You know you’ve struck gold when your customers sell for you. People are not only signing up and renewing with you but they’re telling their friends about your product or service as well. It’s a dream come true — a product-market fit (PMF). You’ve created a product or service that solves your target audience’s pain points. Now these satisfied customers understand how valuable you are to their business success. They are spreading the word about their experience, and new prospects are lining up.

If you’re wondering how to achieve product-market fit, you’re in the right place to learn. Let’s get started.

What you’ll learn:

• What is product-market fit?
• Steps to product-market fit
• Why is it important?
• How do you measure it?
• Product-market fit questions to ask
• Goals to determine your product-market fit
• Two examples of product-market fit
• When do you have product-market fit?
• What to do after you achieve product-market fit

What is product-market fit?

Product-market fit is when your product or service solves a universal and unmet challenge within the marketplace where there are enough customers to build a successful business. In short, you have a large TAM (total addressable market). People are consistently buying your product, your revenue is growing, and you have low churn because your customers stick around year after year. You’ve successfully filled your industry’s pains or service gaps by securing proper alignment with your buyer personas. Now, you can use this roadmap to scale your business to meet more ideal customer expectations.

Steps to product-market fit

Product-market fit can only be accomplished when you put your customer at the center of your strategy. You know you’re on the right track when your business has reached a place where you:

1: Recognize an obstacle in your industry that must be solved

Why it matters: The obstacle prevents your target audience from achieving its goals. Recognizing it is especially crucial for startup success. If you don’t identify a problem, you risk creating a solution nobody needs — and no one will buy what you’re selling.

Example: You’re a customer relationship management (CRM) service provider who notices your customer base struggles to balance administrative work and redundant tasks, or your customer wants greater insights into their own customer data to leverage for finding even more new customers. 

2: Develop a minimum viable product (MVP) that solves specific pains head-on

Why it matters: This is where you directly address the obstacle. Your product offers a clear value proposition — which highlights the pictures of pain a customer feels when they don’t have a solution, and then a description of the positive outcomes from using your product. You demonstrate how it will solve your prospect’s pain points and why your product is indispensable to your target audience’s businesses.

How it’s done: 

1. You develop a hypothesis: “We believe our product will solve X pain points felt by Y companies in Z industries.” 
2. Then, set a predetermined goal of speaking to at least 100 people to prove your hypothesis. This list should include conversations with the various titles you feel will be using your products or services.  Track this information deeply, you will be coming back to them very soon.
3. Make adjustments to your hypothesis as you learn.

Example: You create a CRM tool that integrates with current tech stacks, optimizes workflows, and automates important tasks such as lead scoring, prospect follow-up, and forecasting because they want to use this information to measure their own success as well as create a consistent roadmap for finding new customers.

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3: Product-Market Validation 

Now that you’ve done your research you want to get real world validation on your potential solution. There is a difference between 100 people liking your idea and telling you it’s something they would want and need and then actually having a product in the marketplace they actually use. 

MVP – Minimum Viable Product

Based on all the research you’ve done you can now start to build something. This is called an MVP. It is the very first version of your solution. It does not need to be perfect, it simply needs to be something that works and something potential customers can tinker around with.  Think of it as a solid B, it’s not an A, and it’s definitely not a C+. It will solve the problems you have learned your potential customers have shared with you. And yes, you can also include a few solutions you believe they don’t even know they may need and want.

Alpha Testing

With an MVP in hand you can now go and find your early adopters, usually the people you interviewed when doing research. At this point, you are testing out your Alpha version.

Your goal now is to get real user feedback based on what you’ve built. The most important piece of feedback will be on how much they feel your product or service will help them on a regular basis. And more specifically, how do they quantify that satisfaction in time and dollars. Yes, you will also get feedback on bugs, functionality, user interface, additional features they would want in a complete version. However, we must remember we are driving to product-market-validation with the hopes of achieving product-market-fit. 

Too often, people take all the product functionality feedback, make those changes, and think they have product-market fit. But all that does is build a product for a handful of customers. Don’t fall into that trap.

Monetization 

Now that you’ve gathered initial feedback, it’s time to research pricing.  How much is the market willing to pay for your solution?

