Product-market fit is a term popularized by Marc Andreessen, and it refers to the moment when a startup finally finds a widespread set of customers that resonate with its product.
At that crucial moment, you know your product has been designed in such a way that it will be able to sell itself.
If you’ve achieved product-market fit, you can start to scale up and build out your business model.
The only way to achieve product-market fit is through rigorous experimentation and listening carefully to what users say about your product.
And this will include some crucial measures.
Your goal with every iteration of your product should be to increase the number of users who think it’s so good that they tell other people about it. You want them to become advocates for your company so they can help spread the word about how great your product is.
So how do you know you have reached that level?
You can measure whether or not you have achieved product-market fit by looking at these 5 indicators.
1. Massive Organic Growth
One of the most common indicators of product-market fit is exponential organic growth, also known as “viral growth.”
This means that people are actively sharing and inviting friends to use your product with little to no encouragement from you.
You know you have this when you see a hockey stick chart early on in your user lifecycle — that’s when the user base grows exponentially and in a very short period of time (usually within six months of the initial launch).
You can measure exponential organic growth using tools like Google Analytics, Mixpanel, and Heap Analytics.
2. The User Retention Is High
The very first thing you should look at when measuring your product-market fit is user retention.
High customer retention is a sign that people are not only satisfied with the product but also love it. And have formed a habit of using it on a regular basis.
Calculating user retention is straightforward. It’s simply the percentage of users who return to use your product within a given time frame.
You can calculate this for any time frame (e.g., daily, weekly, monthly, or quarterly). We usually measure it on a monthly basis, starting from their first day of trial.
3. Return on Customer Acquisition Cost Is Three to One
One way to measure product-market fit is to calculate its return on customer acquisition cost (CAC).
It’s good when you see a customer acquisition cost of around $8 dollars and a customer lifetime value of at least $24 dollars. That’s a three-to-one return. The idea is that eventually, you want a 10-to-one return.
So if you’ve got the three-to-one rule, you know you have product-market fit.
To learn more about it, read our full guide on customer acquisition cost.
4. Product-Market Fit Is When People Love Your Product
When you’re in conversation with someone who has used your product before, you can tell when they’re passionate about it because their eyes light up and they start talking about it with joy and excitement.
This level of excitement is a good sign that there’s a true market for your product.
However, it’s not straightforward to quantify the emotions of a user.
Therefore, one method is to calculate your company’s Net Promoter Score. Net Promoter Score, or NPS, is a metric that many businesses use to measure customer loyalty and satisfaction. Built on the power of a single simple question — “How likely are you to recommend [my product] to a friend or colleague?”
5. Your Product or Business Model Is Hard to Replicate
If your product could be copied by someone else in a week, then you haven’t found a product-market fit yet.
Product market fit means your users are so loyal that they won’t easily move to another solution.
The more entrenched your product becomes in their lives, the harder it will be for them to switch. And don’t underestimate the user’s desire to avoid change.
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- Most Important Questions to Ask Yourself While Doing Market Research
Product-market fit is a term you’ve probably heard before. It’s become more and more popular, especially amongst early-stage startups. To put it simply, it’s all about creating a product that people want to use.
There are many different ways to test for product-market fit. We covered the basics and most important ones.
If you’re just starting out with your new business idea or launching a new feature, then there’s no better time than now!
It’s important that your product not only solves a problem but also delivers value in other ways like being easy to use or having an intuitive interface.