Here’s How to Find Product-Market Fit + 5 Ways to Measure Product-Market Fit

If you’re in the early stage of launching a SaaS product, there’s only one thing that really matters and that’s achieving product-market fit.

The problem is that nobody seems to know what product-market fit is because there are so many definitions floating around. However, once you’ve reached product-market fit, you’ll be able to tell because getting customers becomes much easier and customers rarely churn.

What’s more, it’s possible to lose product-market fit after getting it because maybe your product development efforts are heading in the wrong direction or your customers' needs are changing and your product’s features aren't keeping up.

So, in this guide, we wanted to clear things up and discuss a couple of points, namely:

• What is product-market fit
• What can you do to reach product-market fit
• How do you measure product-market fit
• How do you prevent losing product-market fit after getting it

Note: Product-market fit is an extremely broad topic. Entire blogs and YouTube channels are dedicated to helping founders achieve product-market fit, so we won’t be able to address everything you need to know in this 2000-word article. Instead, we’ll go over high-level strategies that we’ve seen work well for early stage founders.

What is product-market fit?

There isn’t a single definition for product-market fit. Everyone has their own definition, which is why it is so elusive to pursue.

Some founders take an analytical approach, saying that if more than 40 percent of your customers would be very disappointed if they couldn't use your product anymore, you’ve reached product-market fit. Others describe product-market fit as an emotional feeling you get when you aren't battling uphill anymore to get customers; customers are finding you.

While these are great definitions, they lack context. They don’t take into account customer retention rates, profitability, growth rates, and market share.

In our opinion, product-market fit is when customers want your product, they use it without churning, and they tell other people about it. If you see these things happening consistently over a period of time, you've most likely achieved product-market fit.

Here’s how you can achieve product-market fit when building a SaaS product.

Step 1: Identify a pain point

Finding product-market fit begins before the product design stage. You first need to learn if there is an actual need for your product and, if so, if people are willing to pay money for it. During this initial idea validation stage, you can take two approaches: improving an existing product or creating a product that nobody has created before.

Improve an existing product

Improving an existing product is generally the safest route to product-market fit because you already know that there's a need for a specific product and that people are willing to pay money for it.

For example, if you're developing a niche AI and you see a handful of AI companies in that space that each charge $50 per month per user and have thousands of customers, you can safely say there's a market for that product.

From here, you need to find differentiators that will make your new product better than the existing products on the market. You can do this by reading customer reviews on your competitors’ products and finding areas customers are complaining about. It's also a best practice to hop on a call with these customers to gain a more detailed understanding of the drawbacks the solution they're using has.

This is the most "guaranteed" path to product-market fit because you know that thousands of customers are already paying for a product. However, there are problems with this product, and you're aiming to fix it.

But keep in mind that this path also has the least potential for growth because although you're solving a problem in a unique way, more established companies with bigger budgets are doing something similar. This is why some founders venture into a completely new space and find pain points other companies haven't solved yet.

Venture into a new space

Going into a new space will always be tricky; however, there are a few best practices that many successful founders use that can help you determine whether your solution has the potential to achieve product-market fit.

First, you want to identify, in detail, the problem you're planning to solve and who you're solving this problem for. For example, if you've been working in marketing for 10 years and you see that there isn't really an application that can manage customer testimonials well, you can consider building one yourself.

Or, if you're a transportation manager and you see that there isn't software dedicated to helping transportation companies move their paper processes to digital, it might be a good idea to build something like this.

From here, interview people who match your target audience and get a feel for whether they would be willing to pay for your solution. This could be colleagues, bosses, or previous clients. That said, the best way to know if you have product-market fit is to just launch something and get it in front of customers.

Step 2: Build an MVP that solves this pain point

Building an MVP and seeing how the market reacts to it is the best way to understand if your product has the potential to achieve product-market fit. However, a common mistake we see founders make when launching their MVP is spending too much time and money on it only for their target audience to not like it.