At this phase, you are not coming up with your actual pricing. That comes later. You are simply creating a hypothesis for the value you are providing and conducting research with real users on what they would be willing to pay. You also want to pinpoint the specific challenges you’re solving and the right customers to target. Here are some tips:

• Study market trends to gain a better understanding of the needs of your target audience. You can use a few of those measurement signals we discussed above, such as surveys, customer count, and search engine keywords.
• Ask for feedback from users during your Alpha testing. By testing the product this way, you’ll fix technical bugs and fine-tune the features before general release.
• Once you have about 10 companies using your products or services, you should have enough validation to move forward.

When you reach your goal, move on to phase two.

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4: Test your hypothesis

As you advance from your Alpha product, you are now adding more features and functionality, so you can start looking for real customers. This is your Beta version. Now, you are trying to get traction in the marketplace.

How it’s done: 

To confirm product-market validation, you will need 20-30 paying customers. These are different from your initial Alpha users.

You begin slowly introducing your product or service into the marketplace for greater adoption by more customers. You can now start to confirm your ICP (Ideal Customer Profile). Offer them demos and free trials of the service with confirmation that after a successful trial, they will convert to paying customers. 

The demos are Beta versions of the product, meaning you are now in the final stages of testing. You’ll want to continue getting feedback from users to:

• Confirm your solution aligns with the pains they want solved.
• Confirm that the pain they have is worth paying for, especially in relation to other projects or pains they may also have internally.
• Cement your hypothesis with customer stories and use cases. The best source of accreditation is your customers. You can promote the value of your product with a case study demonstrating how it solved a real-world challenge.
• Narrow your customer base to the top verticals you want to target.

This is the longest stage of the process. A high churn rate — the percentage of users who stop engaging with your product — suggests your hypothesis might be incorrect. If this is the case, you’ll need to start back at the discovery phase. Don’t be dismayed. This is another opportunity to refine your target-audience research to ensure you are connecting with the right customers.

Let’s assume phases one and two were a success. Now what?

Well, you now have product-market validation

5. Product-market validation to product-market fit 

Now you are really focusing on the marketplace. Your hypothesis may still feel true, but you need more information to confirm it. Your customers’ validation ensures you’re addressing a genuine need and not wasting time building something they don’t care about. The real question is whether the rest of the market feels the same way.

Example: It’s an urgent problem when sales reps cannot focus on selling. Now, your customers are back to closing deals while your CRM tool handles all the administrative tasks standing in the way.

You are growing your customer base because you built a product or service that your target audience finds useful. Your prospects now become customers.

Every business wants to achieve product-market fit because it is how you get your product or service in front of the right prospects. Let’s explore why your product must find its niche and fit into a market segment.

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Why is it important?

Think of your product as a giant toolbox — you fill it with screwdrivers, hammers, saws, and nails. Then you’ll target anyone in the construction and maintenance field. But is a screwdriver going to help a plumber when they need a wrench? Product-market fit helps inform strategies that can:

• Help sell your product: Product-market fit helps your sales reps with solution selling. Your sellers understand how your customers view their pain points and how your product or service solves them. It is a customer-centric approach to selling. This helps increase the trust that must exist between your sales people and your prospects. This builds an authentic relationship between both parties and creates a higher probability for closing deals.
• Better position your product: Product-market fit is about being specific and intentional with your target customer. Just because your product has many features doesn’t mean it’s a great fit for every industry. If you don’t find your product-market fit, you risk losing time and budget on a go-to market strategy that doesn’t pay off.
• Improve customer loyalty: Customers spend time, money, and research trying to find solutions. You can help them by creating products meant to solve their specific pains that happen over and over again. In fact, returning customers spend 67% more than new customers because they know that what you’re offering works. This doesn’t just benefit your bottom line; it also helps you optimize your products. The more people use your product, the more you can understand what features are valuable and what needs improvement.
• Grow your business: Happy customers are returning customers. These users will also share your product with associates, organically expanding your product reach with word-of-mouth advertising. The more people buy your product, the more your revenue increases.

Achieving product-market fit is about getting inside the minds of your customers. You don’t have to be a mind reader; you just have to ask the right questions.

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How do you measure it?

