Your product team wants to give away more features for free to drive adoption. Your finance team wants to gate more features behind payment to drive revenue.
Both are right. And both are wrong.
The freemium feature selection problem is one of the hardest decisions PLG companies face: give away too much, and users never convert to paid. Give away too little, and users never experience enough value to become engaged users who would pay.
This isn't a philosophical debate. It's a strategic framework with measurable outcomes. Companies that get freemium packaging right achieve 15-30% free-to-paid conversion rates. Companies that get it wrong plateau at 2-5% conversion with either bloated free tiers that lose money or restrictive free tiers that prevent viral growth.
After working with dozens of PLG companies on freemium strategy, I've learned: the decision about what to give away vs. gate isn't about generosity or greed. It's about understanding your value delivery mechanism and strategically throttling consumption, not capability.
Here's how to design freemium tiers that drive both growth and monetization.
The Freemium Positioning Framework
Before choosing features, understand what your free tier is designed to accomplish:
Strategy 1: Unlimited Time + Limited Capability
Approach: Free users get indefinite access but limited features/capacity
Examples:
- Slack: Unlimited time, limited message history
- Mailchimp: Unlimited time, limited email sends
- HubSpot: Unlimited time, limited features
When it works:
- Your product has clear feature tiers
- Value comes from advanced capabilities, not basic usage
- Free users can get real value indefinitely
- Expansion is feature-driven
Conversion trigger: Users want advanced features
Strategy 2: Full Capability + Time Limit
Approach: Free trial with all features but limited time
Examples:
- Adobe Creative Cloud: 7-day free trial, all features
- Most SaaS products: 14-30 day trials
When it works:
- Your product's value is obvious quickly
- Users need full features to evaluate properly
- You can demonstrate ROI in trial period
Conversion trigger: Trial expiration
Strategy 3: Unlimited Time + Usage Limits
Approach: Free forever but constrained by consumption metrics
Examples:
- Zapier: Unlimited time, limited tasks/month
- Loom: Unlimited time, limited video count
- Canva: Unlimited time, limited exports
When it works:
- Your product has clear usage metrics
- Light users can stay free forever
- Heavy users naturally exceed free limits
- Usage correlates with value received
Conversion trigger: Hitting usage caps
Most successful freemium products use Strategy 3 or a hybrid of 1 and 3.
The Feature Gating Decision Matrix
For each feature in your product, ask these questions:
Question 1: Is this feature core to basic value delivery?
If yes: Include in free tier
Users need to experience core value to become engaged. If basic workflow requires paid features, users abandon before experiencing value.
Example: In a project management tool, creating projects and tasks must be free. If users can't complete basic workflows, they'll never see value.
Question 2: Does this feature drive viral growth?
If yes: Include in free tier (usually)
Features that encourage sharing, collaboration, or network effects should often be free because they drive acquisition.
Example: Slack's free tier includes unlimited users and channels. Why? Because viral growth through invitations is more valuable than gating collaboration features.
Exception: If the viral feature is expensive to deliver (like video hosting), use usage limits instead of complete gating.
Question 3: Does this feature appeal to a power user segment?
If yes: Gate it
Power users have higher willingness to pay. Features they value but casual users don't need are perfect for paid tiers.
Example: Advanced analytics, automation, integrations with enterprise tools, custom branding.
Question 4: Does this feature have significant delivery cost?
If yes: Gate it or apply usage limits
Features with high compute costs, storage requirements, or third-party API expenses should be gated or usage-limited.
Example: AI-powered features, video processing, large file storage, priority support.
Question 5: Does this feature solve problems enterprises care about?
If yes: Gate it in enterprise tier
Security, compliance, admin controls, SSO, audit logs—these are enterprise features that command premium pricing.
Example: SAML SSO, SCIM provisioning, advanced permissions, audit logs.
The Capacity vs. Capability Framework
The most successful freemium products limit capacity (how much you can do) rather than capability (what you can do).
Limited capacity, full capability:
- Free: 100 email sends/month with all features
- Paid: Unlimited sends with same features
Limited capability:
- Free: Unlimited sends with basic templates only
- Paid: Unlimited sends with advanced templates
Why capacity limits work better:
Benefit 1: Users experience full product They see what paid users get, just in limited quantity.
Benefit 2: Natural upgrade trigger Heavy users hit limits organically. Light users stay free without friction.
Benefit 3: Fair perceived value "I'm using more, so I pay more" feels fairer than "I can't access features."
Benefit 4: Reduced complexity One product with usage tiers beats multiple feature-differentiated SKUs.
