Many start-ups seek an early product-market fit, but few understand what it means. When you are starting a new business, it’s important you understand what product-market fit is so that you can judge the success of your startup. That way, entrepreneurs can determine if their product is worth pursuing or not.
What is product-market fit?
Product-market fit is the point at which a product or service meets the needs and desires of its target market. It’s also what allows companies to attract and retain paying customers. Essentially, it’s an optimal scenario for a company where a product’s features, pricing, and marketing strategy align with the needs of its target market.
Why is it important?
Product-market fit is critical to the success of any business. It means that you have identified whether your product solves an actual problem for customers, or if it needs more development before being rolled out in the market.
Achieving a product-market fit allows the business and its customers to build stronger relationships. When you conduct extensive research on customers and match your product to their wants and needs, you strengthen the trust between your customers and the business.
Furthermore, when a product addresses a need, consumers naturally gravitate to what can solve their problem, if no other considerable alternatives exist in the market. If no other companies can match the exclusivity of your product, this means a significant increase in sales.
Additionally, sales aren’t the only thing that’ll increase. Your presence in the market will considerably set you aside from other competitors which will get satisfied consumers talking and recommending your product to other people. Word of mouth is an effective way to promote your brand and establish you as the head honcho in the industry.
How do you measure product-market fit?
The simplest way you can assess product-market fit and understand consumers’ perceptions of your products is to simply just ask your customers. You can start interviewing or conducting surveys. The questions in these surveys should be open-ended and have multiple choices to account for varying answers. They should ask customers if they think the product is a must-have and if it would be inconvenient for them if the product was no longer in the market.
A good survey to make use of is the Net Promoter Score survey. The NPS score will represent the customer’s willingness to recommend your product or service, as well as their perception of how valuable it is compared with competitors. If the score is high, then customers are more than willing to recommend your product or service.
That being said, there are other indicators that can surmise if a business has achieved market fit.
Quantitative indicators:
1. User retention rate – The user retention rate indicates how many customers are using your product and consistently making repeat purchases, a high user retention rate can indicate product-market fit.
2. Churn rate – A high churn rate means that customers are not enjoying your product—whether because of features, customer service or technical difficulties. On the other hand, a low churn rateindicates otherwise.
3. Growth rate – If your product sales are growing quickly, it could mean that you’ve found a great fit for the market.
4. Market share – When you have the leading market share among your other competitors in the industry, your product is deemed by customers as better than others.
Qualitative indicators:
As mentioned before, a high volume of word-of-mouth referrals indicates how popular and useful your product is. Additionally, strong social media coverage can also be another indicator that you have achieved product-market fit.
How can your business achieve product-market fit?
Do your research
Marketing tools like buyer person as can help you identify who your customers are and what they need. Buyer personas can help you identify key indicators of what your ideal customers are typically like. Remember to take note of their pain points, struggles, and challenges so that you can evaluate how your product can address those issues.
Solidify your value proposition
When dealing with your competition in your industry, assess how you can outdo your competition by going the extra mile for your customers to set you apart from them. Do note that your product cannot address all the problems of your customers. Identify the relevant problems that your product can directly address and focus on those first.
It would be imperative for businesses to remain vigilant. Even if you attain a product-market fit, customer preferences and circumstances change as time passes and you must adjust to those changes to keep your standing. Achieving a product-market fit is a great achievement that businesses should strive for. It’s a lot of work but the payoff benefits both companies and consumers alike.
