Pricing and packaging a digital product: tiers, freemium and trials

Setting a price is only half of pricing a digital product. The other half is packaging: what goes into each plan, what you charge for, and how people get to try it before paying. Two products with the same headline price can earn very different amounts depending on how they are packaged.

This guide covers the packaging decisions: choosing what to charge for, designing tiers, deciding between freemium and a free trial, and the rules on trials that UK businesses need to plan for. It assumes you have already worked out a rough price level. If not, start with the basics of cost-plus and value-based pricing.

Choose what you charge for

Before tiers, decide the unit that the price scales with. Common choices for software are per user (seat), per amount of usage (bookings, messages, storage), per location or account, or a flat fee. The best unit grows as the customer gets more value from the product. A booking tool that charges per booking earns more as the customer’s business grows. One that charges per seat may push customers to share logins.

Test a candidate unit with three questions. Does the customer understand it? Can they predict their bill? Does it rise when they get more value, not just when they use the product more?

Design tiers that do different jobs

Rafi Mohammed’s good-better-best approach, published in Harvard Business Review in 2018, gives a clear structure for tiers. A stripped-down “Good” option attracts new, price-sensitive customers. The existing product, as “Better”, keeps current customers happy. A feature-rich “Best” option increases spending among customers who want more. He argues this fixes two problems at once: discounting to win price-sensitive buyers, and giving high-end buyers no reason to spend more.

The detail that makes it work is what Mohammed calls “fence” attributes: features that stop existing customers from trading down to the cheaper tier. If your Good plan does everything most customers need, many will move to it and revenue falls.

Practical rules for tiers:

• Three tiers is the usual starting point. More makes the choice harder.
• Name each tier after the customer it suits (“Solo”, “Team”, “Business”), not after metals or gems.
• Make the difference between tiers obvious in one line each.
• Put the features that matter most to larger customers, such as admin controls, integrations or priority support, in the top tier.

Freemium or free trial

Freemium offers a basic product free for as long as the customer wants, and charges for extra features or capacity. Wikipedia traces the term to 2006, when Jarid Lukin suggested it in response to a blog post by investor Fred Wilson describing the model. A free trial gives full or near-full access for a limited time, then asks for payment.

A third option is a paid trial: a low introductory price for a short period. Stripe’s trial documentation lists discounted trials, free trials and upgrade trials, where a customer on a basic plan tries premium features for a limited time. In general, asking for a card at the start of a free trial means fewer sign-ups but a higher share who pay. Not asking means more sign-ups but more who drift away. There is no universal answer; test it.

Trials and UK subscription rules

If you sell subscriptions to UK consumers, plan for new rules. The Department for Business and Trade’s April 2026 announcement set out the main measures under the Digital Markets, Competition and Consumers Act 2024: reminders before free or discounted trials end, a new 14-day cooling-off period after a free or discounted trial ends, and straightforward cancellation, including online exits for online sign-ups. That announcement gave spring 2027 as the expected start. The date has since been brought forward: law firm TLT reports that the regime applies to consumer subscriptions entered into on or after 1 January 2027.

These rules apply to consumer subscriptions, not business-to-business sales. Check the final guidance and take advice before launch, because details matter. Even where the rules do not apply, sending a clear reminder before a trial converts is good practice. Stripe, for example, can send hosted reminder emails seven days before a trial ends.

A worked illustration

An example (illustration only). A UK start-up sells an online tool that helps yoga teachers take class bookings and payments.

• Value unit: active class schedules, because a teacher running more classes earns more and gets more value. Charging per booking was rejected because teachers said they could not predict the bill.
• Solo (£12 a month): one teacher, one schedule, card payments.
• Studio (£35 a month): up to five teachers, class packs and memberships, email reminders.
• Studio Plus (£79 a month): unlimited teachers, multiple locations, staff permissions, priority support.
• Entry: a 14-day free trial of Studio, no card required, with a reminder email before it ends and a clear choice of plan.

The fence between Solo and Studio is multiple teachers and memberships, which matter to studios and not to individuals. The team plans to review conversion by tier after three months and move features if one tier is barely chosen.

Common mistakes

• Too many tiers. Five plans with small differences slow the decision.
• A free plan that is too good. If almost nobody upgrades, the free plan is doing the paid plan’s job.
• Trials that end before value. If activation takes two weeks, a seven-day trial will lose people.
• No fences. Without clear differences, customers drift to the cheapest plan.
• Hiding cancellation. It damages trust, and for UK consumers it will soon breach the rules.
• Never revisiting. Review packaging at least once a year, and after any big feature launch.

When to change your packaging

Look again when most new customers choose the cheapest plan, when large customers ask for features you have not priced, when trial conversion drops, or when serving free users starts to cost more than they bring. Change packaging for new customers first, give existing customers notice, and keep their current plan available for a while. Price changes handled badly cost more in trust than they earn in revenue.