Product/Market Fit is the pairing of a strong product and a satisfied user base, which makes users spread the word about their good experiences with your product.
The ideal scenario for your product is when your customers help you sell it. The way you achieve this is by finding a market that understands the value of your product over the competition so that your user base will effectively market it through word of mouth and positive reviews.
Then, you have to create a product that’s tailor-made to fulfill the desires or solve the pain points, of your target market. When you do that, you’ve achieved product/market fit.
In this article, we’ll look at what product/market fit is, why it’s important, and how you can achieve it.
Table of contents
- What is Product/Market Fit?
- Who Handles Achieving Product/Market Fit?
- A Step-By-Step Framework to Achieve Product/Market Fit
- How to Measure Product/Market Fit
- Always go for Product/Market Fit
What is Product/Market Fit?
Product/market fit is a state where a product satisfies a market to the extent that customers are not only buying and using your product frequently, but they’re also spreading the word about that product. Alternatively, it’s when you find a market for whom your product delivers superior satisfaction compared to the rest of the competition.
As long as your product continues to deliver a great user experience to your new and existing customers, you can successfully become a leader in your market once you’ve arrived at product/market fit. That’s why you’ll hear many startup builders and investors talking about how all-important it is to achieve this with any new business proposition or product launch.
Who Handles Achieving Product/Market Fit?
Product/market fit can make or break a product. Because of this, trying to achieve product/market fit is not a responsibility to offload onto a single person or team. Everyone in a company has to work together to consider how to help achieve it based on their role.
Your product design, marketing, and sales teams will all have valuable input when it comes to determining the right product and the right market for that product. For example, marketers will provide valuable insight into potential gaps in the market and audience preferences, while product designers can test how end users respond to your features, so you can continuously refine them to achieve product/market fit.
A Step-By-Step Framework to Achieve Product/Market Fit
Achieving product/market fit is going to be a slightly different process for every company and product. Physical products, services, and software will all have different considerations which you need to factor in. However, there are some common phases every brand will go through.
Here are the 7 steps you need to take to achieve a strong product/market fit:
1. Identify your ideal customers.
Before you even create the product, you need to consider who is going to use it. A common mistake many companies make is thinking they need to sell to everyone. Even the biggest brands started small. Amazon primarily sold books in its early days before going on to offer everything it does today.
Ask yourself questions like:
- Who is your target customer?
- What are the traits of your different buyer personas?
- How can you segment your customers?
By conducting this research, you will be able to create a product that resonates with a specific group of people. Your target audience is those who will become dedicated customers and lifelong buyers. Then, they’ll be the ones to share your product within their own network and improve your product/market fit.
2. Identify a need within your chosen market.
Once you know which market you’re going for, you need to determine how your product meets the needs in the market. Speak with your ideal customer to get this data through surveys and interviews. Then, you will be able to clearly identify your customers’ pain points and gauge how well your product solves their problems.
When you work with your sales and marketing teams, you’ll be better able to gather quality data and large sample sizes. Your customer feedback and insights are essential in helping you pinpoint the gaps in the market that your product can fill.
3. Focus on a single vertical.
As we touched on earlier, you need to keep your product goals focused. Instead of trying to appeal to everyone, you need to build your product and brand up as the best choice. Dominating a smaller market is not only easier, but it also means you can dive deeper into whatever industry you’re in.
While it might seem counterintuitive to start small, it’s better in the long run.
4. Define your value proposition.
When you’re bringing your product to market, there’s always going to be competitors. As such, you need to evaluate your value proposition and make it strong. Then, you can showcase what makes you a better choice than your competitors.
Ask yourself questions like:
- What does your product do that the other products on the market don’t already do?
- How can you differentiate yourself from other brands available?
If you want to outrank the competition, you have to give people a reason to go for your product over other options in the same market.
5. Define your minimum viable product (MVP).
After you’ve done the market research and seen that there is, in fact, a need for your product you can go to the actual design phase. At this point, you want to conceptualize and create your minimum viable product.
A minimum viable product is a simpler version of a product with enough features that it can be used and tested by potential customers. Then they can then provide feedback for future product development. This saves you time in the long run and allows you to tailor your product to the exact needs of your target customers.
6. Test your MVP in your target market and survey the results.
After creating your MVP, you need to see what your customers think about it. This is crucial because it’s your customers who need to be satisfied. One way to do this is through product analytics and conducting customer feedback analysis during your launch.
When you get feedback, you can use that to keep developing and refining your product.
7. Measure Product/Market Fit.
Finally, you can launch your product. After all the research and design phase, you want to test how well your product is performing and that it fills the gap you were targeting in the market. There are a few ways to track this, like with social listening and sales.
We’ll cover more in the next section.
How to Measure Product/Market Fit
You can evaluate your product/market fits by looking into your key data points and other metrics. First, you want to address your Total Addressable Market (TAM). This refers to the total number of people who benefit from your product when they use it.
How to Calculate Total Addressable Market (TAM)
To calculate your TAM, you need to multiply your Average Revenue Per User (ARPU) by the total potential customer in your target market. Then, you can see what percentage of your TAM are your current customers.
A higher percentage means you have a better product/market fit because a large percent of users rely on your product. For example, let’s pretend you created an academic editing tool for students and you’re focused on one university. If the university you’re targeting has 20,000 students and you have 10,000 users, then 50% of your TAM are current customers.
You also want to use surveys to see what your customers think about your product. For those, ask questions like:
- How many customers said they can’t live without your product?
- Why do some choose not to use your product?
- What would encourage the other 50% to start using your product?
Always go for Product/Market Fit
All companies strive for product/market fit, but that is just the first step of introducing a new product. You have to remember to keep an eye on your competitors and constantly monitor your customer feedback. That way, you can stay ahead of the curve and offer products that customers will be eager to share with their social circles—which means they’re advertising for you and helping your products last in the long run.