#1
It's all in the question above. When you're a new band and looking to play clubs AND gain a following, how do you know if you need to put out a Demo or a full-length album?
#2
How many really good songs do you have? You could do something like an 8 song EP, that's right in the middle.

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Electronic Audio Experiments
#3
It was always my understanding that you record demos before you record any sort of album, just as a reference to what the song should roughly sound like. But then you want to record an EP if you don't have too many strong tracks (probably between 4-7). A full length if you have more. I believe the general rule of thumb is you start off with EPs, wait until you're extremely confident in your song writing to make a full length.
Demolition hands.... Got 'em!
#4
Try opening for some more well know local bands first. Gain a following that way then maybe throw together a demo but wait till you are the main act for your local shows before making an album for sale. Lot's of times clubs will have battle of the bands and what not where you can win studio time to work on an album.
In the Valley of Vung
#5
New band? Demos definitely, only because it'll be easier on you, if you dont like the songs you can fix them. Also if the listeners dont like the songs they didnt waste their money on a whole album.
Gear:
Guitars/ Basses:
PRS SE singlecut w/Tremolo
Epiphone Sg
Epiphone Thunderbird

Waiting in the wings:
Squier Strat mod
(soon to start)

Amps:
Line 6 Spider JAM
Peavey Max 115 bass amp
#6
Depends on your budget, but honestly it's probably a big plus to record companies if you come to them with an album ready to go that they don't have to pay to record...then again, make sure you can afford a decent studio. Also, it does depend on how mature you feel your material is...if you think it's good (Which i hope you do, it's your band), but has room to grow, just demo it for now.
"Be as radical as reality."
- V.I. Lenin
#7
this is my way of doing it all

1. Demo - just 3-4 songs in order for people to decide whether the band your always talking about can actually use their instruments.
2. EPs - Imo, to be made 6 or so months after your demo, you should have played some gigs by now, and will hopefully have a smallish following. Somewhere between 5-8 songs, and this is really your call for a label.
3. LPs - Imo, shouldn't be made until you have attained a big following and/or have a label.

That's just me, and there will of course be people who disagree.
#8
I suggest recording 3-5 of your best songs. That should get you started, especially if you're a new band just starting out.
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#9
If you've got 8-10 songs, I'd make a demo that showcases 3-4 of your strongest songs, and maybe one thats a little different, style-wise.
#10
I'd start off small for money/creative reasons. No point in spending a fortune on making an album of your earliest material that you may not even like much after your band has matured a bit.
#12
I'm doing demos right now, it's the best bet because you can send your buddies 2 or 3 songs for them to tell you what they think and you can listen to yourself and develop yourself until you feel your at a point where people might actually want to pay for your music
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#13
Disclaimer: The following advice lacks any real validity because my own band has yet to record a demo or even write our own original song. I am basically pulling possible strategies and advice out of my ass and hoping it'll work for you. Cheers.

Anyways, now that that's out of the way, here's what I have to say: Before you even do bother to spend you and your band's time, effort, and hard-earned cash on recording a demo, you have to got to make damn sure that there are actually people out there who dig your tunes. You can usually find out that by going out and playing gigs. Now assuming you've done that (you have, haven't you?), if the reception is favorable, you may considering recording a demo for distribution at live shows. If not, you might as well give up now. Just kidding.

Anyways, regardless of how many songs you already have written, you'll want to keep the songs to your demo at a minimum. Don't want to give up too much good stuff away do you? Other guys have posted that you should put 3 or 4 or 5 songs on your demo and I agree. You want to keep the length of the demo at a minimum to ensure that people don't get bored of it and you don't want to show off all your tricks. I am going to assume that your band plays songs that run something between the 3 minute and 5 minute mark. If so, then 4 songs should do it. If you guys enjoy writing pretentious and wanky songs with 12 minute guitar and keyboard solos, you might want to reconsider. If not, then yes, 4 songs is cool. I would suggest keeping the total running time something between 10 and 15, maybe 20, minutes.

Now onto the actual songs. You want to make the 15 short minutes a MEMORABLE 15 short minutes. Though that really goes without saying, I have to emphasize that point because realistically, who's going to be bothered to listen to a full-length of yours, let alone buy it, if your demo stinks? Waste of money, waste of time right? Now, to avoid that pitfall, I would suggest you pick the songs out of your live sets have gotten the best reaction. If you're not sure of that, you should pay more attention to your audience. Okay, I'm somewhat joking there, but really, if you aren't observing the reaction of your audience, you should start now. If you are doing that but still can't tell for sure, I would suggest asking a friend who can offer an honest opinion. Also, I deeply believe you should, for the sake of increased commercial appeal (sort of), include a cover or two on your demo. This, of course, depends on the number of songs on your demo. A 3:2 ratio of originals to cover sounds good to me. Again, make sure that these covers are well-received by your audience (they don't have to be the latest hit singles but hey, it helps) and stylistically fit with your original music. Seeing as I have not a clue about legal issues, I wouldn't suggest recording covers and freely distributing them until you know you won't get your ass sued for doing that.

Now on recording the songs. I'm not familiar with the actual process of recording nor have I ever set foot in a recording studio before, so I'll just give you some general advice. Obviously you don't want to blow your band's entire budget and beer money on making a demo, so doing a home-recording would be the optimal choice, finance-wise. If your recording skills blow though, you may have to go to a recording studio. If you have a friend who has a recording studio, bribe him with beer or whatever and have him help you record. Keep in mind that if you can improve the production quality of your demo without having to spend too much cash, do so. On the other hand, if your demo sounds like an black metal album, feel free to spend as much cash as necessary to get a good production (doesn't have to be great, just listenable enough for the average Joe.)

If there's anything I left out here, then feel free to kick and scream and yell at me. However, it was not my intention to offer advice on EPs and LPs so don't blame me for that. You'll get your chance when I post about that later. For now, I have a science report awaiting me. By the way, if you read the disclaimer and read to the end of this, then I salute your open-mindedness, curiosity, or tenacity, or whatever else got you through this incoherent mess.