When people ask me how I measure product-market fit, they want to know what its signals are. Signals are confirmation that a large enough part of the marketplace needs your solution. Here are some ways you know you are satisfying the market:

• Interviews – Because you have real data from testing and paying customers, you can continue to research the marketplace. You can discover what your target audience feels is a necessary feature of your solution, how much they are willing to pay, and how willing or reluctant they are to handle organizational change to implement your solution. (Further down, I’ve supplied a few questions you can include in your research to ensure you get the answers you need.)
• Customer count: At some point, customer count will matter. How many customers use your product or a similar solution from a competitor? A new entry into the marketplace could be popular initially, but putter out over time. You need to see whether your customer count is sustainable. Do people continue to use the product? If they stop after a year or two, this could indicate a poor product-market fit.
• Use cases: This refers to how customers use your product to solve problems. A wide range of use cases demonstrates the product’s value to different customer needs within the target market. This strengthens the product’s value proposition because it benefits multiple audiences.
• Multiple verticals: If a product is adaptable and sold across various industries (verticals), it suggests a broad market need and potentially strong product-market fit. Your product is so versatile that multiple audiences are clamoring for it.
• Price stabilization: A stable price point suggests customers perceive the product’s value to be consistent with its cost. This can be a sign of product-market fit. Frequent price drops or difficulty maintaining a desired price point indicate customers’ resistance to the pricing strategy. That could mean a potential mismatch between perceived value and actual cost.
• Timing: It is not unusual for a product or service to be ahead of the curve. The question is whether it’s too far ahead. Did you know the first electric cars appeared on the market in 1891? They didn’t achieve mass market appeal for many reasons. The proper infrastructure wasn’t in place to support the cars’ maintenance. And not many people at the time could afford personal automobiles.

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Product-market fit questions to ask

Interviews are just one of the tools you can use to gauge your product-market fit. Asking your target audience specific questions can help you better understand your customers’ challenges. You can structure your surveys using multiple-choice or open-ended questions.

Multiple-choice questions

Multiple-choice questions are great for understanding your target audience’s demographics, geographies, occupations, and industries.

How big is your company? 

A)Less than 50 employees

B) 51-100 employees

C) 101-250 employees 

D) 251-500 employees

E) 501- 1000 employees 

F) 1000+ employees

Note: You could also segment by company revenue

Who are the end users that would want to use this service 

A) Front Line 

B) Manager 

C) Director 

D) VP 

E) C-Level 

Open-ended questions

Open-ended questions allow your target audience to voice their opinions in detail. It is best to use this format to understand how customers will use your product. And these questions should be based on your hypothesis

1. ) How hard is it to do _____ currently?
2. ) How much time is that currently taking you?
3. ) If you got a percentage of that time back, what could you do with that time?  
4. On a scale of 1-10, and you cannot choose 7, where does solving this pain fall in your priorities?
   1. What’s the difference between the number you gave and a 10 that would make it mission critical?

These answers tell you what is important to potential customers. After all, the last thing you want to create is something no one wants. That’s where having a set of goals is key.

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Goals to determine your product-market fit

Setting goals will help you keep on track with your product-market fit before you launch. Consider:

Who are your prospects?

Defining your target customer is essential to building, marketing, and selling a product. To build your buyer personas, or identify the types of people most likely to buy your product, you can conduct research that includes:

• Competitors: What is already out on the market and how well is it doing? Competitor research will help determine who is buying this product and at what price point.
• Customers: Customer research digs into individual industries. For startups, it’s important to focus on customers in one vertical. You want to be smart with your budget and sales strategies. Focus on solving the challenges within a single industry so you can target a highly specific customer base.

What are their pain points?

Survey your ideal customers to discover exactly what is standing in their way. You can conduct interviews or use SEO (organic search) and SEM (paid search) research. What type of solution are people looking for? How are they describing their challenges when they type it into a search bar?

How will your product help (value proposition)?

You need to know the ins and outs of your product. You won’t be able to solve every challenge for everyone. Keep your product roadmap top of mind — it will help you stay on schedule with specific solutions you can offer now and products in development for later. A simple value proposition will help convey your product’s purpose and an efficient selling strategy.

For example: A sleep device company wants to give customers the best sleep without medication. Its value proposition is, “Sleep soundly, naturally. Block noise, not your dreams.”

Measure your efforts

A great indicator of a healthy product-market fit is your total addressable market (TAM). TAM is everyone who will benefit from your product. A large TAM suggests there’s a significant customer base for the product. However, even a small TAM can be profitable if the product has a strong fit within that industry.

To find your TAM, follow these steps:

1. ) Find your average revenue per user (ARPU): Let’s say you have a subscription service that charges a monthly $10 fee and, after a month of operation, you have 1,000 paying users.

