Not long ago, I was on the hunt for my next sales role, and it was entertaining to note the two different conversations that were happening during the interview process.
On the one hand, the interviewing team has all their questions lined up to try and figure out, “Can this guy sell?” And on the other end, all my inquiries are product-market fit questions — an attempt to determine “Is this product worth buying?”
Ask someone what they think a salesperson needs to be successful, and you’re bound to get answers like persistence, grit, hustle, and some ingenuity. Those things can definitely help, but I’d argue product-market fit is a far more important predictor of your success. So, let’s talk about what it is, how to find it, and how to improve it at your organization.
Table of Contents
- What Is Product-Market Fit?
- How To Measure Product-Market Fit
- How to Achieve Product-Market Fit
- Product-Market Fit Considerations for Startups
- Examples of Product-Market Fit
What Is Product-Market Fit?
In simplest terms, product-market fit describes a salesperson’s Promised Land, where a company’s product or service meets the critical need of a well-defined market. In this scenario, customers see a clear and significant value to the product. As such, they’re willing to both pay for it and recommend it to others in need.
I know that might sound too good to be true, but it’s out there, and this mythical land is known to contain a few unicorns. Here’s how to know if you’re in the right place.
How To Measure Product-Market Fit
Measuring product-market fit doesn’t have to be complicated. Follow these four steps to get an idea of where you’re at and where you need to be.
1. Talk to your customers.
One of the easiest ways to determine if your product is meeting a key need for your customers is to ask them. Conduct interviews, send out surveys, or solicit reviews from your current and past customers.
I recommend leveraging both standardized questions (like multiple choice, for example) and open-ended ones. The former will enable you to establish benchmarks that you can refer back to in order to gauge progress, and the latter will help you uncover detailed insights that you would never have gathered with just an A, B, or C response.
Pro tip: The 40% rule can help you determine if you’ve achieved product-market fit. If at least 40% of customers either say they would be “very disappointed” if they no longer have access to your product or service or they report considering it a “must-have,” you’ve created a product that has a good fit in the market.
2. Look closely at retention.
Products come and go, and a new product experiencing decent adoption could very well be a fad. That’s why retention is a critical metric to help you determine how important your product really is in the market.
Get a clear understanding of your retention rate, and determine if the lifetime value (LTV) of your average customer is continuing to rise or if it’s leveled off.
Pro tip: Retention rates can vary broadly by industry, but since I’ve spent most of my time in SaaS, I’d call 80-90% a good working goal.
3. Determine your Net Promoter Score (NPS).
A high net promoter score simply means that your customers are willing to recommend your product to other people in their network. To calculate your score, simply ask your users how likely they are to recommend you on a scale of 0 to 10.
Subtract the percentage of detractors (scoring 0-6) from the percentage of promoters (scoring 9-10), and you have your net promoter score.
Pro tip: If your users have experience with other solutions, ask them about your competitors to establish a competing NPS to benchmark your own performance against.
4. Examine adoption speed.
Take an honest look at your product so far. Has the market quickly adopted your solution, or has it taken a long time to get any wins at all? Perhaps even more telling, if you’ve released additional features, do existing customers quickly adopt them? Or, are you having to advocate for your updates and convince users to see the value in the work you’ve put in?
I know it seems obvious, but if you’re fighting an uphill battle, you haven’t achieved product-market fit. If your existing customers aren’t convinced of the value of the features in your roadmap, it might be time to reconsider the path you’re on.
How to Achieve Product-Market Fit
Conduct market research.
I’m going to keep this brief because it belongs in the startup considerations section below. Your company should have already checked this box. However, you’ll want to have readily available information about your ideal customer profile (ICP), different personas that fit that mold, the size of the total addressable market, and your current share of the market.
You should also have a fairly good knowledge of your competitors, their differentiators, and why some buyers in the market choose their solutions over your own.
Implement customer feedback.
The pointed questions you asked your customers in the measuring section will yield vital information. “Is the product a must-have?” “What would you use if our product ceased to be an option?”
Make sure you hear from several different buyer personas to avoid creating blind spots in your research, and if you get the same criticism consistently enough, implement changes to improve your product.
Combat churn aggressively.
Conduct a post-mortem whenever you lose a key account. Figure out what you need to do to keep the churn from happening next time, but don’t lose sight of your ICP.
Not all customers are a great fit, and I don’t mind letting some go if they’re either hindering growth or there’s honestly a better fit available for their specific needs. Customers will remember how you treat them, so look after their best interest. The goodwill comes back to you in the long run.
Lean on product-led growth (PLG).
As a salesperson, I’m a firm believer that sales-led growth has its place, and the right sales teams can produce incredible results in the right circumstances. For fledging companies, however, product-led growth can be a great way to go from a mere foothold in the market to a more robust product-market fit.
Essentially, PLG involves lowering barriers to entry for customers (often with a freemium version) and letting early and passionate adopters advocate for the direction they want the product to take. HubSpot for Startups customer Ecobot took this path, and CEO and Co-Founder Lee Lance reports that they’ve been able to turn free users into enterprise clients in just over a year.
