costs use the same neutral currency and indirect-tax basis.
| Step | Inputs and arithmetic | Result and interpretation |
|---|---|---|
| 1. Calculate Good contribution | CU100 price - CU55 variable cost | CU45 contribution per Good package. |
| 2. Calculate Better contribution | CU140 price - CU75 variable cost | CU65 contribution per Better package. |
| 3. Calculate Best contribution | CU190 price - CU110 variable cost | CU80 contribution per Best package. |
| 4. Baseline mix | (CU45 ร 50) + (CU65 ร 35) + (CU80 ร 15) | CU5,725 period contribution for a 50/35/15 scenario. |
| 5. Revised mix | (CU45 ร 35) + (CU65 ร 45) + (CU80 ร 20) | CU6,100 period contribution for a 35/45/20 scenario: CU375 higher than baseline. |
| 6. Interpret | CU6,100 - CU5,725 | The revised assumed mix improves contribution in this model; it does not prove customers will select it. |
Test what would change the decision
| Case | Recalculation or evidence | Decision consequence |
|---|---|---|
| Best support cost rises by CU20 | Best contribution becomes CU190 - CU130 = CU60; revised mix becomes CU5,700. | The revised mix now trails the CU5,725 baseline; re-scope, re-price or stop. |
| Mix remains 50/35/15 | Use the original CU5,725 result. | A new ladder creates no modelled mix benefit without observed movement or another business reason. |
| Capacity is consumed by Best support | Record support hours and the work displaced before assigning a value. | Do not call the higher package profitable when the model omits its binding capacity cost. |
Move from package design to a bounded rollout
Use this sequence
- Name the customer job and make each package scope materially different and explainable. (not complete)
- Reconcile price, variable cost, support and capacity on one package and period basis. (not complete)
- Calculate contribution for every package before considering the customer mix. (not complete)
- Label the mix as observed, proposed or downside; never present a proposed mix as demand evidence. (not complete)
- Test cost, mix and capacity sensitivities and assign a stop condition. (not complete)
- Run a bounded review, compare actual records on the same basis and revise the ladder or assumptions. (not complete)
Mistakes that invalidate the comparison
- Adding cosmetic tiers whose cost and customer job are not materially different.
- Leaving premium support, onboarding, refunds or fulfilment outside the Best-package cost.
- Comparing monthly customer counts with annual or per-order costs.
- Treating a provider-described benefit or an assumed upgrade path as a forecast.
- Counting shared cost in every package and again at period level.
Use the registered calculation owner
- Tiered Pricing Profit Planner
Design volume tiers
- Multi-product Price Architecture Planner
Balance a product portfolio
- Target Margin & Pricing Planner
Set a price for a target gross margin
Questions and limitations
- Must a Good-Better-Best offer have exactly three packages?
- No. Three is the scenario in this guide, not a universal rule. Use only the number of packages that can be distinguished, costed, delivered and reviewed clearly.
- Does the package with the highest contribution always deserve promotion?
- No. Customer fit, capacity, service quality, acquisition, refunds and the observed mix can change the decision. Compare the complete declared boundary.
- Can the assumed mix be used as a sales forecast?
- No. It is a sensitivity input until matched business records or a bounded market test provide evidence.
Sources and evidence scope
- Choose a pricing strategy โ business.gov.au: Primary small-business guidance for reconciling cost, goals, market evidence, customer value and capacity. It supplies no universal margin, package mix, discount band or demand response.
- Tiered pricing 101 โ Stripe: Provider and competitor context for common tier structures only. It does not support a guaranteed sales, conversion or margin outcome.