This is why we recommend spending as little money as possible when building your MVP and getting it in front of your target audience quickly. Remember, people didn't pay you for your product yet, so you don't want to invest too much money into it. It doesn't matter if there are a few UX problems or a lack of integrations; you can always iron this out later. As long as your core features work and solve the pain points of your target audience.

It’s also a good idea to try to get potential customers to buy your product during the market research/testing phase. Too often, potential customers will be too nice by saying they’ll definitely buy your product. However, in reality, when you ask them to swipe their card, they'll be hesitant to do so. This can leave you pursuing an idea that people won’t spend money on.

So, it’s important to sell your product to customers early on in the MVP development process. You could offer exclusive lifetime deals for example, and if you have no trouble getting people to give you their credit card information, you’ll know you’re on the right track.

Step 3: Launch your full-scale product

The feedback you gather from customers during the MVP stage will facilitate product development until the launch of the full version of your product.

So, once you've given interviewees access to your product, convinced a few of them to buy, and gathered some feedback, it’s time to design your full-scale product.

You might not find product-market fit upon launch, but this extensive feedback gathering from customers helps you develop the best possible application for your target audience. As you gain customers, conduct more interviews, and bring in more sales, you’ll have the capital and additional feedback required to continue fixing any problems and out develop your competitors. 

This continuous development gives you the best shot at product-market fit and ensures you never lose it because you’re always keeping your product up to date with customer requirements.

5 Ways to measure product-market fit

But how do you know once you’ve achieved product-market fit? We recommend tracking the following metrics, as they will give you a clear picture of whether you've found product-market fit or not:

• Sales
• Customer churn rate
• Growth rate
• Market share
• NPS (Net Promoter Score)

Sales

The easiest way to tell if you've reached product-market fit is if you're making enough sales to offset business costs, reinvest money back into the business, and pay yourself a good salary. If you can do this, it means enough customers are buying your product for your business to grow without requiring outside funding like venture capital and loans.

Your sales figures will obviously vary depending on your industry, target audience, and what you're selling, but if you can keep the lights on without relying on outside investment, it's a sign that you've either reached product-market fit or you're very close.

Customer churn rate

Customer churn rate is the rate at which people stop using your product, and it's another good indicator of product-market fit. 

If you have a low churn rate, it means that your product solves all or most of your customers' pain points, and they are happy with your product.

On the other hand, if you have a high churn rate, it means there's something causing people to stop using your product, be it the lack of a certain feature or UX issues. You may want to conduct exit interviews with customers who are churning and try to understand why they are leaving, then fixing those issues.

Growth rate

Growth rate refers to how quickly your product's user base is growing and is another important metric to track when trying to understand if you've found product-market fit. Products that fulfill the needs of their target audience will naturally grow faster than products that don't, so it's a good idea to estimate how fast your competitors are growing and compare it to your own growth numbers.

Market share

Although not as important as sales, churn, and growth rate, it's important to keep an eye out for how much of the market share you've captured. If a significant number of customers stop using your competitor's product and switch to yours, it means you're solving their pain points better than the alternatives, which is another sign you've achieved product-market fit.

NPS

NPS (Net Promoter Score) is a metric that tracks a customer's loyalty to your brand by asking various questions like “How likely are you to promote our product?” and “On a scale of one to 10, how happy are you with our product?” 

If most of your customers say that they are constantly telling their friends and family about your product and they are very happy with it, it means you've achieved product-market fit.

Achieve product-market fit by deploying your MVP with Dome

The best way to find product-market fit is to simply build a product and get it front of the eyes of potential customers. 

Products are rarely perfect upon launch, so instead of trying to build the perfect product, continuously collect customer feedback and implement this feedback to build something that customers are happy with.

The easiest way to do this is with Dome's SaaS templates.

These templates allow you to easily deploy your application in minutes rather than weeks and it contains everything you need to launch your application; you don’t have to go through a tedious setup process. All you have to do is port over your existing application from Github.

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