How Many Users Does a Startup Need?

This article delves into the crucial question of how many users are necessary for a startup to succeed. It explores different business models and their respective user requirements, shedding light on what constitutes a significant number of users.

Defining Significant Users for a Free Consumer Internet Product

For a **mass market product**, aiming for a venture-scale startup, the target should be tens of millions of users, possibly even more.

The author uses a $100M revenue runrate as a benchmark. If this seems high or low, you can adjust the reasoning by selecting your desired revenue target.

Ad-Based Business Models

In advertising-based models, CPMs (cost per mille, or cost per 1,000 ad impressions) are typically low for mass market products, often below $1. Social sites, however, tend to have CPMs around $0.25.

To reach a $100M annual revenue, you would require 100 billion impressions per year, or 8.3 billion per month. This translates to tens of millions of unique users per month, demonstrating the massive user base needed to make advertising work.

Social Gaming Business Models

Similar user requirements exist for social gaming business models based on transactions. Typically, only about 3% of users convert, with their ARPPU (average revenue per paying user) in the single-digit dollar figures.

To achieve a $100M runrate, you would need $8.3M in revenue per month. Given a 3% conversion rate and $5 ARPPU, this still necessitates 55 million unique users per month. This highlights the scale required for success in social gaming.

Transactional and Vertical Markets

In **vertical markets**, where products are more transactional, the user numbers can be significantly higher. For example, a job hunting website might generate a percentage of a transaction that is $50,000 to $100,000. This translates to a much better return per user.

However, vertical applications often face challenges in acquiring and retaining users compared to horizontal sites focused on communication or content publishing.

Key Factors for Evaluating User Growth

When just starting out, consider the following factors to assess your potential for achieving substantial user growth:

• Market size: Is there a potential user base of 50 million uniques per month interested in your product?
• Market growth rate: Can you attract 5,000 to 50,000 new users daily?
• Product validation: Have you established a sizable user base, such as 50,000 to 500,000 active users per month?
• Category competition: Are you part of a large existing category of products with 100 million or more unique users per month?

These factors can provide valuable insights into your product's growth potential.