Product-Market Fit: Finding the Best Customers for your Product
Jan 3 2020
Imagine a world in which your customers sell your product for you. Ideal, right? Well, it’s possible. You just have to achieve stellar product-market fit.
Marc Andreessen, cofounder and general partner of Andreessen Horowitz, put it this way, “product-market fit is when people sell for you.” If your product fits your buyer persona perfectly and customers absolutely love your product, then it will gain traction through word of mouth. Customers will be lining up at the door (or quickly visiting your website in this case).
Finding product-market fit isn’t always easy though, so we’ll help explain exactly what it is, and the steps to ensure you find it.
Product-market fit is the process of identifying a market that will become consumers of your product. There may be multiple markets in your product-market fit, but it’s an incredibly important first step when building a product/business to find at least one.
If you’re not ensuring the product you’re building is aligned with a buyer persona, it’ll be difficult to scale. Andreessen said it best, “product-market fit means being in a good market with a product that can satisfy that market.”
Why product-market fit can determine your business’ success
If your product and market don’t align, some of your business’s best efforts may be dramatically impacted. Having a misaligned product-market fit will affect your business model and means your advertising, marketing, rate of growth, and churn rates will take a hit.
The initial effort you put into finding a product-market fit will have a direct impact on whether your advertising efforts will be successful or not. If you don’t have product-market fit, you could be advertising to the wrong buyer personas and attracting the wrong buyers, leading to higher churn and poor retention.
Having a correct product-market fit also affects the accuracy of your marketing messaging. You could be using the wrong value proposition and not getting through to your ideal buyer personas if your product-market fit is off.
Rate of growth
Your growth rate will be affected depending on your product-market fit. Companies that have been successful in finding it are able to be more efficient with their growth resources and acquisition dollars.
A high churn rate might be indicative of poor product-market fit. Though churn can sometimes be unavoidable, focusing on the correct market segment can dramatically reduce churn. Nailing product-market fit will also make the lives of your customer support staff easier It all begins with targeting the correct buyer personas.
5 steps to discovering your product-market fit
Discovering your product-market fit is certainly no easy task, but it is crucial and something you should not take shortcuts on. To help you get started, here are five steps to follow when searching for your ideal product-market fit.
Uncover your key benefit
What benefit does your product provide? You developed your product for a reason—likely you saw something missing in the SaaS universe and sought to fix that. Your key benefit should cater to the initial customer needs that you identified. Many businesses attempt to find this unique benefit with various iterations of minimum viable products (MVPs). While going through this step, you may uncover additional benefits you may have overlooked.
Build your value proposition around that
Build a value proposition that can serve as the reasoning behind your product. You need to find a way to guarantee customers will receive undeniable value from your product’s key benefit.
Look into who relates to your value proposition
Is there a niche or demographic who would need your product more than others? If the answer to this question isn’t obvious, conduct some customer research. Learn who your customers are and stop at nothing to find who relates to your value proposition.
Build personas around those markets
Marketing personas are incredibly helpful when trying to discover which market works best. Formulate what your ideal customer is. What is he looking for? What features does he employ most? What’s his budget? Creating this persona makes research more actionable.
Test your hypotheses in the real world
Test, test, and test. Test ads and marketing messages to multiple markets that you think relevant, obtain as much customer feedback as possible, and track all input. Rinse and repeat the four steps above if necessary. Finding product-market fit requires a lot of research, experimenting, and testing. Be patient and use the intel you gather efficiently.
As mentioned earlier, finding product-market fit is not easy. Rahul Vohra, Founder and CEO of Superhuman, can attest to this. His startup, founded in 2015, strives to be the fastest email experience in the world.
Vohra set up shop for Superhuman in 2015. He said by 2017, the team had reached 14 people. They were still coding, and not ready to launch. Vohra said in an article, “The descriptions of product-market fit all seemed so post hoc, so unactionable. I had a clear understanding of where we stood, but I had no way of conveying that to others-—and no plan for the part that should come next.”
He then sought to measure product-market fit, because, as he says, if you can measure product-market fit, then you can optimize and increase it. After conducting an experiment with customers, Vohra devised his own four-step manual for optimizing product-market fit. His steps include:
Segment to find your supporters and paint a picture of your high-expectation customer.
Analyze feedback to convert on-the-fence users into fanatics.
Build your roadmap by doubling down on what users love and what holds others back.
Repeat the process and make the product-market fit score the most important metric.
Going through these steps religiously paid off for Superhuman. Vohra said by surveying users, segmenting supporters, learning what users loved and what held them back, and then dividing a roadmap between the two, led his company to find a methodology to increase product-market fit.
