I think players need a mix of matches and drills to develop, but players do not have to necessarily to go the expensive USTA tournament route. Some other options are to play against an older and higher ranked hitting partner with coach watching, set up local challenge ladders, play local UTR tournaments, etc. As a parent of a player who currently plays D1 college tennis, I think I could have spent a lot less $ on tournaments and travel in the 12s and 14s and he would have still ended up at the same level. My son really didnt jump up in level until he grew-he went from 5'5 in spring of his freshmen year and 115 lbs to 6'2 160lbs by the time he enrolled in college 3 years later. The drills he took helped him develop skills but until he grew, he could not capitalize on them. He was a 3 or barely 4 star before he grew, but a 5 star afterwards. Just hitting with better players can improve a player's game, especially if coaches are watching and giving tips afterwards. Kids love a challenge. You give a middle school player the chance to play a high school player or a high school player a college player, and the younger player will go all out and try to compete even if it is not a tournament. However, players do need to compete in some tournaments but again they can be local-maybe playing local men's opens if the local juniors are too easy. Once a kids turns 16, then spend the $ on national tournaments if the kid is at that level. Sometimes the toughest matches to play are those players are expected to win but the lower ranked opponent is playing amazing. You definitely cant have player just playing arranged matches vs higher ranked players. It is easy to be mentally tough when you are not expected to win. Players need to learn how to manage the momentum changes. My son used to play 80-100 tournament matches a year; if we did it over maybe we would do 20-40 tournament matches with a lot of practice matchplay to make up the rest in his younger years. Son did play high school varsity tennis which is also a good and cheap option if the matches will be challenging for your player. In our region, tennis was strong so HS opponents were often the same players he might meet at a sectional USTA tournament. However, in some areas, HS tennis is very weak.
Start with simple goals. When my son was in middle school, we were not aiming for him to play college tennis; we just hoped he could make the varsity high school team as a freshman. It was not until he was a soph in HS, we realized college tennis was a real option. Playing club tennis in college is another option that is satisfying for many kids.