Casey’s Guide to Finding Product/Market Fit

https://caseyaccidental.com/caseys-guide-to-finding-product-market-fit/

The Quantitative Approach to Product/Market Fit

So, for most businesses, instead of measuring satisfaction, measuring retention is the best signal of product/market fit. Measuring retention is pretty easy. Perform a cohort analysis, graph the curve over time and see if there is a flattening of the retention curve. As I’ve discussed before, what you measure for your retention curve matters quite a bit though. For your product, there is usually a key action the customer takes in a product that best represents product value.

• For Pinterest, it was saving a piece of content.
• For Grubhub, it was ordering food online.

For your product, there is also a natural frequency to product use.

• For Pinterest, we eventually determined that people would browse sites for topics of interest on a weekly basis.
• For Grubhub, people usually ordered food once or twice a month.

Once you have a key action and a designated frequency, the cohort graph should have the key action as the y axis and the designated frequency as the x axis. This does not mean companies should ignore other measurements of satisfaction, but to understand definitively what product/market fit looks like, this is the best start.

If you’re not growing, you definitely do not have product/market fit. So product/market fit cannot be measured by retention alone. That retention has to create sustainable growth, which means the rate of retention matters. Why does the rate of retention matter? Well, most acquisitions of new customers come directly from retained customers through a few key acquisition loops. Either retained customers:

• talk about the product to others to attract them to the product
• invite people directly to the product to attract them to the product
• create content that they or the company can share to others to attract them to the product
• make the company enough money that the company can invest that money into paid acquisition or sales loops with a healthy payback period to attract them to the product

Sustainable growth is measured by one or more of these loops growing the size of your monthly acquisition cohorts month over month with a flattened retention curve. A flattened retention curve of your key action at the designated frequency plus month over month growth in new customers is the best way I have found to measure true product/market fit. If the rate of retention can’t support acquisition loops that continue to scale new users, retention needs to be improved to find product/market fit. Some companies can scale with 10% retained users, and some may need 40%, all depending on the strength of the acquisition loop.