We were headed down that path. I noticed that DS wasn't playing as well and it was just piles of toys building up! We did a major purge that lasted over the past year and at the same time made the transfer to big-kid toys (keeping my preference for natural toys in mind). I tried to make sure he had things that would serve him as he grows. I already think we're heading towards too much!
Who'd'a'thunk too many hand-made toys!?! But anything new that comes into the house I'm making sure it's open-ended and will be durable and usable for as long as he plays with toys. The few things that don't meet those criteria and slip in as gifts seem to get broken quickly.
Anyway, Our basics are:
House-play area: includes a toy kitchen and a basket of felt food with a few pots and pans and dishes from Ikea, small table and chairs and a little bed for his dolls.
Some favorite stuffed animals (they could use culling, but not too bad)
A big basket of play silks.
A train table with a play farm and animals.
A train set (Ikea style) in a bin he pulls to where he wants to play.
And through all the culling, his Little People are about the only plastic things that have survived. He plays with them daily, so there would have been a riot if they disappeared.
3 baskets of books (needs to be culled as well but they're not full so it's easier for him to flip through)
Guess what he plays with the most? a belt from a bathrobe or any other long cord = his lasso. my old umbrella or breast pump = telescopes or machines. The edge pieces of foam mats we used to have = swords or surf boards.
The way I culled gradually was that every so often I put toys I was thinking of donating or putting in a consignment sale into a bin in his room. 90% of the time, over the course of a couple of months, he wouldn't even look in the bin. If he wanted something specific, it came out of the bin. After a while in the bin, it would go into a donate box out of sight. He has never missed anything we got rid of.
Maybe it was easier for me because I only had a toddler who was transitioning from baby toys to big kid toys. Perhaps you could involve your children in the process. Explain that you want to make room. Have them help you decide. Then sell those items once you've cleared out the space and get one special thing that they can all use with the money. Kids get bargaining and love rewards they've worked hard towards.