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How to quantify product-market fit
How do you know how much Product Market Fit your product has? Yes, there’s a way of knowing it. Let’s dive in 👇
Theoretically nobody is going to say “Here’s how you calculate PMF”. Yet it’s what we, product builders, all seek. The question “do we have it?” keeps us awake at night.
The closest version of measuring PMF is explained by Brian Hale in an episode of Harry Stebbings 20VC show (ps: really recommend).
Brian says “your percentage of retention is your percentage of product market fit”.
Acquisition is hackable, but users only stay with products that actually fit their needs and solve their problems.
It’s all about measuring what you qualify as “retained customer”, over a period of time, based on cohorts, and tracking its progress.
Is it going up?
Are we improving the curve in the same timeframe?
Are we reducing the slope of the curve as we get there?
It’s likely the best approach you’ll have to quantify product market fitness in a way that correlates with revenue growth, decreasing CAC, and growing LTV.
The next level is merging NPS with retention. You can retain 100% of customers that simply hate you, but have no other option. It’s called a monopoly. You can also retain 1% of customers that absolute love you. It’s called over-segmentation.
Your role as a PM is asking “how can I get both growing?”