One of the most common questions that we get asked here at TechAndButter is how do startups make money. If you have ever thought of starting your own business, then you will know that running a business is no easy feat.
You will have to ensure that you are able to cover your operating costs and make a profit. And that is where the magic happens.
As a startup, your first goal is to build a solid foundation for your business.
You need to be able to scale your operations as you grow without losing money.
This means that you will have to find ways to generate revenue while you are building your brand. The most common way that startups generate revenue is by charging a fee for a service or selling a product, as we will look at in a minute.
Many people think that the only way to make money is to get investors to back your business.
The way that startups make money varies depending on what stage they are at. In the beginning, you are making money by selling products and services.
With that said, let us look at some of the ways startups make money.
1). Charging customers to use their products or services
Products and services are expensive to create, and it costs money to bring them to market.
For many products, the cost of development is covered by venture capitalists, or by angel investors who believe in the potential of the product.
But for many others, the founders need to find another way to fund the development of their idea. In the early days of a startup, money is often raised by anyone who will lend it.
Some startups make their profits by charging customers to use their products or services.
Others make their money by selling their products or services to companies or organizations that use them to do things like collect data or make phone calls.
Making money is usually the goal of any business, but for startups, it can be particularly challenging.
That is where charging for your product or service comes in. Not only can it help you generate revenue, but it can also help you build a loyal customer base.
On the other hand, if your product or service is free, you’re giving away a lot.
2). Selling Ads
In the early days of a startup, money is often tight. One of the ways that startups get money is by selling ads.
When people visit your website, ads are shown that are designed to attract the user’s attention and persuade them to take action, such as clicking a link to download a free trial of your product or making a purchase.
The proceeds from these ads help to fund the ongoing operation of the business.
I mean, the most obvious way to generate revenue for a startup is to sell ads. This is often the first way that new companies think about making money, and for good reason: it works.
Ads give you a way to quickly test the waters, build a small audience, and get a sense of how you’ll make money. And while they’re not the only way to make money as a startup, ads are an important one to get right.
3). Licensing
Another way to make money as a startup is to license your software to other companies.
For example, if you have a great idea for an app that helps small businesses manage their finances, you can sell the software to other small businesses, and they will pay you a monthly subscription fee to use the software.
This is how some of the most well-known business software companies like Quickbooks and FreshBooks started. They were small businesses, just like you, that needed a better way to manage their finances.
4). Crowdfunding
Crowdfunding has become a popular way for startups to raise money. It’s similar to traditional fundraising in that entrepreneurs use crowdfunding platforms to raise money from a large pool of investors.
But instead of turning to a small group of wealthy investors, crowdfunding makes it possible for anyone to invest in a startup. This democratized access to investing has made crowdfunding a popular way for startups to raise money.
Crowdfunding is the use of small amounts of money from a large number of people to raise money for a business or cause.
In the past, the most common way to crowdfund has been through websites such as Kickstarter and Indiegogo, where people can pledge money to help launch a product or cause.
The most successful crowdfunding ventures have been those that offer small rewards or experiences in exchange for small amounts of money.
For example;
Instead of investing $100,000 in a startup that makes software, an investor could pledge $1,000 in exchange for a text message from the founder saying “thank you.”
5). Angel Investors
This is another way startups make money.
See, angel investors are private investors who invest money in startups through seed funding rounds.
Unlike VCs, who invest large amounts of money in order to gain a minority stake in the company, Angel Investors invest smaller amounts, often in the low thousands, in order to gain a majority stake in the company.
The upside for the investor is that they can get their money back, or a majority share of the company, earlier than they would with a traditional VC round.
The downside is that the investment is usually a lot riskier, as the investor has no protection if the company fails, and the company may not perform as well as they had hoped.
6). Venture Capitalists
Venture capitalists invest money in exchange for a share of the profits.
This is known as venture capital, or VC for short.
Today, venture capitalists come from a wide range of backgrounds and invest money in a variety of ways, including through venture capital funds, which invest larger sums of money in a variety of companies, and venture capital firms, which provide hands-on support and advice to their portfolio companies.
7). Freelancing
Freelancing is another way that startups make money, especially in the early days.
Freelancing is the act of providing your services to clients without the promise of a steady paycheck.
You can make money freelancing by charging a flat fee or a percentage of the project or service revenue.
You can also set your own rates, charging more for high-volume or high-quality work.
You can find freelance clients through sites like Upwork, Fiverr, or PeoplePerHour. You can also build a following through platforms like Medium, Blogger, or LinkedIn to build a client base.
At the same time, you can also build a business around your existing skills and expertise and offer your services to companies and organizations that need your help. And find clients through organizations and groups like meetups, Facebook groups, or LinkedIn groups.
Wrap
Most startups need to make money in order to survive. The most common ways to make money as a startup are charging customers to use your product or service, selling ads, and charging companies to use your services as a consultant.
Some startups, however, are able to generate money without charging customers or selling ads. This usually happens when a startup has a large network of influencers or partners that can generate a large volume of leads.