Product-market fit: how to assess it and tips to achieve it
By Indeed Editorial Team
Published 9 July 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Achieving market fit is one of the most challenging aspects of an expanding business. When a company achieves market fit, it may experience increased demand, referrals and customer retention as a result. Understanding how to assess market fit can help business managers make the right business decisions towards increasing profits. In this article, we define product-market fit, why it's important, the different components, how to assess it and how to achieve it.
What is product-market fit?
Product-market fit is the extent to which a product meets the demands of a specific market. It signifies the presence of people who want to purchase a company's product. Companies may achieve market fit by experimenting with several product models and identifying how they can expand.
How to assess market fit
The following are steps on how companies can assess a product to determine whether it has market fit:
1. Analyse customer retention rate
A company's retention rate is the percentage of consumers who return to buy additional products and services. The retention rate tells a company whether the quality of its product or service satisfies the demands of current users. Companies use retention rates to assess the market fit of a product by measuring user interest. For example, if an audience likes a company's product, they may use it repeatedly. A high rate of repetitive use indicates that a company has achieved market fit.
To analyse customer retention, a company can determine why some customers return and others don't. They can then compare results to identify ways to improve retention. Customers may leave, or stop using a product or service for various reasons such as a poor customer service experience or decreased product quality. Companies can use the information they get from analysing customer retention rates to convert one-time customers into recurring customers.
2. Determine the level of customer engagement
This stage involves examining customer activities to determine whether they find the product useful. Using analytics, companies can assess when a customer began to use a product, how often they use it and whether they have stopped using it. A high level of consumer engagement may signify that a product has achieved market fit. The following are some metrics that companies can use to determine how customers engage with their products:
Net promoter score: A net promoter score provides an indication of whether a company's customers want to recommend a product to other individuals and how happy they are using it. You can collect this information through email campaigns or in-app surveys.
Customer lifetime value: This metric measures the revenue a business can expect from its customers. The longer a customer buys from a company, the better their customer lifetime value becomes.
Frequency of visits or purchases: This measures how often a customer visits a platform or uses a product. You can divide the frequency of visits into daily, monthly or occasional use to gain insight into consumer behaviours and patterns.
User activity: This involves monitoring the number of daily or monthly active users of a product.
Churn rate: The churn rate is the percentage of consumers who stop using a company's product or service after a certain period. Measuring the conversion rate and getting client feedback helps companies understand why consumers don't return. This allows them to understand how to prevent churn.
3. Test for loyalty
Producing a product that has market fit enhances customer loyalty. When customers are happy with the service they receive, they're more likely to remain loyal to a company and continue using its products or services. To measure customer loyalty, look for product mentions on social media, in reviews and in forum discussions. This information helps companies determine whether they're meeting customer demands.
These are data-driven measures of how effectively a company's product grows in the market. If a business wants to achieve market fit or discover the best ways to modify its current products, it's beneficial for it to conduct continuous research. It can generate better results by focusing on what the market wants.
Components of market fit
The following are components to consider to achieve market fit:
Market: This refers to present and potential demand for a company's product or services. To achieve a market fit, it's beneficial for the company to possess a market willing to purchase its product.
Product: A product is an item or service a company sells. This may be physical or virtual. It's beneficial to compare the company's product with competitors' to identify features the company can incorporate to improve their product.
Customer satisfaction: This metric evaluates how happy clients are with a business's products, services and capabilities. Information about customer satisfaction, such as survey results and ratings, can help a company enhance or adjust its products and services.
Why is it important to assess market fit?
Market fit allows a company to determine whether they're solving a problem a specific market is facing at a particular time. Companies can discover market opportunities by assessing market fit before going into the production phase. This helps them avoid spending time and resources on a product that isn't commercially feasible or is inferior to existing products.
Tips for achieving a product-market fit
The following are some suggestions on how to achieve market fit:
Identify ideal customers
Before introducing a specific product, determine whether there's a suitable market for it. A suitable market represents the ideal customers of a brand. Companies identify their ideal customers by conducting comprehensive research on their product's most suitable buyer persona.
Buyer personas represent different customers in terms of their social status, location, job type, age and lifestyle.
Determine underserved customer demands
Next, identify unmet customer demands by competitors who produce similar products or services. Reviewing customer feedback or surveying customers can provide useful information companies can use to improve their products. The goal is to discover customer demands which competitors may overlook. For example, the customers of a restaurant may want to order food from their homes but the restaurant doesn't offer delivery services. Another company starting a restaurant can improve upon this by offering delivery to customers.
Determine the value proposition
The value proposition is a brief statement of how a company intends to meet the demands of a specific market. It includes a set of advantages a company's product or service holds over other similar products. To determine the value proposition, company managers can list what distinguishes their products from other including features that entice customers to purchase their product.
Create and test minimum viable product
Before investing money and resources into a product, it's beneficial to test the market for sales. This involves creating a basic version of your product called a minimum viable product (MVP). The MVP allows companies to test the likeability and functionality of a product with real customers. Similarly, businesses can uncover which aspects of a product they can improve to promote better customer satisfaction.
Develop the final product
Use the data from MVP testing to develop the final product. When building it, companies can add new features to differentiate it from competitors' products. After introducing the product to the public, a company can ask users for their opinions and suggestions. This allows the company to notice any technical issues that may arise after the final product release. The feedback that a company receives can allow it to upgrade the product or develop the next edition.
Explore more articles
- What is patch management? (With benefits and best practices)
- What are e-learning companies? (And how to choose one)
- A complete guide to online video conference best practices
- What is unified communication? (Including benefits)
- 8 project management apps to improve organisational skills
- What is cold calling?: A definitive guide (with advantages)
- What is compliance training? (With benefits and examples)
- What is a meta tag? With definition, uses, tips and examples
- A guide to revenue vs income (with uses and definitions)
- Performance management importance: how to review employees
- What is a framework? (Including types and examples)
- AI analytics in data science: definition, uses and tips