How to Measure Product-Market Fit: A Simple (But Complete) Guide
Aggelos Mouzakitis
Making products grow faster than my parents' skepticism about my life choices | Product Growth expert | Licensed Psychotherapist
If you are wondering how to measure product-market fit (PMF), then you are in the right place.
Getting to product-market fit is not easy.
In fact, most businesses struggle with that.
And, even though many startups get there, they don’t know how to identify if they’ve found a product-market fit or not.
In this article, I am going to help you measure product-market fit, through a series of actionable tactics and methodologies.
So, if you are interested in learning more on how to measure product-market fit, read on.
Contents
Chapter 1: How to Measure Product-Market Fit
Chapter 2: What are the Essential Product-Market Fit Metrics?
Chapter 3: How to Prepare a Product-Market Fit Survey
Chapter 1: How to Measure Product-Market Fit
Getting to product-market fit is essential for any startup business.
Why?
Because getting to product-market fit means that:
- You’ve found customers who use your product/service regularly,
- That these customers get value out of your product/service.
As you can imagine, being in a good market—most of the times—is not enough.
The way to finding a PMF involves four stages.
This means that you have to pass through various steps before finding a PMF.
Do you have to measure your product-market fit in each one of these stages?
Not really.
However, conducting a product-market fit analysis, and setting up processes—that will work as a compass, and point you in the right direction—can definitely work.
When you measure product-market fit, you measure things like:
- The level of satisfaction of your customers,
- The level of engagement with your products/services,
- How often your customers use your product and services,
- How many new users (or customers) you get through word of mouth.
Of course, different metrics are important for different business models and industries.
For example, a mobile App is interested in product usage interval, where an eCommerce business may be interested in customer satisfaction.
“Yes,” there is a difference, but everything ends up to the same thing:
According to Marc Andreessen, a well-known entrepreneur, who runs the infamous Venture Capital firm, Andreessen Horowitz:
“In a great market—a market with lots of real potential customers—the market pulls the product out of the startup.”
This applies in most cases, but of course, there are some exceptions.
Regardless of the market you are in, or the number of customers you have, it’s always good to measure product-market fit.
What are the metrics you should pay attention to?
Just keep reading, and you’ll find out.
Chapter 2: What are the Essential Product-Market Fit Metrics?
1) Net Promoter Score (NPS)
I’ll tell you something you probably know already: most companies still think that measuring product-market fit means sending a simple NPS survey.
Now, you may be wondering what NPS is.
NPS stands for Net Promoter Score, which is:
A metric that measures customer satisfaction and helps you understand how close you are in satisfying your customers or users.
It’s a metric that is popular for all kinds of businesses, from SaaS to eCommerce businesses and services.
You can measure the Net Promoter Score by asking your customers a simple question:
How likely is that you would recommend [product] to a friend or colleague?
The NPS is essential because it tells you two things:
- How happy your current customers are with your products and services, AND
- How likely it is that they bring new users or customers through word of mouth.
As you can imagine, having an answer to that question is critical.
But, is it enough?
No, and this is a common mistake among many tech startups.
Even though NPS is an important metric that is highly correlated to PMF, it can’t work as a standalone metric.
It has to be combined with other metrics; which brings me to the second metric I have for you:
2) NPS—A supplementary question
An additional question to the one we just saw, is the following:
How would you feel if you could no longer use [product]?
The answers are the following:
- Very disappointed
- Somewhat disappointed
- Not disappointed
- I no longer use [product]
This is the second (essential) metric I have for you.
Have you ever wondered:
What would happen if I could no longer use a product that I use every day for my business; a product that I can’t live without?
If the answer to that question is “Very disappointed,” then the owner of that product has done an excellent job.
Your customers should think the same way for your products and services.
3) CSAT (Customer Satisfaction)
This is the third metric I have for you.
The question that you have to ask is the following:
How would you rate your overall satisfaction with the [goods/service] you received?
The answers are the following:
- Very Unsatisfied
- Unsatisfied
- Neutral
- Satisfied
- Very Satisfied
Pro Tip: Compare the NPS and your CSAT results, and you will get you a better idea of how customers feel about you.
4) Retention Curve
This is another critical metric.
According to Amplitude, the retention curve:
“It’s a line graph depicting the average percentage of active users for each day within a specified timeframe.”
