Product Success | 9 MIN READ

Product-Market Fit: How to Define, Measure, and Achieve It

Achieving product-market fit will help create the right strategies for your business and help run in sustainably. How to achieve and measure it?

Niyathi Rao
Niyathi Rao
Mar 19, 2021

Product-Market-Fit

Product Market Fit

Many times, companies do not understand why they fail to meet customer needs. A huge reason is a Product-Market Fit. When people fail to realise the need correctly in the market or fail to fix a product goal, it is where there is no cohesion between markets and products. Product-market fit is when your product fits your customers like a glove, and they become your salespeople. With the right fit, you can get long-term benefits, make your product get a better brand boost, and make it successful among top companies.

What is Product-Market Fit?

Every company thinks their product is the one that will ‘revolutionise’ the industry. However, they do not recognise the need in the market or research to understand that there are similar products. First coined by Marc Andreesen, the term ‘Product-Market fit means being in a good market with a product that can satisfy that market’.

This means that to get that perfect product market fit, you need to roll out a product with features that will take on the market. Marc Andreesen also says that ‘the only thing that matters is getting to product-market fit.’

How to Achieve Product-Market Fit?

To get the product-market fit, you need to have a strategy. To build a product that fits the market in the best manner possible, you need to optimize your strategy accordingly.

Determine Your Target

To achieve the product-market fit, you need to determine your target customer. With research, you can understand the buyer personas that fit you better and identify them. With that, you can segment the market. When that is done, you can narrow down the persona as per what suits your company the most.

Identify Customer Needs

Next, one needs to identify customer needs that are not answered. The first part involves understanding what customer problems are, the second is finding solutions to address these problems. The solutions will be about addressing customer problems and understanding how your product can win in the market.

Determine Value Proposition

The next step is to determine the value proposition. Once you have identified customer problems and solution, you need to find value in your product and how it is different from others. If you build a product that is already in the market, there is hardly any separate value. This needs to be reduced so as to get a clear value. When the value is known, it is easier to patch it with the customer target group.

Create MVP Prototype and Test it

Specifying the feature set of Minimal Viable Product (MVP) is the next thing. It should be categorised based on functionality, usability, reliability, and delight. With this, it is time to create a prototype of your minimum viable product (MVP). You then need to get feedback from potential customers if it fits their needs or is a solution they would like. You can find places to improve like design, content, errors, bugs, snags, or functional attributes. You can also know how effective the product will be for customers before releasing the final version.

How to Measure Product-Market Fit?

Churn Rate

Churn is when your customer leave doing business with you. If your customers are leaving without achieving their value, they are churning. The higher the churn is, lower is the product-market fit. You can understand churn reasons through a survey or by simply asking customers. Was it the UX design or did they not understand the features completely? Or was it a wrong fit? These need to be answered.

Retention Rate

Retention rate is a metric to know how many customers are retained with the product. You can ascertain product-market fit with retention rate. If your audience likes your product, they will be retained, and this is the right product market fit. Net retention rate is a hugely popular metric to understand customer satisfaction as well.

Net Promoter Score

NPS is a great way to get user feedback and whether they will refer your product to others or not. NPS gives you an idea of your customer’s choice or willingness to promote your product. This means you have hit the right product market fit. Since they will recommend your product to others, one can know if these potential customers will fit in the Product-Market fit.

Customer lifetime Value

Customer lifetime value is the profit you get averagely from a customer during their lifetime of association with the brand. A good customer lifetime value means an increase in business profits. This will help you validate product-market fit; the longer your customers are invested, the better fit they are. If the customer lifetime value is high, you will be able to improve your product and sustain it for a longer period of time.

Conversion ratios

Finding the leads versus customers balance also improves understanding and measuring product market fit. A lead is the starting point and a lead can become a customer if the product features match requirements. That is if the fit is right, they will become customers. These ratios have a direct impact on measuring the product-market fit.