Your product-market fit may be spot on, but what about your pricing?
Having a rock-solid product-market fit is incredibly important no matter what stage your company or product is at. That being said, you may have nailed your product-market fit, but if you’re pricing is off for that market, you’re losing out.
How you price is a reflection of product value. For instance, if the product is priced too cheap, customers may question the quality. However, if it’s too expensive, then obviously the quality is high but maybe customers won’t be able to afford it. Conduct a pricing audit to learn how your product should be priced to maximize revenue.
The metrics to track product-market fit
You can track product-market fit easier by taking three key metrics into consideration. Over the next few paragraphs, I’ll unpack churn rate, average subscription length, and customer lifetime value. These metrics will tell you whether a product-market fit is on point, or not.
Churn rate is the percentage of your customers that leave your service over a given time period. Is your churn rate SUPER high? If so, your product-market fit may be off. While some churn is inevitable, you want your churn rate to remain as low as possible, and your Net Promoter Score (NPS) to be as high as possible...
Average subscription length
Track customer subscription length. Do customers stay for a few months and then leave? If so, your product-market fit may be off. At this point, it’s not a bad idea to conduct more retention analysis to learn why customers are leaving and set performance benchmarks. Perhaps there’s a feature you could add that will boost retention.
Your lifetime value, or LTV, represents the total amount of money you can expect from each of your customers throughout their time with your product. LTV drives the amount of money you can spend acquiring customers. When examining product-market fit, ask: how big is the LTV of your current customers? The larger the better.
This isn’t a metric, per se, but it goes back to what we said about Rahul Vohra’s product-market fit strategy. During his intense research, he surveyed customers. He asked, “How disappointed would you be if X product stopped existing?” Asking this question will define your target customers. People who answer “not disappointed at all” may not be worth targeting. People who answered a middle-ground response are worth looking into. Asking this question will show what you’re doing right and what you need to add or change.
Don’t be afraid of change when it comes to product-market fit
Again, Marc Andreessen imparts some top-notch wisdom when it comes to product-market fit. He encourages doing whatever is necessary, which means welcoming uncomfortable change. In his words, “Do whatever is required to get product-market fit. This includes changing out people, rewriting your product, moving into a different market, telling your customers no or yes, raising another round of highly dilutive venture capital. Do it all.”
Now, some things you may need to change in order to achieve product-market fit.
Change your messaging
How is your product communicated to consumers, i.e., are you sending the right message? If your messaging is missing the mark, then people don’t have the right perception of your product. Depending on what your research shows, you may need to reshape the story your product message is telling.
Change your pricing
As mentioned earlier, revisiting your pricing strategy is a must. Your pricing and packaging are key drivers in making sure your product and buyer personas are in line.
Change your value proposition
Your value proposition and how you communicate this to your buyer personas need to be tested and validated. If you’re struggling with product-market fit, change up your value proposition. Like Marc Andreessen said, do whatever it takes to achieve the product-market fit your company desires.
How ProfitWell found its product-market fit
We have a blog post dedicated entirely to our own journey achieving product-market fit, but here’s the short version:
We made ProfitWell free—following the freemium model. It’s a bit ironic to be a SaaS pricing company and release a free product. Our co-founders were skeptical at first and it definitely took some time for them to warm up to the idea.
With the decision to offer ProfitWell for free, we are supporting our free users, we build product for them, and treat them as close to a paying customer as possible. What this does is help us move from a monetization path to an upsell path, which is easier to extract revenue from. The bottom line here—you can lower your CAC and measure your distribution substantially by using the baseline product as a lead source.
The free product allows us to provide incredible value to our SaaS community, which is something important to our team. Some may wonder how we make money and how we focus our monetization efforts? The answer is to give away the core product to reduce friction as much as possible to get users hooked and provide value to the community we love. Then, we show them where they’re losing revenue and upsell on tools they need to recover that cash.
What you can learn from this scenario is that when seeking product-market fit, you shouldn’t be afraid to be bold and experiment. It seems crazy to give our core product for free but so far, it’s worked tremendously for us. Be courageous and don’t be afraid to go against the grain.
By Patrick Campbell
Founder & CEO of ProfitWell, the software for helping subscription companies with their monetization and retention strategies, as well as providing free turnkey subscription financial metrics for over 20,000 companies. Prior to ProfitWell Patrick led Strategic Initiatives for Boston-based Gemvara and was an Economist at Google and the US Intelligence community.