To make it more specific, you can ask a question like:
What is an acceptable percentage of active users for each day?
Once again, the N-day retention and the retention rate of your product is based on your business model, the industry you are in, and the product itself.
5) Churn Rate
Do users stick with your products or services? If yes, what can you do to improve that; if not, why not?
Many founders and marketers working with tech products will tell you that the churn rate is among the most critical metrics for your business.
It’s also among the ones that can help you measure your product-market fit.
Have no doubt about it: keeping your churn rate slow in the early stages, is a sign of a company that has found—or is close at finding—a product-market fit.
6) % Changes in Lifetime Value
You’ve managed to shorten the sales cycle.
Well done, you should pat yourself on the back.
What about your customers’ lifetime value (LTV)?
Have you managed to find ways to increase it, or (at least) keep it steady?
The LTV is a metric that is highly correlated to the value customers get from you.
Thus, increase the lifetime value (generally) means two things:
- That actual value has increased,
- That users are more loyal, and therefore don’t have a reason to look for alternatives.
Measuring the LTV of your customers is a metric that—combined with other metrics—will give you a clear idea as to what your customers think about you.
7) Product Usage Interval
The product usage interval is the frequency (e.g., daily, weekly or monthly) with which you expect people to use your product.
You can measure your product usage interval every week:
- Day 1 – 7
- Day 8 – 14
- Day 15 -21
Of course, the frequency you are going to choose has to do with the type of the product or service you are offering.
Nevertheless, the product usage interval is a significant metric, that you have to take under consideration when measuring your product-market fit.
8) Growth Rate
This is the last metric I have for you.
The growth rate is the rate at which your business is growing.
Now, you may be wondering:
What is an acceptable—or reasonable growth rate?
There isn’t an acceptable growth, as it always depends on the type of your business model and the industry you are into.
However, most founders agree that the growth rate is an indicator of finding a product-market fit.
In this example, you can see how growth rate correlates with product-market fit.
Chapter 3: How to Prepare a Product-Market Fit Survey
I’ll keep this one short.
Most startups—especially tech ones—still insist on sending a generic “product-market fit survey.”
This is usually an NPS survey, sent by Email.
What is more, most companies use NPS survey templates, which makes the Emails look (even more) generic:
Also, a common mistake among many SaaS and tech startups is that the teams that are mostly involved in the process is marketing and customer support staff.
But, I am afraid that is not right.
What about your product team? Shouldn’t they have the chance to express their opinion?
They need to be involved too since they (practically) know the product better than anyone.
What is more, maybe they have ideas on additional questions you can make to get even better results.
So, make sure to include them in the process.
One thing that is also wrong is the fact that most companies use Email, or an on-site pop-up to send a survey.
This might work, but we can’t oversee its serious drawbacks:
Thus, I highly recommend that you get a bit more personal on this.
Here is what I mean by that:
- You have to jump on calls,
- Invite your customers to your premises, OR
- Try anything that will get you one step closer to your customers.
The value you will get from a 30’ call can’t be compared with any product-market fit survey.
Also, by getting on calls, or by meeting in person with your customers, you display a genuine interest in their opinion.
Here at Growth Sandwich, we use a tool called appear.in for our meetings, calls, and interviews.
It has an easy-to-use interface, and the quality of both the sound and the video is high-quality.
What I need you to keep from this chapter is that preparing a product-market fit survey and hitting “Send” is easy.
Getting closer to your customers, jumping on calls, getting them to visit your premises is hard.
However, it can be much more rewarding in helping you understand your current status, and measuring product-market fit.
Chapter 4: Final Thoughts
As I assume you already know, the way from idea to product-market fit is not easy.
And, even if you find a product-market fit, no one guarantees that you’ll be able to scale.
This means that finding your target market, and getting a set of customers that are happy with your product is—most of the times—not enough.
I know that this is a problem that every early-stage startup has to deal with. If you don’t believe me, ask any SaaS Marketing agency.
Adding new features or dropping your prices to retain your existing users or acquire new users won’t help.
Simply put, this may boost your customer acquisition in the short-term, but it won’t help you in the long-term.
The only thing you can do is try to add real value to your customers day in and day out.
Because this is where everything ends up.
Do that, and you won’t have to worry about how to measure product-market fit.