Mastering Product-Led Growth - Monetization
How Businesses Can Unlock Sustainable Revenue Growth Through Product-Led Strategies
Topics Covered:
PLG Monetization
The “Monetization Escalator”
PLG Monetization Successes and Pitfalls
The Role of Free Tiers
Conversion Tactics
Pricing and Packaging for Monetization Escalation
Choosing the Right Value Metrics for Monetization
Removing Blockers to Monetization Escalation
Product-Led Sales
Aligning Product and Sales Teams in PLG Monetization
1. PLG - Monetization
Product-Led Growth (PLG) monetization refers to converting users into paying customers through the product experience itself, rather than via heavy sales or marketing pushes. In a PLG model, users often start using a product for free (or via a trial) and only later upgrade to paid plans. Monetization is about designing the product, pricing, and customer journey such that a healthy percentage of those users eventually pay and generate revenue.
However, monetization is frequently the most challenging part of a PLG strategy. It’s one thing to get lots of users to sign up and engage with a free product, but quite another to persuade them to pull out the credit card or sign a big contract. In fact, moving users from mere usage into revenue is often the bottleneck of PLG. As one PLG guide puts it, converting engaged users into paying customers “is one of the harder steps in the process” of growth. Elena Verna, a PLG expert, notes the core challenge: in B2B settings you might acquire hundreds of end-user accounts via self-service, but bridging from individual usage to an enterprise deal is hard. Many companies have seen enthusiastic usage at the individual level stall out with minimal upgrades – users happily stay on free or cheap plans and don’t find enough incremental value to justify a higher tier. This is why monetization, not acquisition, often becomes the make-or-break factor for PLG businesses.
2. The “Monetization Escalator”
A helpful way to think about PLG monetization is via the concept of the “Monetization Escalator.” This escalator is a step-by-step pathway that gradually elevates users from a free or entry-level usage up to higher-paying tiers, ultimately reaching large enterprise contracts. Each “step” on the escalator corresponds to a deeper level of engagement and value:
Individual (Free Tier) – The user tries the product for free (or very low cost) to solve a personal or small-scale problem. At this stage, the focus is on delivering a compelling “aha!” moment for a single user.
Team or Pro Plan – The user invites colleagues or uses more advanced features, becoming part of a team using the product. The value proposition shifts from just individual productivity to collaboration and broader utility. This often corresponds to a moderate-priced premium tier (per user or per team).
Organization (Enterprise Plan) – The product proves its value at a team level, and now the entire organization sees benefit. This is where a company considers an enterprise plan (with enhanced security, admin controls, support, etc.) that typically comes with a high-value contract.
The idea of the monetization escalator is that a PLG company must design product and pricing in a way that nudges users up these steps over time. If users remain stuck on a lower step (e.g. thousands stay on free forever), the escalator isn’t working and monetization will falter. For example, SurveyMonkey observed at one point that hundreds of individuals in the same company were all using paid personal accounts, yet the company resisted upgrading to an enterprise plan because the added enterprise features weren’t compelling enough. In Elena Verna’s words, “users get stuck on the first stair, and the escalator is not going up”. A successful PLG business avoids this trap by ensuring each level of usage unlocks new value that motivates the next step up.
Progressive user escalation is critical because it aligns the product’s growth with revenue growth. As more people at an account use the product (and derive more value), the account should naturally move to higher tiers. Companies like Miro illustrate this well: an individual user’s use case (“brainstorm my own ideas visually”) leads to a team use case (“collaborate on a whiteboard with my team”), which in turn leads to a company-level outcome (“accelerate innovation across the organization”). Each step delivers broader value – and correspondingly, the pricing and packaging step up accordingly. This escalator mindset ensures that PLG doesn’t stop at a swarm of free users, but converts that bottom-up adoption into meaningful revenue.
Key takeaways for building your escalator:
Design tiers for each stage of value: Provide a useful free tier for individuals, a mid-tier that encourages team collaboration, and an enterprise tier that unlocks org-wide benefits (security, admin, ROI).
Measure success at the team/account level: Don’t just count user signups; track how many teams or companies are adopting. PLG in B2B only thrives if usage expands across organizations.
Embed triggers for expansion: Make it easy for an individual to invite others (e.g. share links, team features) and for teams to see value in upgrading (e.g. usage limits to bump against, or features that only shine with more users).
