March is still solidly winter so driving could be iffy. The thing with Iceland is not so much snow as it is wind and black ice, plus the roads do not have shoulders nor guardrails, and they are elevated so if you veer off you will go down an embankment. Sometimes small, but other times god size drop offs.
With just 5 days, and depending on your budget, here is one idea. We have done a couple of the Icelandair packages and because they were so cheap, we would leave our room in Reykjavik and head out a few hours away. Yes, paying twice for hotels, but we found places that were to crazy expensive and it actually was still cheaper than not doing the package.
Otherwise a good option is to book your flights separately, and then stay in Reykjavik for the night you arrive and your last night, and then take a multi day tour for the middle part of the trip.
If you do the package, and want to stay in Reykjavik each night, it is not ideal but it is not the end of the world either. Just do day trips such as the Golden Circle, Snaefellsness and the south coast. That would fill your time nicely. Keep arrival day for just in Reykjavik itself to get over jet lag.
In March, that is still a good time to see the northern lights. I highly recommend Aurora Experts for one of these tours as he is excellent! He is a one man show, and absolutely loves what he does. He is very ethical and will not take you out if the chances are not good. He does not want to waste your time and money. He does give you a second chance, so you could book this for the first night and then if you need a second chance you could go another night. Day tours are often long (except the GC) so if you do a second chance night, do not book it after a tour to either Snaefellsness or the south coast as you will not be back in time to go.
March is also great for glacier hikes, ice caves, snowmobiling etc. We have used troll.is for these excursions since you have to have a guide for them, and Troll has always been excellent for us.
For anything hand knit, head to the Handknitting Association stores, and NOT Icewear. Icewear are "designed" in Iceland, but not made there and not by hand. Those stores are all over the city though, but don't be fooled. Also look at the thrift stores for the sweaters. If you get outside of Reykjavik, many towns have small hand knit shops as well as hand knit items in a small area of restaurants and such. I have 3 of these from various trips and one was from the store in Reykjavik, one was from a gas station in the Westfjords, and the other was from a small store on Snaefellsness. If you do a GC tour, at Seljalandsfoss there is a gift store there that is easy to miss, and looks tiny, but as you go in you can see it is much larger and they have some great hand knit things in there.
For lagoons, you have quite a few options. Some tours will include one, so really look around. We always try to hit as many as we can on each trip. The Blue Lagoon is nice and IME it is not overrated. Sky Lagoon is in Reykjavik, but sort of on the outskirts so you would want to bus/taxi/drive there. I really like this one, but it has gotten significantly busier. Just north of Reykjavik is Hvammsvik which is hands down my favorite commercial one. In the Golden Circle there is Secret Lagoon which is rustic, but nice. They have pool noodles which I love because I am short so those keep me afloat, lol. Laugarvatn Fontana is good too, and the cold plunge is the lake. They have one pool area that is more for toddlers as it is extremely shallow, but we loved that one too. Laugaras is a brand new one that just opened a week or so ago. It is supposed to be a high end lagoon. I am anxious to try that on our next trip.
Don't forget the local pools. Most towns have them, and there are several in Reykjavik. I like Sundhollin with their rooftop hot tubs:)