The Freemium Packaging Patterns
Pattern 1: Individual Free, Team Paid
Free tier: Single user, basic features Paid tier: Team collaboration, unlimited users
Examples: Figma, Notion When it works: Your product's value multiplies with team adoption
Pattern 2: Basic Free, Advanced Paid
Free tier: Core workflow, limited features Paid tier: Advanced features, integrations, automation
Examples: Trello, Asana When it works: You have clear feature differentiation
Pattern 3: Limited Volume Free, High Volume Paid
Free tier: X actions/month Paid tier: Unlimited or higher limits
Examples: Zapier, Mixpanel, SendGrid When it works: Usage is measurable and correlates with value
Pattern 4: Time-Limited Trial, No Free Tier
Free tier: 14-30 day trial Paid tier: Required to continue
Examples: Superhuman, many B2B SaaS tools When it works: Value is immediately apparent, high ACV justifies losing trial drop-offs
Common Freemium Mistakes
Mistake 1: Making Free Tier Too Generous
Symptom: High DAU, low conversion rate, users saying "free is enough"
Example: Giving away unlimited everything except one minor feature
Fix: Identify natural upgrade triggers based on user growth or usage intensity
Mistake 2: Making Free Tier Too Restrictive
Symptom: High signup→abandonment rate, users can't complete basic workflows
Example: Limiting to 1 project when users need 3-5 to evaluate properly
Fix: Ensure free users can achieve activation milestone and experience core value
Mistake 3: Gating Viral Features
Symptom: Low referral rates, users can't share with teammates
Example: Requiring paid plan to collaborate or share
Fix: Make sharing/collaboration free, gate advanced team features
Mistake 4: Unclear Upgrade Value Proposition
Symptom: Users hitting free limits but not upgrading
Example: Paid features aren't compelling or well-explained
Fix: Make paid features visible to free users, show clear upgrade benefits
Mistake 5: Too Many Tiers
Symptom: Decision paralysis, confused users, high abandonment on pricing page
Example: Free + Starter + Pro + Business + Enterprise
Fix: Simplify to Free + Pro + Enterprise (3 tiers maximum for self-serve)
Testing Your Freemium Packaging
Metric 1: Free user activation rate
What % of free signups achieve activation milestone? Target: 30-50% If too low: Free tier might be too restrictive
Metric 2: Free-to-paid conversion rate
What % of activated free users upgrade to paid? Target: 15-30% within 90 days If too low: Free tier might be too generous or paid tier not compelling If too high: You might be leaving growth on the table
Metric 3: Time to free tier limitation
How long until average user hits free tier limits? Target: 30-60 days for usage-based limits If too short: Users hit limits before getting value If too long: Free tier too generous
Metric 4: Viral coefficient from free users
How many new users does each free user refer? Target: 0.3-0.7 (every free user brings 0.3-0.7 others) If too low: May need to open up collaboration features
The Freemium Evolution Path
Don't set-and-forget your freemium packaging. Evolution common patterns:
Year 1: Generous free tier
- Goal: Maximize adoption and viral growth
- Accept low conversion rates to build user base
Year 2-3: Introduce gentle limits
- Add usage caps or feature gates
- Test conversion impact
- Find balance between growth and monetization
Year 4+: Mature monetization
- Tighten free tier slightly
- Add premium tiers
- Focus on expansion revenue from existing customers
Example: Slack started with very generous free tier (10 integrations, 10k message searchable history). As they matured, they reduced searchable messages, added paid-only integrations, and introduced Enterprise Grid.
The Enterprise Freemium Consideration
Should enterprise features be gated differently?
Always gate these in enterprise tier:
- SSO/SAML authentication
- SCIM provisioning
- Audit logs and compliance reporting
- Dedicated support and SLAs
- Custom contracts and payment terms
Why: These features:
- Have high delivery costs
- Appeal specifically to enterprise buyers
- Command premium pricing
- Don't affect core product value for SMB users
Don't make free or standard paid users feel like they're missing core product value. Enterprise features should solve enterprise-specific problems.
The Reality
Freemium feature selection isn't about maximizing free users OR maximizing paid conversions. It's about optimizing for both:
Free tier goals:
- High enough value to drive activation and retention
- Viral growth through sharing and collaboration
- Product-qualified leads for sales
Paid tier goals:
- Clear upgrade triggers based on usage or team growth
- Compelling value that justifies price
- Features that power users and teams genuinely need
The companies that win at freemium don't make it a marketing decision or finance decision. They make it a strategic product packaging decision informed by usage data, conversion metrics, and continuous experimentation.
Test, measure, iterate. Your freemium packaging should evolve as you learn what drives both growth and revenue.