A similar question has been asked via an article comment so I thought I'd post the answer here.

Currently PP doesn't have an upgrade path from say one type or product to another. Reasons for this are due to restrictions with PayPal on recurring subscriptions - their IPN system simply doesn't allow it.

I will however at some time in the future be looking at an upgrade capability but restricting it to Buy Now options only thus avoiding the recurring subscription limitations.

In the mean time though, you could create a Free Featured listing product based on the Featured Type and limit the Max Listings (per user) to 1 for say 2 months that way all the featured options will be available. Then create a second paid featured product for say 1 year.

Doing this will then show both options at the add listing stage allowing the user to select a free or paid listing featured option.

After the user Confirms the Free Featured product and you approve it, you simply edit again and change the product for that listing in Manage Subscriptions to the paid product. This way the listing will expire in the 2 months and the renewal options with the payment options will then start to show when the listing is about to expire in 60 days or less.

By default PP starts the payment renewal buttons showing from 60 till expiry, so you might want to limit the Free Option to 60 days instead of 3 months. That way the pay buttons will show in the users My Listing Management after you change the listing as above. Personally if I gave a Featured option for free I'd do it for no longer than a month - but that's me.

Hope this helps.