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Have you gained Product-Market-Fit? What are the key indicators


Often we get this wrong. Getting to your first 10 customers is not equivalent to achieving product market fit. But, it’s the right step towards your journey. Product market fit is not the only thing that matters in growing your business. ​​

I am a big proponent of Brian Balfour’s theory of product-market fit. In fact, a better way to put this together as Brian says is to address it as Market Product Fit, as the market doesn’t change so often, and the product needs to fit into the market. Not the other way around. Market Product Fit Is Not Binary the iteration cycle of market product fit brings us to another key point: Market Product Fit is not binary. It’s also not a single point in time. A better way to think about Market Product Fit is on a spectrum of weak to strong. As for the common PMF indicators, one needs to combine qualitative measurements with quantitative measurements and one's intuition; typically, if you have 1000 customers with 5000 to 6000 signups happening on a monthly basis, you could argue that you are well headed toward Market Product Fit.

To get a qualitative understanding, my preference is to use Net Promoter Score (NPS). If you are truly solving the audience’s problem, they should be willing to recommend your product to a friend. Here’s an example of what an NPS form/graph looks like;


There are two quantitative measures to understand Market Product Fit: Retention Curves and Direct Traffic. The second quantitative indicator is direct traffic. Direct traffic is typically the result of word of mouth. If you are truly solving an audience's problem, they tend to tell friends. It might not be a lot of direct traffic, but there should be some. The two combined (flat retention curves and direct traffic) mean that a product with Market Product fit will grow naturally without additional efforts like paid marketing.


There’s a 3rd indicator, too; LTV/CAC ratio: 21 percent

CUSTOMER LIFETIME VALUE (LTV/CAC RATIO) The lifetime value to customer acquisition cost ratio — arguably the most revenue-driven framework — is a measure of how much you make from a customer relative to how much you spend to get one. (LTV) = Gross Margin % X Avg. Monthly Payment / Churn Rate / (CAC) = Sales and Marketing Costs / New Customers Won This might seem like a straightforward metric until you start to unpack marketing acquisition costs and define what it means to be an acquired customer.

 

Here are some random thoughts collated for founders, I hope these are helpful. Write back to me if you have any questions at sunnyghosh@brewra.com Author: Sunny Ghosh

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