Product-Market Fit Considerations for Startups
Starting a business is hard for a lot of reasons, but don’t make it any harder by wasting time and money developing a product no one wants to buy. I can’t stress enough how important product-market fit will be to your success, so follow these steps and make sure it’s an achievable goal.
1. Conduct market research.
What need is your product going to meet? Who has that need, and what’s it worth to this audience to have it met? Use market segments to define your product’s ICP and develop buyer personas for different customers in this group, so your team will clearly understand who it’s building for.
I know this step isn’t the most fun. Why research when you can learn by doing, right? Wrong.
Startups have a limited amount of time and money called a runway, and if the “plane” hasn’t taken flight by the time it gets to the end, the results are self-explanatory. If you take one piece of advice from this article, I hope it’s this: Don’t waste months of your time building for a non-existent market.
2. Gather intelligence.
Once you have a minimum viable product (MVP) or even a rough outline of one, talk to current or prospective customers to determine their pain points and how much they would consider paying for a solution to those challenges. Seek insights from your sales and marketing teams to identify recurring customer complaints.
Sean Higgins, CEO at BetterYou, defines the intelligence-gathering process in four steps:
- Analyze your product or service.
- Familiarize yourself with your competition.
- Choose segment criteria.
- Perform research.
Collect a large enough data sample to provide meaningful feedback. Consider, too, that face-to-face conversations will often generate feedback that online surveys will not. This stage is critical because it will inform both your overall business model and the prices you charge in that model.
3. Focus on a single vertical.
I have yet to see a startup where money isn’t an issue, and while I can’t make that issue go away, I can recommend you reduce your scope. Begin with a narrow focus and dive deep into one industry. Establishing your company in a single domain can serve as a great jumping-off point for expansion down the road.
For example, ChocoSol is an artisanal dark chocolate manufacturer and trader. Its founder, Michael Sacco, has worked to harvest cacao from Oaxaca, Mexico. He has extensive knowledge of what it takes to make chocolate in an ecological and dignified way. His company has established credibility in one area, and as a result, they’ve become renowned experts in the space.
4. Specify your value proposition.
Figure out how you can outperform your competitors and surprise your customers. Don’t lose sight of your product roadmap when determining which challenges you’ll address; not every problem will fit into your product’s scope.
For example, Oportun, a money management app, has a clear value proposition to help customers achieve financial stability and freedom with the simple statement, “Your money goals are our goals.” Site visits know immediately what the product is purporting to achieve.
5. Measure your product-market fit.
Identify key data points that will help you track performance on the journey to product-market fit. Start by identifying your total addressable market (TAM), otherwise known as the total number of people who can benefit from your product/service.
TAM is calculated by multiplying your average revenue per user (ARPU) by the total potential customers in the market. Once you have your TAM, determine what percentage of your TAM are current customers.
Once TAM is determined, the next part of product fit is product validation. You want to ensure that the product works and is usable and desirable to your target customer. Outside of the sales process, ask your prospects if they want or need this product by sending out surveys and conducting interviews.
Examples of Product-Market Fit
1. Spotify: Music for Everyone
Daniel Ek, CEO of Spotify, recognized that many of the necessary pieces for product-market fit were already in place when music-sharing platform Napster collapsed in 2001 following allegations of copyright infringement.
The content already existed, mobile devices stood poised to distribute the music, and Napster had amassed a sizable market of users. Ek believed in the possibility that this market of users would pay a small fee for a platform providing legal access to music.
As of 2024, Spotify has amassed 246 million paid subscribers — all thanks to a market need and product carefully designed to meet it.
2. Uber: The Free Ride
Uber captured product-market fit by initially offering free rides between regional tech events in San Francisco. Uber’s co-founders recognized that the taxi system was prohibitively expensive and outdated. Once the Uber app gained steam, the company offered 50% discounts to first-time users.
Experts point to Uber’s ability to solve a problem and create a need simultaneously. Consumers weren’t demanding a better taxi service, but users began to rely on the concept once a more convenient and simpler option emerged. The network effect kicked in, and users began sharing their experiences on social media, providing social proof for the startup.
To date, Uber has about 161 million active users, and the company recorded 2.87 billion rides in Q3 of 2024 alone.
In most cases, product-market fit doesn’t happen on the first try. You’ll likely have to test and adjust your product or service several times before you find the perfect combination of value proposition, customer base, and distribution. Continually experiment based on audience feedback, adjust your concept if your data dictates, and be prepared to pivot if necessary.
Finding the Fit
In my experience, when you achieve product-market fit, gravity just feels a little lighter. All of a sudden your customers feel like they’re on your team, and they become a significant part of your marketing effort as they share their stories with their network.
I know it can be a slog to put in the work and prove out the business hypothesis, but ultimately, it’s worth the effort. Especially in sales, once you’ve found product-market fit, things get fun, fast.