How do you know when you have a Product-Market Fit?
Product market fit is something that almost everybody in business has heard of, but very few truly understand. Market fit is the very first consideration that should be made in the early development stages of any product, and several questions should be asked, including:
What is the problem that you want to solve?
What is the niche that has this problem?
Will they pay you to solve the problem?
Often, the easiest part is identifying the problem you want to solve, but it gets more complicated from there and is where many startups fail. Firstly, your niche should be specific. Your product could potentially appeal to many markets with differing profiles, including businesses and individuals. When you cast the net so wide, it becomes tough to achieve market fit for your product. We strongly suggest that you narrow the target audience down to a specific area of the market.
While trying to establish a viable product that can satisfy the market, a common sticking point is whether potential customers will pay. Your concept may be great, but your target customers’ perceived value’ can vary greatly, and this value is how they decide whether or not they are willing to pay. Your potential customers may prefer to fix the issue themselves, instead of investing in your product. If this is the case, we’re right back to square one.
After these three points have been established and your product is on the market, how do you determine that you have achieved Product-Market Fit? Achieving Product-Market Fit goes far beyond good feedback or word of mouth. We’re talking about specific metrics and tangible evidence that your business model works and your product satisfies your customer needs. Keep reading for the answers.
Define what success looks like
Measuring the success of Product-Market Fit involves much more than just looking at the bottom line. Sales are significant, sure, but does your product or service actually solve the customer’s problem? Have you achieved what you set out to during product development? To answer these questions, you will need to clearly define what success looks like to you and your business.
The criteria for success are particular to each product and company. For example, let’s say your product is a marketing tool with six unique features. The benchmark for success could be that customers are successfully utilizing at least four of the six features. If it’s a subscription-based service, your measurement could be based on retention. Large volumes of returning customers are a clear indication of a successful value proposition.
Demonstrate your success
Claiming to have achieved Product-Market Fit is one thing, but being able to demonstrate it is another. It’s important to remember that we mean ‘the value your product brings to its target audience’ when talking about success. Good marketing can sell a product, but your sales don’t tell you whether you have solved your customer’s needs or truly satisfy the market. Is your target customer satisfied when they use your product and are they getting value from your service?
Measurability should play a key role in your assessment of a successful Product-Market Fit. Many businesses and startups claim to have achieved Product-Market Fit but don’t have the evidence to back it up or don’t necessarily know how to. Use metrics specific to your product to demonstrate success, such as usage data, retention numbers, and satisfaction scores.
The good news is that your customer success will improve with time, which is a common sign of growth. As a business, you will learn from your first 100 customers how to better-serve the next 100. So if you haven’t yet achieved what you set out to, it doesn’t mean that you won’t.
Show that you can sell the solution
Whether or not your solution sells is an accurate indication of market fit, but the numbers are unique to each business and product. Your average deal size significantly influences your sales benchmarks. For example, a $500 per month product may be considered successful when sold to 20 customers. A $10 per month product could need thousands of customers before reaching the target for success.
The sales cycle can also impact your sales data, with higher-end services taking longer to sell with more human interaction than lower-end services. This means that sales numbers may take longer to measure, than some of the previously mentioned metrics, like user data.
Sales are the primary way companies measure their success, but it’s not the only thing that should be used to determine whether you have genuinely achieved Product-Market Fit.
Know your numbers
You cannot be sure that you have achieved Product-Market Fit, if you don’t know all of your numbers. You should be familiar with the entire breakdown of your success metrics, including:
How long does it take for customers to achieve success from your solution?
What is your cost per lead?
What does it cost to acquire a customer?
What is your sales cycle length?
This isn’t just required for your board or sales meeting, but it’s also essential when trying to measure your market fit. Only once you know these numbers inside out can you be sure that you have created something that satisfies your target customer’s needs.
Product-Market Fit: The Conclusion
To truly know whether or not you have achieved Product-Market Fit, you need to follow these steps:
Define what success looks like – How do you know when your product or service completely satisfies the market’s needs?
Demonstrate your success – Use actual data and metrics to back up your claims, including how long it takes for a customer to achieve success from your service.
Show that you can sell – Demonstrate good sales, retention numbers, and satisfied customers.
Know your numbers – Know the data inside out, including your cost per lead and cost per acquisition.
This information will gauge your product’s success and provide concrete evidence that you have gone to market with a product that truly satisfies the customer.