Continuously increase value with each step: The user should feel that staying on a lower tier means missing out on significant benefits. If the free tier already solves an entire use case, many will never leave it – so the higher tiers must offer qualitatively more value (not just more of the same).
By engineering a smooth escalator from free to enterprise, PLG companies create a natural land-and-expand revenue engine: land with a useful free product, expand by engaging teams, and ascend to enterprise-level deals when the product becomes mission-critical.
3. PLG Monetization Successes and Pitfalls
PLG has been embraced by many modern software companies, with a variety of monetization outcomes. Let’s look at a few successful and unsuccessful PLG monetization examples beyond the commonly cited Slack, GitHub, Miro, or SurveyMonkey:
Zoom – Freemium at Massive Scale: Zoom’s video conferencing tool exploded by offering a free tier (40-minute meeting limit) that solved an entire basic use case for millions of people. This “product-led” adoption made Zoom a household name. Critically, even though the majority of free users never upgraded, the sheer volume meant that a small percentage converting still built a multi-billion dollar business. Zoom’s strategy was to remove friction (anyone could start using Zoom free) and rely on the fact that businesses needing longer or larger meetings would eventually pay. It worked brilliantly during the pandemic surge, but it also highlights a caveat: Zoom’s free tier was so good that many users had no need to pay, a trade-off the company accepted for viral growth.
Canva – Designing a Conversion Funnel: Canva, the graphic design platform, reached over 100 million users with a PLG freemium model. The free version of Canva provides plenty of templates and basic features to attract a broad audience (marketing folks, students, hobbyists, etc.). Canva then encourages upgrades to Canva Pro or Teams by gating advanced capabilities – for instance, brand kits, premium graphics, background remover, and collaboration features are paid features. This model leverages a huge top-of-funnel and then converts a portion to paid by offering value that professionals and teams are willing to pay for. Canva’s success shows how a well-designed free tier (great basic value but clear limitations) can drive wide adoption and still funnel serious users into subscriptions.
Notion – Switching to Free to Fuel Growth: Notion (workspace/wiki app) initially used a free trial model, but in 2020 it made its personal plan completely free. This led to explosive user growth through word-of-mouth, as individuals adopted Notion for notes and projects. That widespread personal use became a beachhead – when those users wanted to collaborate with a team or needed admin controls, they naturally upgraded to paid team plans. Notion’s “land-and-expand” monetization hinges on a huge base of free users who love the product, some of whom later expand usage into their teams and organizations. By lowering the barrier to entry (free personal use) Notion dramatically expanded its reach, trusting that organic upgrades would follow when users hit the collaboration limits.
Figma – Viral Growth with Usage Limits: Figma’s collaborative design tool offered a free tier that allowed up to 3 projects and a couple of editors. This was enough for an individual designer or a small trial, but as soon as a design team wanted to use Figma for serious work, they’d hit the cap. Figma’s inherent virality (designers sharing cloud-based files with colleagues) helped it spread inside companies. Monetization came when teams needed more projects, more editors, and advanced features – prompting an upgrade to Professional or Organization plans. Figma’s PLG monetization was so effective that it scaled to enterprise deals with the likes of Microsoft, and ultimately Adobe agreed to acquire Figma for a staggering $20B. The lesson from Figma is to use usage-based limits in the free tier that naturally encourage power users to pay while still allowing widespread initial adoption.
Airtable – From PLG to Enterprise Layering: Airtable started with a classic PLG approach – individuals and teams could start building lightweight databases for free or cheap, fueling viral adoption in organizations. Over time, Airtable recognized that to monetize big accounts, it needed to layer on a sales-assisted enterprise motion (without abandoning PLG). The company pioneered a “reverse trial” for new users (more on that below) and eventually built a sales team to convert high-usage teams into enterprise clients. Rather than pivoting away from PLG, Airtable stacked a sales motion on top of its product-led foundation to create a true monetization escalator. This hybrid approach acknowledges that self-service can only take monetization so far, especially for upmarket deals – a theme we’ll revisit with product-led sales.
Dropbox – Huge User Base, Modest Conversion: Dropbox often exemplifies both the power and the limits of freemium. Its referral-fueled free storage plan garnered hundreds of millions of users, but only a small single-digit percentage ever paid (around 4% conversion, which was considered very good). That was enough to make Dropbox a multi-billion dollar company, yet growth eventually slowed as most consumers stuck to free storage or moved to competitors. In recent years Dropbox shifted focus to business and enterprise offerings (where higher conversion rates and ARPA are possible) and even experimented with reverse trials to improve conversion. Dropbox’s story underscores that freemium can drive massive scale, but you must monitor if those free users are converting at a sustainable rate and adjust strategy when saturation hits.