Total revenue / total number of users in a set time frame = ARPU

($10/month x 1,000 users) / 1,000 users = $10/month

2. ) Estimate the total number of customers in the market: Through market research, you estimate that there are 500,000 prospects in your industry who might benefit from your product.
3. ) Solve for TAM.

(Total customers in the market) x (ARPU) = TAM

500,000 users x ($10/month) = $5,000,000/month

From here, you can find what percentage of your TAM is current customers. Reach out to them for feedback on the product or service.

Important note: Ensure your product or service stays relevant to your intended audience. Innovations are created every day. Maintain your product-market fit by aligning your product’s features with changing customer needs.

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Two examples of product-market fit

Here are a couple examples of product-market fit to consider.

Consumer Packaged Goods

• Pain point: Some men prefer a shaven face, while others diligently maintain their beards. However, buying razor blades in stores can get expensive, especially when you need fresh razors weekly for a safe, clean cut. Let’s not forget the inconvenience of traveling to and from the store to search for your ideal razor.
• Target audience: An online consumer packaged goods business decided to tap into the pain points felt by millennial men and other folks tired of expensive and over-hyped razors.
• Solution: The business offers high-quality razor blades delivered directly to subscribers’ doorsteps at a fraction of the cost of traditional brands. They offer a subscription model to promote consistent affordability and customer retention. Their direct-to-consumer shipping cuts out the middlemen, lowering prices and increasing convenience.

Finance

• Pain point: You’re out to dinner with friends and the check arrives. You want a convenient and safe way to split the check or pay back your friends that will deposit the cash right into their bank accounts.
• Target audience: Tech-savvy millennials and Gen Z consumers comfortable with mobile technology searching for a seamless way to send and receive payments.
• Solution: A fintech startup creates a social payment app. Users can easily send and receive money with friends and contacts. The app is intuitive with a great user experience.

How businesses find their product-market fit can be broken into two phases: validation and traction.

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When do you have product-market fit?

It will take two or three years to determine true product-market fit. This is because you need to know how many of your customers will renew to make a call. If you’re a SaaS organization with annual contracts, you need your customers to stick around for at least three years to be truly profitable with a significant growth trajectory. Typically, a 5-7% churn rate is considered good. Your churn rate may be higher during the product-market validation stage, and that’s okay.

In addition, you need to have about 100 paying customers at fair-market value. Aim to get at least 10 publishable case studies from these customers.

Don’t let this discourage you. It’s a good thing to have product-market validation. With validation it is possible to seek additional funding to grow your startup. VC’s want to see product-market fit before making an investment. Once they see you have market validation, they will take the risk alongside you.

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What to do after you achieve product-market fit

Congratulations! You made it!  

If you’ve reached this point, you’ve found your product-market fit.

Don’t overlook your own professional development. As your organization grows, so will your responsibilities. This means you simply may not be able to dig into all the weeds you did before. So it’s important for you to learn how to let go, delegate with trust, and realize you cannot do it all. If you are still stuck in the weeds of tinkering with the code, micromanaging every deal in the pipeline, you will not survive. Your company may survive, they will simply do it without you.

Now it’s time to scale from start-up and expansion stage to growth stage.  This means you need to start scaling everything up. Here’s how.

Deepen customer understanding

Increase customer engagement by regularly collecting customer feedback. Stimulate customer success by providing resources, educational content, and active support. As your audience base grows, consider segmenting your user base by demographics, needs, and usage patterns. This allows you to tailor your messaging, features, and support.

Power your growth engine

When you know what is working, make it repeatable and scalable as you prepare to grow. Invest in infrastructure, customer support, and processes to handle an influx of new customers without compromising quality or service. Build up resources for research and development. This allows you to explore new features and business models that can fuel future growth and potentially disrupt the market.

Increase customer loyalty

Finding new customers is important, but keeping them is crucial. Implement strategies such as loyalty programs, exclusive offers, and top-notch customer service to keep users engaged and prevent churn.

Dominate the marketplace

At this point, you should be an expert in three or four verticals with the customers you have. Now you can consider expanding to new markets or user segments. Explore opportunities for product line extensions or complementary offerings that cater to a broader range of customer needs.

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Find success with your product-market fit

Product-market fit is crucial to the success of any startup or new product launch. It involves recognizing a challenge in the marketplace and developing a product or service that delivers a solution. You can find your product-market fit by placing your customers at the center of your strategy, conducting marketplace research, and inviting continuous feedback. When a product works — and works well — you’ll retain your current customers. And those customers will become your best sellers.