My startup has a site, and we need to get funding. What’s more important, revenue or users? Should we make our site free, and thereby gain more users, or should we start charging for the service and focus on revenue?
by Steve Hoffman, Cofounder of Founders Space
Ultimately, revenue is always more important. That said, you need to look at your business and determine whether sacrificing revenue for accelerated user growth is a smart strategy.
Take Facebook and Twitter, for example, they’ve focused on growth over revenue. This is because the value of their services depends on having a large, active user base. Once Facebook obtained a critical mass of users, it began monetizing them successfully. I expect Twitter will follow a similar path.
Now if your business doesn’t require a large user base to become valuable, then focusing on revenue from the start may be a wise choice. It’s easier to bootstrap a company if you have revenue. And in today’s financial climate, it’s much easier to get funded if you have revenue.
One other consideration is marketing. Most companies today seem to give away a portion of their services or products for free, in exchange for attracting users at a lower cost. Then they up-sell them on added features or services. This freemium model seems to work well, and it tends to be the sweet spot for most Internet startups.
I hope this helps!