PLG Pricing Strategy: Free vs Paid Tier Design

The best PLG pricing isn’t about what you charge. It’s about what you limit. Slack’s 90-day message limit kicks in when teams are hooked. Zoom’s 40-minute cap creates urgency at peak value. Canva gates premium features, not core functionality. Your pricing architecture (model, limits, tiers) determines whether free users convert or freeload forever.

What Makes Product-Led Growth Pricing Different?

Product-led growth pricing aligns cost with value experienced, not value promised. Users pay after they’ve seen results. This inverts traditional SaaS where you sell outcomes and hope users achieve them.

Product-Led Growth vs Traditional SaaS Pricing

The goal: users hit limits when they’re already dependent on your product. Not before they’ve experienced value. Not after they’ve found workarounds.

Which pricing model fits your product?

Stop asking “freemium or trial?” Start asking: “Can users reach the aha moment before the decision point?”

Freemium offers a forever-free tier with limited features; users upgrade when they need more. Free trial offers full features for limited time; users decide before access expires. Reverse trial gives full access, then downgrades to free (not cancellation) when the trial ends.

Freemium vs Free Trial: 8-Dimension Comparison

Model Selection Framework

The Decision Tree

1. How long to aha moment?

   • Minutes → Trial or reverse trial
   • Days/weeks → Trial
   • Months → Freemium

2. How large is your market?

   • 50M+ users → Freemium (2% of 50M = 1M paying)
   • <1M users → Trial (need higher conversion)

3. Does usage expose non-users?

   • Yes → Freemium (free users are marketing)
   • No → Trial (free users are cost centers)

Reverse Trial: The Hybrid Option

A reverse trial starts users with full premium access, then downgrades to a free tier when the trial ends. It combines freemium’s low-friction signup with trial’s urgency.

Reverse Trial Examples

Why it works: Loss aversion. Users who’ve experienced premium features don’t want to lose them. Companies see 10-40% conversion increases vs standard freemium.⁴

What are good conversion benchmarks?

Freemium Conversion Benchmarks

Free Trial Conversion by Credit Card Requirement

Notable Examples

Credit Card Decision

Require a credit card if you want higher-quality leads and can afford lower signup volume. Skip it if you need volume and have strong activation.

How do you set limits that convert?

The Goldilocks problem: too generous and users never convert; too restrictive and users never experience value.

The Aha-to-Limit Gap

Your limit should sit above the aha moment but below serious dependency:

Too restrictive:  [Signup]--[LIMIT]--[Aha Moment]--[Dependency]
                           ↑ Users churn before value

Just right:       [Signup]--[Aha Moment]--[LIMIT]--[Dependency]
                                          ↑ Users hit limit when hooked

Too generous:     [Signup]--[Aha Moment]--[Dependency]--[LIMIT]
                                                        ↑ Users never upgrade

Three Approaches to Limits

Limit Positioning Examples

Trial Length Guidelines

How do you structure pricing tiers?

Three to four tiers outperform five or more. Paradox of choice: too many options creates decision paralysis.⁸

The Standard Three-Tier Structure

What to Include in Each Tier

Usage-Based Pricing

Usage-based (pay as you go) charges based on consumption: API calls, storage, transactions. It works when usage varies significantly between customers and value correlates with consumption.

Usage-based pricing increased 31% since 2023. 56% of SaaS companies now incorporate consumption-based elements.⁸

Emerging: Adaptive Pricing. AI-dynamic pricing optimizes offers per user segment in real time. Early adopters use consumption floors (minimum spend with usage upside) and value metrics (pricing tied to outcomes, not inputs). The strategic shift: pricing increasingly aligns with value delivered, not features accessed.

Expansion Revenue Matters More Than Initial Conversion

A customer who starts at $50/month and grows to $500/month is worth more than one who converts at $100/month and stays flat. Net Revenue Retention matters more than initial conversion. The real revenue is in expansion, not the first payment.

Where the Real Revenue Is

Slack’s 143% NRR means existing customers grow 43% annually, before any new sales.⁹ That expansion comes from pricing that scales with team size and usage, not from optimizing the free-to-paid gate.

Design for expansion, not just conversion:

• Seat-based pricing that grows with teams
• Usage tiers that reward heavy use
• Enterprise features that unlock at scale
• Clear upgrade paths within paid tiers

Action Items

1. Time your aha moment: How long until users experience core value? Under 5 minutes = trial works. Over a week = freemium. If you don’t know, pull 10 converted users and check their time-to-first-success in your analytics.
2. Map your aha-to-limit gap: Is your free limit above the aha moment? Slack’s 90-day history kicks in after teams are hooked. If users hit limits before experiencing value, you’re converting nobody.
3. Audit competitor limits: Sign up for 3 competitors with a fresh email. Where do they set limits? What feels like a natural upgrade moment vs. an annoying gate? Steal what works.
4. Simplify your tier count: More than 4 tiers creates decision paralysis. Three tiers (Free, Pro, Enterprise) outperform five. If users need a comparison chart to decide, you have too many options.
5. Calculate expansion revenue: What percentage of revenue comes from existing customer growth? Below 30% means your pricing captures initial value but misses the upside. Slack’s 143% NRR comes from pricing that scales with teams.