Methods for measuring product-market fit

What is Product-Market Fit?

Product-market fit is indispensable for the success of a start-up. If customers do not accept the product and the demand is not there, founders know that they have not achieved the product-market fit. On the other hand, it is quite straightforward to find out that you have achieved the product-market fit.

If demand for the product is high enough to make it profitable and customers are satisfied enough to keep paying for it every month, you have achieved Product-Market Fit. (Read more about PMF here)

But what's not so easy is knowing where you are on the path to product-market fit. Are you moving in the right direction? Are you moving at all? You can measure that with different methods.

Methods for measuring PMF: Net Promoter Score (NPS)

The NPS is a tool for measuring the target group's satisfaction and willingness to recommend the product. The customer rates a question on a scale from 0 to 10. The question usually revolves around how likely they are to use or recommend a product.

The calculation of the NPS is based on 3 different response types:

• 9 or 10: Advocates - customers who have given this rating are convinced about the product and are likely to spread positive feedback and encourage growth.
• 7 or 8: Passive - customers who gave this rating are satisfied but still undecided.
• 0 to 6: Critics - customers who have given this rating are probably dissatisfied and could have a negative impact.

The NPS is determined by subtracting the percentage of detractors from the percentage of advocates. To assume a sufficient product-market fit, the NPS should be 40 or higher.

NPS supplementary question

Although an NPS is a good start to measure how close you have already come to product-market fit, it is not enough on its own. Another question is needed:

How would you feel if you could no longer use [product]?

For this question there are these 4 answer options:

• Very disappointed
• Somewhat disappointed
• Not disappointed
• I no longer use [product]

This way you can find out what value your product has on your customers.

Customer satisfaction

The 3rd metric to measure is customer satisfaction. This can be determined with the following question:

How would you rate your overall satisfaction with [product/service]?

There are these answers to this question:

• Very satisfied
• satisfied
• neutral
• dissatisfied
• Very dissatisfied

Surveys like this and the NPS surveys can usually take place via email or pop-up on the website. A personal conversation with the customer, e.g. by telephone survey, is another way to survey the customer.

Other methods

• Retention - What is an acceptable percentage of active users each day?
• Churn rate - A slow churn rate, the rate of new customers who drop out after a short time, is a good sign that the product-market fit has (almost) been achieved.
• Percentage changes in customer lifetime value - An increasing CLV ensures that users are more loyal and therefore have no reason to look for alternatives.
• Product use interval - The frequency with which you expect people to use your product.
• Growth Rate - The growth rate is the rate at which your business is growing.

Conclusion

Communication with the customer is an important part of measuring product-market fit. If customers are not satisfied with your product, they will not buy it and the product-market fit will be far away.