Product/market fit is a term that gets thrown around a lot in the startup world. The concept has been popularized by Marc Andreessen and Ben Horowitz, investors and founders of the VC firm Andreessen Horowitz. Product/market fit means your product or service is reaching its target audience, offering them enough value that they are willing to pay for it.
This doesn't mean you have to be profitable (yet), but rather that you are meeting customer lifetime needs in a way that balances customer expectations and customer experience based on their perceived value from what your product offers them.
What is a Product/market fit?
Product/market fit is the point at which a company successfully addresses a large market need while achieving product-market fit within the target demographic. A company that achieves product-market fit has a product that is solving a problem for customers and is able to grow by word of mouth.
At this stage, you have validated your assumptions and can now move on to scaling your business. The best way to measure whether or not you have achieved product-market fit is by using customer metrics such as:
- The conversion rate on the sign-up page
- The conversion rate on the pricing page
- Customer retention rate (monthly)
It's a state of equilibrium between the value that customers receive from your product or service, and the amount they are willing to pay for it.
Product/market fit is when you have found an audience that wants what you're offering and are willing to pay for it. It's a state of equilibrium between the value that customers receive from your product or service, and the amount they are willing to pay for it.
The best way to think about this is by analogy: if I go into a store with my friend and she says "hey can we get a cupcake?" Then we go into another store nearby where there are also cupcakes but these ones cost $3 each instead of $2 each like at our first stop; would she still want one? Probably not because even though they taste better (and maybe were made by someone famous!), their higher price makes them less attractive compared with their competitors.
if you have something that no one wants or needs, then it doesn't matter how valuable it is. If the market isn't ready for your idea, then even if your product is exactly what they need, it won't matter because no one will buy it.
This is why most startups fail in their early days — because they don't have a product that people want or need. They might have a great idea, but without that crucial element of demand, there's nowhere for them to go with it.
Growth teams work on driving growth for their product by measuring user behaviour
Product/market fit is the moment when you have a product that meets a validated need and can be sold to a defined group of customers.
Growth teams work on driving growth for their product by measuring user behaviour, and then optimizing funnel conversions. This might mean increasing the number of signups, or reducing the number of bounces when someone lands on your homepage.
Growth teams can be found at all stages of the company, but they usually come into existence once you have reached product-market fit (PMF). The goal of a PMF is to create a product that meets an unmet need in the market — something customers will pay money for — and to do so with minimal effort from you as an entrepreneur or founder.
When users come to your website and complete an action, it is referred to as a conversion.
The conversion rate is the number of conversions divided by the total number of actions. For example, if a website has 100 visitors and 10 people sign up for an account, then its conversion rate would be 10%.
Conversion rates can be calculated at different levels depending on what information you need:
- Per-action - This is used when you want to know how many people took each action on your website or app (e.g., how many people clicked on a button). It's helpful when determining which parts of your product are working best and where there might be room for improvement.
- Cumulative - This shows how many users converted after taking X number of steps within your product/service offering (e.g., how many new users signed up after using three features). It helps pinpoint any bottlenecks in user experience that might prevent further progress toward achieving product/market fit
To calculate your conversion rate, divide the number of people who took one of these actions by the total number of people who visited your site.
You can calculate your conversion rate by dividing the number of people who took one of these actions by the total number of people who visited your site.
For example, if you have 100 visitors and 10 converted into customers, then your conversion rate is 10%. This means:
- 1 out of every 10 visitors bought something from you or signed up for a trial account
- 1 out of every 100 visitors completed an important step in their buying journey (for example, adding items to their cart)
Conversion rates can be calculated at different levels depending on what information you need.
Conversion rates can be calculated at different levels depending on what information you need.
- Landing page level: The conversion rate is the number of people who visited a landing page and then converted to it (e.g., signed up for a free trial). This is useful for evaluating which pages are performing well, or not. You might find that some pages have low conversion rates because they're poorly designed or don't match the expectations set by other pages in your funnel.
- Campaign level: The conversion rate is the number of people who saw an ad from an advertiser, clicked on it, visited one of their landing pages and then converted on that page (e.g., signed up for a free trial). This is useful for evaluating whether your advertising strategy is working well--it tells you how many leads come from each campaign compared to others running at the same time period so that you can decide which ones are worth continuing with based on their performance relative to others' results!
Product market fit is when you have found an audience that wants what you're offering and are willing to pay for it.
Product market fit is the most important metric to measure the health of your company. It's also one of the most difficult things to define, but it's worth taking some time to think about how you can measure this in your own business. There are a few key steps that Marketing teams can take to achieve product-market fit. Read the comprehensive blog for pro tips.
The key thing is that product market fit means different things depending on what stage of growth your company is at and how much money it has raised from investors. Product/market fit means that you have found a core audience who will use your product and pay for it. Once you have found that audience, you need to be fast at iterating and testing out new ideas.