Trello – Cautionary Tale of Monetization Lag: Trello gained a massive user base (over 25 million users by 2017) with an ultra-easy freemium task board app, but it struggled to monetize that base. For years, Trello was “so focused on building its free customer base” that monetization took a back seat; by the time Trello tried to aggressively convert users to paid plans, many had already gotten what they needed for free or moved on. The company did introduce paid “Business Class” and enterprise plans, but relatively late in the game. Ultimately Trello sold to Atlassian for $425M, a decent outcome but far short of what its huge adoption could have suggested. The Trello case highlights the “free user trap” – if you wait too long to monetize, or if your free offering is too generous for too long, you risk losing out on revenue opportunities. Users may simply never upgrade because they’ve learned to live within the free limits or found alternatives.
SurveyMonkey – Stalled at Team Scale: As mentioned, SurveyMonkey (now Momentive) discovered a limit of bottom-up growth. The product spread to many individuals buying single licenses on their own, but the company had a hard time converting those into large organizational deals. The reason? The enterprise plan didn’t offer enough extra value to compel a centralized purchase; individual users were satisfied piecemeal. This taught SurveyMonkey and others a key lesson: PLG monetization requires crafting compelling reasons for a business to upgrade (such as admin controls, shared analytics, security features, volume discounts, etc.). Without those, a PLG company can end up with lots of paying users but no “whales” – a revenue base that is wide but not deep.
4. The Role of Free Tiers
Almost every PLG company grapples with whether to offer a free tier (freemium model) and how to structure it. A free tier can be a growth supercharger, but it also comes with trade-offs. Let’s break down the pros and cons of free tiers in a PLG monetization strategy:
Strategic Value of Free Tiers (Pros):
Rapid User Acquisition: Free tiers remove friction – anyone can sign up without budget approval. This dramatically widens the top of the funnel. Products with free plans often see huge sign-up volumes and rapid adoption, especially if the product has viral features or network effects. For example, products like Slack and Zoom spread rapidly through organizations via free usage, because inviting others or joining a free workspace is painless.
User Education and Habit-Building: A free tier lets potential customers experience the product’s core value at their own pace. This is crucial if time-to-value is variable or if users might need time to fully realize the product’s benefits. With a free plan, users can tinker and integrate the product into their routine, building habit and reliance. Over time, this increases the likelihood they’ll be willing to pay for more. (As one VC quipped, “Freemium is for learning” – it allows both the user and the company to learn what users value before charging them.)
Viral Growth and Network Effects: Free access encourages users to bring others on board. Many PLG products include referral programs or in-product sharing that leverages free users to attract more users. The classic example is Dropbox’s referral program (give storage for referrals), or Slack’s free team chats that organically spread until a whole department is using it. A free tier can thus act as a viral loop catalyst – the price (zero) isn’t a barrier to inviting colleagues or friends. If your product’s value increases with more users (network effect), a free tier is almost a prerequisite for seeding that network.
Low Customer Acquisition Cost (CAC): When executed well, freemium can reduce or eliminate the need for expensive marketing or sales spend to get users in the door. The product itself is the magnet. This can be highly efficient – if those users eventually convert. (It’s worth noting, however, that free users aren’t truly “free” to support, as we’ll see in cons.)
Market Penetration and Brand Exposure: A free tier can help saturate the market and become an industry standard or household name. For instance, Zoom’s free plan made it the default video tool for millions, and Canva’s free plan enticed an entire generation of non-designers to start using a design tool. This broad footprint can create a competitive moat – even if many users don’t pay, they’re not using a competitor either, and they might advocate for the product within their organizations.
Drawbacks of Free Tiers (Cons):
Very Low Conversion Rates: The harsh reality is that only a small fraction of free users will ever convert to paid. Industry benchmarks show that for freemium products, a 3–5% free-to-paid conversion is considered “good,” and many products see closer to ~1%. In other words, 95–99% of free users might never pay you a dime. This means your business must either attract enormous volume or eventually push users to paid plans through upsells. If your funnel is not designed well, you can end up with a huge user base generating trivial revenue. As one analysis noted, offering a free plan often “attracts hordes of hobbyists and tire-kickers who weren’t becoming paying customers”. The free tier can fill your funnel with the wrong users if you’re not careful (people who want free stuff, not your target buyers).
