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Freemium strategies are powerful and I’m team #freemium all day, any day.
But once you’ve implemented freemium, almost every company runs into a challenge: “We’re launching a new feature—should it be free or paid?” Many product teams have a very simple answer: “Put it on the paid plan. Always.” And this type of mindset can (and eventually will) tank your business because it:
Weakens the Free Offering: If the free version of your product doesn't receive updates or new features, it can become stale and less appealing.
Hurts Brand Perception: The free tier often serves as the first point of contact between your brand and potential customers. If it lacks innovation, users may perceive your entire product as outdated or lacking value, which can harm your reputation.
Reduces User Engagement: Innovative features in the free version encourage users to spend more time with your product. Higher engagement increases the likelihood that they will see the value in upgrading to a paid plan.
Lowers Conversion Rates: If the free plan doesn't showcase enough of what your product can do, users may not be convinced to upgrade. Offering some new features for free can demonstrate the potential benefits of the paid version, boosting conversion rates.
Misses Top-of-Funnel Opportunities: A compelling free offering attracts more users into your ecosystem. By including innovative features in the free plan, you widen your reach and create more opportunities to convert users down the line.
Looses Competitive Disadvantage: If competitors offer more value in their free plans, you risk losing potential users to them. Keeping some new features in the free tier helps you stay competitive in the market.
Freemium is not a paid conversion tactic. It’s an actual business strategy (read more about this here). So, you need a much more robust process to determine whether something should be free or paid. Your system also needs to be standardized and scalable, so teams across your org can apply it consistently.
What to do?
This decision is complicated because it’s actually not just one decision, but a series of decisions. That’s why I have this decision tree, to show you exactly what to do. Ask yourself these questions:
1. Does it improve retention?
Retention is the backbone of product. If a feature improves retention, it’s worth considering for your free plan. The reason? The larger your free user base, the more potential customers you can:
Convert to paid. Many freemium businesses see conversion rates well past a year or more after sign-up.
Participate in your growth model. Freemium products often leverage a free user base to participate in viral or user-generated content loops. Free users can serve as marketing agents, spreading the word about the product to their network through word of mouth, collaboration, sharing content, or incentivized referrals (e.g., Dropbox offering additional free storage space in exchange for referrals.)
Build better products. With a freemium model, companies can collect vast amounts of representative data from a broad user base, which can be leveraged to improve products and personalize services.
Retention-driving features could be things like custom notifications, anomaly detections, or Slack integration — things that keep users engaged over time. These are prime candidates for your free plan because they increase the likelihood that free users will stick around long enough to eventually delivery value to you.
2. Does it drive Virality?
If a feature helps drive more sign-ups through virality, it should be free. This includes features that engage customers in viral loops that helps you acquire prospects or expand the product’s reach within an organization. For instance, both Miro and Figma used to limit free plan users to just three members. However, when they switched to allowing unlimited users on free plans, both saw an increase in team-based virality. As more people used the product for free, it created a larger top-of-funnel opportunity. Once teams needed more advanced features like permissions or privacy, they were ready to convert to paid plans.
3. Does it support Paid Use Cases?
Another important consideration is whether the usage of a free feature helps build value for your paid product. LinkedIn is a classic example of this: Free users are essential to their ecosystem because the more free users LinkedIn has, the more valuable their paid offerings, like recruiting or sales tools, become. This means that certain features must remain free in order to grow the overall network, which then makes the paid tiers more attractive and valuable.
4. Is it a Commodity?
If a feature is already a commodity — meaning all your competitors offer it for free — you’re unlikely to get away with charging for it. In this case, it’s better to offer it in your free plan. Even if it feels like a feature that should be gated, the reality is that commoditized features must be free to keep your product competitive.
Two Caveats!
Every feature decision comes with caveats.
Is it a high-complexity or niche feature?
Sometimes, even if a feature drives retention or virality, it may still be complex or niche enough to justify putting it behind a paywall. For instance, Miro offers unlimited users on their free plan, but they put external sharing in the paid tier. External sharing is highly viral! Why? Because freemium already allows you to add unlimited users to your free team, while external sharing introduces a layer of complexity: collaborating with outside stakeholders. While external sharing can drive virality, it’s a use case that’s more likely to appeal to advanced users working with clients, agencies, or cross-companies - making it an excellent candidate for monetization.
In general, when you’re evaluating whether a feature should be free or paid, consider its complexity and the percentage of users likely to need it. If a feature addresses a high-complexity use case or has high perceived value but is only used by a small percentage of users, it’s a strong indicator that it belongs in a paid plan.
Is it innovative?
The knee-jerk reaction is to gate innovation behind a paid plan, but don’t forget that freemium defines your product’s brand. If you put all your innovation behind a paywall, it makes your free offering look weak, and that could hurt how you are perceived in the market. In most cases, free users will be at least half of your active users, so a lot of them shape your brand. Plus, almost everyone starts on the free plan, so that will shape their initial impression of you. Including some innovative features in free can not only boost your top-of-funnel but also increase your overall conversion rates.
Conclusion
I get why teams have a hard time with this question, but this approach makes it much easier. Remember:
Does it drive retention?
Does it drive virality?
Does it support paid use cases?
Is it a commodity?
Is it an innovation that defines your product?
Does it involve high complexity or limited use cases that align with your pricing model?
Just ask yourself these questions each time you build a feature and the answer will be one step closer. And if you are still not sure? AB test it!
Edited with the help of Jonathan Yagel—next week is post #100 of his 1-minute Substack. 👀
Do you apply similar strategies with your Substack content? Would love to learn how you determine what's free vs. paid!