Product Market Fit: How to Measure Your Success
The metrics and formula to check your product market fit
When it comes to product market fit, measuring your strategy is necessary to define your success.
Every business needs a product market fit to reach relevant audiences and generate revenue.
Product market fit in a nutshell
Before delving deeper, let’s discuss what product market fit is.
Product-market fit is finding the unfulfilled demand for a product or service the targeted market needs.
When a company discovers its product market fit, customers will buy, use, and recommend the product to others.
Product-market fit enables businesses to grow and scale sustainably, as they have a product that meets the market’s needs and generates revenue.
How to measure product market fit
If you want to check whether or not your product market fit is working, you can go several ways.
You can monitor and analyze some metrics to define your marketing results. Consider measuring crucial metrics like:
#1. Acquisition rate
An acquisition rate measures the rate at which new users or customers adopt your product.
In a business, high acquisition rates are necessary for sustained growth.
#2. Engagement
Engagement shows how often and deeply users or customers interact with your product.
High engagement levels indicate that users are deriving value from your product.
Also read: Create Audience Engagement to Get More Conversions With Videos
#3. Retention
Retention indicates the ability of your product to retain users over a period of time.
A high retention rate indicates that users are finding value in your product.
#4. Revenue
Revenue calculates how much users or customers are willing to pay for your product.
High revenue levels mean that users perceive your product to be valuable.
#5. Customer Satisfaction
Customer satisfaction measures how satisfied users or customers are with your product.
High customer satisfaction translates to more users finding value in your product and that it is easy to use.
#6. The 40 Percent Rule
The 40 percent rule calculates how strongly users or customers are attached to your product.
If at least 40% of buyers indicate disappointment when they lose your product, it shows a good product-market fit.
Also read: 35+ Experts Reveal the Most Important Video Marketing Metrics to Track
Calculating TAM
Total Addressable Market (TAM) is the total number of potential customers or the total revenue opportunity for a particular product or service in a specific market.
One common way to calculate TAM is using the bottom-up approach, which relies on sales and pricing data from the past.
The first step involves multiplying the average sales price by the number of current customers to obtain the Annual Contract Value (ACV).
Next, multiply the ACV by the total number of potential customers to get the TAM. Here’s an example to help illustrate this process.
For example, you’re an AI company that sells a content marketing tool to small businesses.
Your AI tool costs $50 per user monthly, and you currently have 100 customers with an average of 10 users each.
Therefore, your ACV is $50 x 10 x 100 = $50,000.
Then, estimate the total number of small businesses you list as your potential customers.
Let’s estimate there are 1,000 small businesses in your target market.
You would multiply your ACV by 1,000 to get a TAM of $50,000,000.
If you capture 100% of your target market, your potential revenue would be $50 million annually.
Measuring product market fit is essential to know if your strategy is worth continuing.
Use analytic pages and tools to monitor your business progress and do social listening to know how people value your product.
With comprehensive measuring and regular social listening, you can find room for improvements and make data-driven decisions to address the marketing holes.
