The concept of product-market fit (PMF) is crucial for any business looking to launch a new product or feature. PMF is the value that a given product provides in addressing a specific market segment’s need. In other words, it’s the extent to which a product meets the needs of a particular market.
Many people have misconceptions about PMF. For example, some people think that PMF is about getting everyone in a market to use a product. In reality, PMF is about providing value to a specific, definable market segment.
Another common misconception is that PMF is a binary metric. In other words, people think that a product either has PMF or it doesn’t. However, PMF is actually a measure of value, and products can be more or less valuable.
In my experience I’ve found that tracking PMF in any business is helpful to understand your customers and trends. If the metrics I am about to describe are declining, you have a problem. So capture PMF systematically and regularly, spark discussions with your product and go-to-market and sales teams, and identify ways to improve your offering.
So how do we evaluate PMF? One way is to analyze user activity data. If people like a product, they will continue to use it. Therefore, it’s important to have a clear definition of what it means for a user to be “active” on a product. For example, an active user might be someone who logs into a product at least once a week.
Once we have a definition of an active user, we can look at three key metrics to evaluate PMF: stable retention, sustainable growth, and deep engagement.
Stable Retention
Stable retention is the percentage of active users who continue to use a product over time. For example, if a product has a stable retention rate of 80%, that means that 80% of the people who use the product will continue to use it the following week.
To calculate stable retention, we can use the following formula:
Stable Retention = ((Number of active users at the beginning of the week) - (Number of active users who churned)) / (Number of active users at the beginning of the week)
Sustainable Growth
Sustainable growth is the rate at which a product is gaining new active users. For example, if a product is gaining 1,000 new active users per week and has 10,000 users, it has a sustainable growth rate of 10%. You would typically measure this over a much longer time span though.
To calculate sustainable growth, we can use the following formula:
Sustainable Growth = (Number of new active users) / (Number of active users at the beginning of the week)
Deep Engagement
Deep engagement is the level of engagement that active users have with a product. For example, a product with deep engagement might be one where users spend a lot of time on the product, or one where they complete a lot of actions within the product.
To calculate deep engagement, we can use the following formula:
Deep Engagement = (Total number of actions taken by active users) / (Number of active users)By analyzing data on these three metrics, we can evaluate the product-market fit of a given product. It’s important to remember that PMF can change over time, so it’s important to continuously monitor and evaluate it.
In conclusion, product-market fit is an important concept for businesses looking to launch new products or features. By analyzing user activity data, we can evaluate PMF and determine whether a product is providing value to a specific market segment. PMF is not a binary metric, and it can change over time, so it’s important to continuously monitor and evaluate it.
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