It is probably a case of us arriving to the same result by taking a different path. As I go back and reread your post with a broader viewpoint thats what I'm thinking?
It's possible that you could have a company that has 1% paying users that's MORE profitable than a company with 50% paying users. The size of the profit is more important than ratio of paying to non-paying, generally speaking. (And of course, in either case you pay real close attention to the conversion rate and try to get it up higher.)
The total number of paying customers is what determines your revenue. But even then, it's important to track free->paid conversion percentages, e.g. sudden drop offs.
So what you are saying is having free users is better than no users (even though it is an expense) because a greater proportion will convert (hopefully) eventually?
Write it off as a marketing expense and hope it attracts more paid users?
The percentage of users that convert should be a closely watched metric that is very important to any freemium business.