The PLG Trap: Why Free Isn’t a Pricing Strategy
I once worked for a big company launching what we believed would be a category-defining fintech product. The budget was huge. Millions in ad spend. A modern growth team. The right ingredients.
And the go-to-market strategy? Classic product-led growth: let people try the product, love it, and eventually convert. Free entry. Seamless onboarding. Let the product do the work.
We got what we asked for—tens of thousands of users pouring in. But here’s what actually happened.
Engagement was low. Retention was worse. Conversion barely moved. We had volume, but no signal. 100,000 users trying the product, and maybe a few hundred of them were actually the right fit (try explaining to an SVP why the millions they approved in ad-spend has resulted in a literal handful of customers, brutal). Those people—the ones we built the product for—were buried so deep in the noise that isolating their behavior was painful and full of uncertainty. We couldn’t learn from them. We couldn’t even see them.
This is the PLG trap.
Product-led growth isn’t broken. But it’s not a monetization strategy.
Product-led growth can absolutely work. It lowers friction, speeds up feedback loops, and puts the product in front of decision-makers. But when teams assume that “free” = traction, or that user love = future revenue, they miss the hard part: monetization has to be designed in.
Free is just a distribution tool. Without structure, it’s expensive.
Volume vs. signal
Founders love seeing signup numbers spike. And free gets you that. But what it doesn’t get you—at least not by default—is meaningful signal.
- You’ll see inflated top-of-funnel metrics, wonderful acquisition numbers, but engagement will look soft because people who weren’t your ICP show up. Retention will tank because casual users bounce. CAC will balloon because you’re spending to attract users who will never convert. Power users get lost in the data and in the experience.
When everything is free, you learn who’s curious, not who’s committed.
Behavioral pricing insights: what free does to perception
Research in behavioral economics helps explain this dynamic:
- Pain of Paying (Prelec & Loewenstein, 1998): If there’s no price, users don’t encode the value of the product. They consume passively, not intentionally.
- Signaling Theory: Even small payments act as filters. A $5 product signals “this is worth something” while free says “this is worth testing.”
- Zero Price Effect: Researchers (Shampanier, Mazar & Ariely, 2007) found introducing a free item skewed preferences dramatically towards the free item even when a better quality-more-than-free alternative was better. Your free tier could make it hard for people to commit to a paid model if not implemented properly.
Free communicates value only if you’ve designed it to lead somewhere.
What to do instead
- 1. Design pricing into the product from the beginning – treat pricing as a product feature
Even if you’re starting free, map out the path to paid. Know when value is delivered and how you’ll monetize it. - 2. Build thresholds that separate casuals from committed users
Use usage caps, feature locks, or trial time limits to identify who’s actually serious. - 3. Frame free the right way
Don’t position it as “everything for nothing.” Make it clear: this is a way to explore, not avoid paying. - 4. Pay attention to behavioral cues
Guide users through friction points, upgrade prompts, and in-app nudges. Make the transition to paid feel logical and earned. - 5. Measure the right things
Track activations, usage patterns, and feature depth—not just signups or MAUs.
We break these dynamics down further inside the Decision Alpha Pricing Framework and How to Choose the Right Pricing Structure.
Final thought
Product-led growth is a powerful acquisition strategy. But it’s not a pricing strategy. It gets people in the door. Your job is to make sure they’re the right people—and that there’s a clear path from product value to revenue.
Free can work. But only if it leads somewhere.
Download the Behavioral Pricing Playbook — a guide to pricing that scales with your product, not against it.
