The product-market fit appears to be a simple idea that can be understood by its name. However simple it may appear in principle, it is the most difficult things for a new company to get.

What is Product-Market Fit, and why is it important?

Product-market fit is a concept that refers to how well a product satisfies the needs and demands of a particular market. In the context of UX design, product-market fit means designing a user experience that meets the needs and desires of a specific user group or target audience.

Product-market fit is important because it ensures the product will succeed. A product must meet the needs of its target audience to be successful. By designing a user experience that is tailored to the needs of a specific group of users, the chances of a product’s success in the market are increased.

To achieve product-market fit, it is crucial to first understand the needs and desires of the target audience. Then, the process of research, gathering feedback, and data is used to make informed design decisions. Overall, product-market fit is crucial because it ensures that the product is designed with the user in mind, which is essential for the success of any product.

The startup pyramid

Pyramid is a fantastic way to illustrate the significance of the product-market fit. Sean Ellis, the CEO of GrowthHackers, is the creator of this idea.

Sean Ellis believed there could be no scaling before attaining product-market fit from what he studied (and taught) about growth. Scaling in this situation runs the risk of destroying the startup quicker.

Before reaching product-market fit, startups are referred to as BPMF (before product-market fit), while the remainder is referred to as APMF (after product-market fit).

6 winning steps to product-market fit

In his book The Lean Startup, Eric Ries highlighted one of the simplest methods for achieving product-market fit. There are just six phases in what is also known as The Lean Product Process:

1. Find the target customer.
2. Describe their needs.
3. Create a value statement.
4. Discover essential features of the Minimum Viable Product (MVP).
5. Create an MVP.
6. Test and gather insights.

Product-market fit is a critical component of both Lean startup theory and the Product-market fit pyramid. It is an excellent illustration of how product-market fit connects several components of the product design process.

The metrics must be checked after each iteration to see how close you are to product-market fit.

Key metrics of product-market fit measurement

What KPIs should you be focusing on to achieve product-market fit? There will be many formulae and specifics on each, but in this article, we’ll only look at each.

The PMF Survey

How unhappy would the customers be without your product?

According to Sean Ellis, this measure is the most important indicator of product-market fit. The Sean Ellis test is also known as a product market fit survey. If at least 40% of consumers would be highly dissatisfied if they could no longer use your product, you have a “must-have” product and may begin thinking about growing it.

The Churn Rate

Do people want to stick with your brand?

The yearly churn rate is the most often used indicator, and the typical benchmark is 5%. The percentage is not constant; each type of organisation has unique characteristics, and new businesses often have greater churn rates than more successful names.

Note that the yearly churn rate differs greatly from the monthly churn rate! Calculating monthly rates and analysing the dynamics is also crucial, but ensure not to mix yearly and monthly rates.

The Net Promoter Score (NPS)

How well do people perceive you?

The standard question, “On a scale of 0 to 10, how likely are you to suggest this company’s product or service to a friend or colleague?” is used to determine NPS.

Businesses that have a solid product-market fit score at least 50 NPS. A score of 50 is excellent for a SaaS. This measure essentially functions as a quantitative way to assess word of mouth, which is crucial for new products.

The Growth Rate

How many clients do you bring in?

Growth rates can be calculated in revenue or number of users (for SaaS), and the time might differ for each product.

Many assume that a company is heading the right way if it grows. However, it is not as easy as that. High growth rates are good, but you must understand why they are so high. It has little to do with a product-market fit if that is just the outcome of marketing investment.

How to evaluate metrics?

There is no one north star measure for determining product-market fit. Instead, several parameters are taken into account along the way:

• Acquisition rate: It refers to the rate at which users or customers consume your product in order to demonstrate sustainable growth.
• Retention: It is important to not only acquire users, but also to retain them as well.
• Engagement: To make sure that there are enough users who regularly use and benefit from the product.
• Revenue: A sufficient number of the users or customers should choose to pay for the products or services.
• Customer satisfaction: The product must be user-friendly and should be able to provide value to the users.
• Advocacy: Customers actively recommending the product or service to others is the best way to reach new users.

None of these indicators are connected to a magic number. You may be certain that you’re well on your path to establishing product-market fit when you notice regular improvement and success in all of the aforementioned areas.

How is the product-market fit index calculated?

There is no single set of data that can inform a company when it has achieved product-market fit. Yet, renowned venture capitalists has provided some indicators to find out that a company is on the right track with its offering:

• When interviewing potential customers or allowing them to test your product, does any group imply that they will switch to your product?
• Are customers who have rejected competing items eager to test yours?
• Do individuals correctly group your product with the right competitive offerings during user testing?
• Do your customers grasp your product’s differentiators or unique value proposition?
• How do your underlying numbers (such as user retention rates) compare to those of your competitors?

Identifying the target market

There are two approaches to identifying the ideal market:

1. Concentrate on a specific niche/improve an existing solution.

2. Come up with an interesting solution or new product.

The first option is less dangerous than the second, which is disruptive and could need additional iterations.

Many business owners believe that developing a new market is the best choice. The most well-known companies are the disruptive ones that offer clients solutions they would never have considered. Due to the lack of such services, companies like Airbnb and Uber sold goods to customers who had no idea they would utilise them.

Whatever option you select, you must understand that the fundamental need is the same: you must identify an issue and provide a fix for it. One answer is a new product, whereas the other is cheaper or more rapid than the alternatives.