Free Users Consume Resources: “Free” is not free for the company. Every user on a free tier consumes server bandwidth, storage, perhaps customer support and onboarding resources. This can become a significant cost. If 90%+ of your users are free, a large chunk of your infrastructure and support expenses are serving people who provide no revenue. For early-stage startups, this can be a death sentence if runaway free usage racks up cloud bills. For example, the database company PlanetScale shut down its free tier in 2023 because the cost of supporting hordes of free dev databases was unsustainable. Companies like Heroku famously had to limit their free offerings after finding free users were eating resources meant for paying customers. In short, cost-to-serve can become very high with a free tier, eroding the economics of PLG unless conversions or upsells eventually make up for it.
High Churn & Low Engagement Quality: Free users have no financial investment, so many will sign up, poke around, and disappear – there’s near-zero commitment or incentive to stick around. Thus, freemium user bases often have much higher churn than paid user bases. A vast majority of free signups might never become active, or they try the product once and leave. One SaaS founder noted their free user base churned out after ~4 months on average, meaning many never got deep enough to convert. Those that do stick around may be getting just enough value from the free version and have no urgency to upgrade (after all, if the free tier meets their needs, why pay?). This can result in a stagnant pool of free users who use the product (which costs you) but perpetually defer upgrading.
Setting a $0 Anchor for Value: Free pricing can accidentally anchor users to a price of $0, affecting their perception of value. Psychology plays a role: if customers get used to a product being free, they may resist paying for it later or think of the paid plan as “expensive” even if it’s objectively a great value. It can also position the product as a low-end solution in their minds (“if it’s free, is it really enterprise-grade?”). According to industry veterans, offering too much for free can devalue your product in the eyes of customers – it might be seen as a nice-to-have utility rather than a critical, budget-worthy investment. Moreover, when a company does try to tighten or remove a long-standing free offering, it often faces public backlash from users who feel something is being taken away.
Difficulty Monetizing or Moving Upmarket Later: A free tier can create a tricky dynamic when you try to introduce higher pricing or move to serve enterprise customers. For instance, if your product has been widely adopted for free (or very cheap) at a small-team level, large enterprises might already have pockets of usage and feel no need to pay for an official enterprise plan. Or, they might use the free usage as leverage to demand discounts (“why should we pay so much when we can get part of this free?”). In some cases, a PLG company finds itself outgrown by its users – they use the product for free until they need something more robust and then jump to a competitor that charges but offers more, bypassing your paid plans. Essentially, free can be a trap if you don’t continuously demonstrate additional value worth paying for. Many startups have been advised that not every SaaS product needs a free plan, especially if the market is well-defined and users are willing to do a trial instead.
So, should you have a free tier? It depends on your product and market. If your product has broad appeal, low marginal costs, and benefits hugely from network effects or virality, a free tier may be essential (Jason Lemkin of SaaStr estimates only ~1-5% of SaaS products really meet those criteria for freemium at scale). On the other hand, if you have a niche B2B product with a clear, immediate ROI, you might skip freemium and go straight to a trial or demo model – focusing on quality over quantity of leads.
Best practices if you do offer a free tier:
Limit free appropriately: Free should provide core value but also clearly showcase what users are missing. Common levers are feature gating (e.g. certain features only in paid), usage caps (limits on projects, storage, seats, etc.), or time gating for certain functionality. The free version should solve a real problem so it’s attractive, but leave the best, “premium” capabilities or scalability for paying customers.
Target ideal users: Try to design your free acquisition to attract your ideal customer profile (ICP), not just everyone. For example, some companies require a work email to sign up for free, to ensure they’re getting professional users vs. curious consumers. This can help mitigate the “wrong users” issue.
Monitor conversion and costs: Treat your free user cohort with as much analysis as any marketing funnel. Track what percentage convert, at what point, and how much free usage costs you. If the numbers don’t make sense, be willing to adjust (or even shut off) the free plan. Efficient growth is key – thousands of free signups mean little if none convert.
Provide upgrade prompts and paths: Within the product, gently encourage free users to upgrade at relevant moments – e.g. when they hit a limit or try to use a premium feature, show the value of upgrading. Education is needed; users might not even know what they’re missing. Done right, this feels like a helpful suggestion rather than a hard sell.