There are other metrics that can help understand product-market fit. If you meet the 40% rule, then you have met the product-market fit. Some of these metrics are growth rate, bounce rate, market share, word of mouth, media coverage, and more.

How can you tell whether you do (or don’t) have product-market fit?

Sometimes, you need to know if you have the product-market fit. To tell whether you have the product-market fit, you need to check off some aspects.

Customers are not getting the value

When customers do not get the value from the product, the product is not in the right market. Product-market fit is something that keeps evolving. Market needs and customer needs are constantly changing. Customers need to get value from products and when that doesn’t happen, you know there is no product market fit.

Positive Word of mouth is not happening            

When the word of mouth on the product is not positive, customers or prospective customers will not be interested. A bad word of mouth will ensure that there is no product-market fit. When the product is having a bad review, it will not fit in the market.

Product usage is not growing fast

If the product usage is not growing and is stagnant, there is no product-market fit. If product usage is reducing and customers are churning, chances of not meeting the product market fit criteria are more.

Industry / Tech vendors reviews not satisfactory       

If premier industry experts feel that the product is bad or not as per industry standards, the product doesn’t fit in the market. When these reviews are not satisfactory, product-market fit is compromised.

Sales cycle takes too long   

When the sales cycle is long, markets change. Sometimes similar products can be introduced, sometimes customers lose interest, and the brand is rejected. All this affects the product-market fit tremendously.

Lot of deals didn’t close

Sometimes deals don’t work. Despite repeated follow-ups some sales deals don’t go through, this may feel like it’s not a sustainable product-market fit.

Common misconceptions about once you reach product-market fit

You can’t lose product-market fit position

Product-market fit is not a one road destination. It is not something that cannot be lost. To fit market needs, you need to evolve as per needs and improve accordingly. By understanding customer needs, you have to be in the product market fit bracket.           

You don’t have to worry about the competition

Even if you reach the product-market fit, chances of competitors taking away customers are high. Spots of strong product market fit will always attract competitors as they offer high growth. Since your competitors are also in the market, they will do whatever it takes to showcase a stronger power and right product.

You don’t need advertising

It’s a myth that if you reach the product market fit, you don’t need to advertise anymore. That is false. Advertising and marketing are required at every stage of the product development. Companies need advertising to show they are better than competition, display their product features, and meet customer requirements.  

Who is Responsible for Product-Market Fit?

Though the concept of product-marketing fit is associated with product management and marketing, it is not a solitary responsibility. Achieving product-market fit is a shared responsibility as it goes across support, sales, finance and more.

How to Maintain Product-market fit with the Rule of 40

Once the product is released, it should achieve and continue to achieve product-market fit and growth. This is related to the SaaS Rule of 40. The rule of 40 is that growth rate and profit should be greater or equal to 40. For early-stage products, it is an indicator of market strength. It also indicates if you have reached the product-market fit. So, to maintain the rule of 40 with Product market fit, you need to focus on pricing, product quality, and understand the competitive dynamics and landscape.

The Product-Market Fit Pyramid

Source: ProductPlan

Bottom Line

To correctly achieve product-fit, you need to determine you target customers. Once that is done, you need to create products that will meet unmet customer needs. Customer needs is the priority here as they are the key element. It is not possible to achieve the product market fit in a single attempt. There are multiple runs required before the perfect mix of target customers, value proposition is sought. We must work based on audience feedback and take it seriously. Another point is that product-market fit is dynamic, it will keep changing as customer needs evolve over time. Constantly re-evaluating market conditions, market requirements, customer need, and feedback will help fit in the market.

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Originally Published March 19th, 2021, Updated March 29th, 2021

Niyathi Rao

Niyathi Rao

Niyathi is an experienced content marketer with a love for SaaS tech products. She reads a lot (mostly fiction) and is a huge news junkie. Niyathi loves exploring different forms of inbound marketing and taking on challenges.

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