We have a lot of free users compared to paying users – is that a sign our free tier is too generous or that our paid tiers aren’t compelling enough to upgrade?

From our pricing strategy book, Price to Scale, a high proportion of free users relative to paying users can indicate a couple of things:

• It might mean that your free tier is so generous that users feel they have little to gain by upgrading. In other words, if the free offering already allows users to achieve many of their needs, the additional value in your paid tiers might not be compelling enough.

• Conversely, it could also be a sign that your premium features or pricing structure isn’t clearly differentiated or communicated. When free users see only marginal benefits in moving to a paid plan, the incentive to upgrade diminishes.

Our book explains that it’s crucial to balance the free and paid tiers by carefully defining which features are core to the free experience and which premium functionalities provide significant value. For example, as illustrated in Price to Scale, one approach is to ensure that free plans meet basic needs while the paid tiers offer advanced features or enhanced support that directly contribute to business outcomes. This differentiation helps users appreciate the benefits of upgrading.

Key recommendations from Price to Scale include:

Reviewing the feature set of your free tier to see if it might be cannibalizing the upgrade incentive.
Analyzing engagement and conversion data across user segments to understand how well your free-to-paid funnel is performing.
Communicating clearly about the value of each tier, so users know exactly what benefits they’re missing by remaining on the free tier.
Potentially revising the structure or limitations on the free tier to drive a stronger upgrade momentum, similar to the adjustments made around the Bronze tier described in our book.

Summary: A large base of free users isn't inherently a problem, but it often signals that either the free tier is too generous or that the paid tiers are not differentiated enough. By strategically revisiting and aligning your offerings, you can ensure both a robust free user base and a healthy conversion rate to paid plans.