I got asked this question recently on Snapchat.
“I have just started my Startup. I’m not sure if I’ll need to start free or just start charging right from the start.”
That’s a pretty awesome question! I’ve heard that question before as I’ve asked myself that multiple times. (The voices…in my head…)
It’s one of those questions that keep on popping up as the number of new entrepreneurs grow. It’s not embarrassing to ask it at all.
Over the years, I’ve learned a ton and you know what?
I have a simple answer for it.
Here’s the thing.
Startups choose to defer pricing because they don’t think the product they are offering is ready.
It’s not uncommon to hear founders say that their MVP is literally minimal, so they automatically think they shouldn’t charge at all for it.
Let’s get something straight.
An MVP, though it has the word minimum in it, doesn’t mean shitty, half-baked or buggy.
Your MVP already addresses the top 1 (or 2 or 3+) “critical” problems customers have identified to be important for them.
The MVP you have should already be delivering enough value to justify charging.
There are only 3 reasons why I’d go with Free first:
- If you want to learn more and gather more information. Maybe you built the framework but the content is still lacking as you don’t have the expertise yet to build out more specialized parts of the app. So you want to accelerate your learning by offering it free for users to give feedback faster. This usually works for niches that aren’t as responsive to technology. Or maybe you just need more testers…
- Your niche is so unique that your only strategy is to go for critical mass while being free.
- If going free is really part of your long term business model, then there’s really nothing anybody can do with that LOL…
Anyway, sure FREE works but it delays testing one of the riskiest parts of your business model, which is “if the user will want to pay for something like this.”
So for me, if you really intend to charge for your product, it’s better to be upfront about it. If you want to accelerate learning then the least you could do is either show a pricing page or tell them about your plans and when you’ll be charging to see reactions. As I’ve experienced in the past, if you solve a real pain point, they’d even tell you to start charging.
Set the right expectations. Raise commitment. Show them that you are serious and they’ll take you seriously.
Nothing in the world is really free. Everybody knows this.
So just suck it up and start generating cashflow.
The Importance of Charging to Generate Cashflow
In my recent startup, we started free as we needed to accelerate learning but we’ve set a timeframe and come up with target numbers (active users, memory consumptions, max people that we can hire) that we need to hit to indicate and tell us when we need to start charging.
The issue we hit is that our user base wanted us to start charging them already. There’s still a bit to go before we can hit the targets we set in our original plans but since our users are demanding it from us, then we are forced to actually start charging much earlier than expected.
It’s a good thing though. It enables us to build cashflow much earlier and that will open a lot more doors for us to get to the scaling phase faster.
You’ve seen all these huge apps charge right at the start.
Uber, for how big it is all over the world, charged immediately. To think that it’s still not fully profitable tells you how important charging is to get to that scale.
What if they don’t charge and just gave the driver all the money? What if AirBnb did the same thing?
These companies, no matter how big, would either go out of business or just be pressured to take on even more funding or wait for somebody to acquire them.
It’s especially more critical when you are bootstrapped.
If you went free for a little bit, then that’s ok. But once you start getting a bit more users, you’d need to hire more people, more equipment, more staff management stuff, and your own money won’t be able to sustain operations. It’s that simple.
Be sure that you are in control of your finances if you go free and know your limits.
Lesson? Charge early OR as soon as possible and generate cashflow to open more doors for your startup.
My Definitive Answer AKA Your Key Takeaway
Start charging as early as possible.
If you really can’t charge right off the bat because of certain reasons, then just make sure you set the right expectations. Make sure users know about it right off that bat.
I made this mistake of not informing/setting the right expectations and I’ve lost potential users once I mentioned that we were planning on charging sometime in the future. Sure, you wouldn’t want users like that anyway BUT that just shows you that communicating the right way might have kept those users rather than scared them away for a potential cost that they aren’t willing to pay sometime down the line.
They are probably expecting that you will charge some “ridiculous” amount, they might not see that big of a need or they just don’t want to subscribe long term.
So, that’s it. That’s my whole take on this one.
Start generating cashflow ASAP so you can test if people are willing to pay for it. From there, you can continue to improve the product-market fit and soon enough, you’ll be scaling.
Snap me your thoughts and views. I’m sure we all have varying opinions, but this is my take. I’d love to hear yours!
PS. Running a 30 day challenge now.