Understanding product-market fit – what is it, and why is it important?
Product-market fit is the level in which the product meets the demand in the market. For the perfect product-market fit, customers understand the usefulness of a product and get to terms with its value. When they value the product, they will be repeat customers or spread the information to other customers.
As much as most companies create products to meet demand, not all products are needed in the market. There are also products that are useful, but customers do not derive much value in them.
Product market fit is needed for a company to thrive because it is directly related to the product’s growth and profitability. That is why many venture capitalists demand that startups give an evidence of a product-market fit before the can invest in the startup.
There are only one in twelve businesses that survive to the end of the road. The success is defined by a need of the product. Up to 42% of startups fail because of lack of a product-market fit. Those startups felt that customers do not need their products and that made them irrelevant. That means that before developing a product you should ensure there is a need for it.
Finding the perfect product-market fit takes time, which makes it costly as they will need 6-12 months. Through our service, we can do it 70% faster which will help them save money.
Can product-market fit influence the success of your business?
Just as mentioned before, it is hard for your product to make it if it is not aligned to the customer persona. Some of the ways in which a product-market fit will influence the success of your business include:
Marketing/advertising
The right product-market fit will have an impact on the success of your marketing efforts or advertising. If your product-market fit is not right, it is very easy to advertise to the wrong target group, hence attracting the wrong buyers leading to high churn rate and poor retention. It is only with the right product-market fit that you will achieve an accurate market messaging which leads to the right value proposition.
Low customer acquisition costs
When you have the perfect product-market fit, customers will see the value in the product and that may lead to freebies such as free media coverage, and word of mouth advertising. They will drive up your sales at no extra cost.
Growth Rate
How your company will grow will depend on your product-market fit. If it is right, then you will achieve efficient growth with proper allocation of resources and right positioning.
Churn rates
When you have low churn rates it is an indication that you have the right product-market fit and vice versa. It means that clients will be happy with the product and that begins with having the right buyer persona.
How do you know you have the right product-market fit?
There are many startups that struggle but are still unable to pinpoint the source of the problem. As mentioned earlier, most of the time it is because of lack of a product-market fit. So how do you know you have a product-market fit?
Faster growth
When you have the right product-market fit, you will grow fast since customers will see value from your product and hence, they will come back for repurchase and they will also spread the word through word of mouth leading to faster growth.
Low churn rates
When you have a high churn rate, you will notice that you do not get any repeat customers or you get a low subscription rate. That is because customers are not able to derive value from your services. When you have a product-market fit, customers will be happy with the product or service and hence there will be a low churn rate.
How to create a product-market fit
If you feel your startup does not have a product-market fit, do not worry about it as you can fix that. There steps that you can take to discover and create your product-market fit. They include:
Fill a need
Most of the time, a product is created to fulfil a need. It is your responsibility as an entrepreneur to maximize on that. You can either take the step of doing iterations of the minimal viable product (MVP). If you do not see clearly the need or you feel that priorities of the market have changed, then its your responsibility to customize or make changes to the product so that it is suitable for the market.
Build a unique value proposition
Why would customers choose you over competitors? Because they feel there is a value, they can get from you. That means you should strive to show customers they can get a unique value from your product. You also need a competitor analysis to understand your competitors to develop a unique selling proposition and have a winning marketing strategy.
Get the right target niche
One of the easiest ways to know your target niche is to identify who can relate well with your value proposition. You might have to do a customer research to know the kind of people who might be interested in your products. There is certainly a niche or demographic that will need your product more.
Build your persona
It is not enough to know your niche market; you also need a definition of the ideal customer for you. What are their habits? What influences their buying decisions? What is their budget? What trends influence them? Once you define your ideal customer, it will be easier to put yourself into their shoes and that can influence how you customize the product.
Do a test in the real world
As much as you may have all your facts right, it is only through testing that you can prove your hypothesis works. That means you should be ready to do tests as much as possible. When doing the tests, it does not end on the product but also on the marketing campaigns, marketing messages, experimenting the product in different markets etc. when doing the tests, strive for as much customer feedback as you can as that will give you a heads up on what to do. If you do a test and you still don’t feel you are getting much value then repeat the previous steps.
How to measure product-market fit
Even though you might have created the perfect product-market fit, it does not end there. You need to keep track to measure its performance to know if there are any adjustments that you need to do. Some of the metrics to track to measure the performance include:
Churn Rate
It is the customer percentage that leave your service over a certain period of time. If you are experiencing high percentages, it means there is something off about your product-market fit. Regardless of how perfect the product is, it will experience some churn rate. It should be reasonable and not so high. That means you also need to work on the Net Promoter Score to help keeping your churn rate low.
The retention rates
You can measure that by identifying how long a customer subscribes to a service or the rate of repeat customers that you have. A low retention rate or short subscription rate means that you need to work on your product-market fit.
Customer Life Time Value
The customer LTV is the total amount of money you expect from a customer the whole time they have your product. It is the main determinant that companies use to decide how much they can spend on customer acquisition. When you have a high LTV, it is even better for you as it means your product-market fit is perfect.
Customer Surveys
It is only through the end users that you will know if you have the right product or not. That means customer research is inevitable. Asking the right questions to the right audience will help you a great deal.
Mistakes to avoid when creating a product-market fit
Ignoring pricing
Even though you may have the perfect product-market fit, you should strive to price intelligently so that there is a balance in pricing. The price has a big influence on the performance of the company. It should be a reflection of the product value. It should not be too cheap or too expensive.
Lack of flexibility
When creating a product-market fit, nothing is a straight line. That means you should be willing to make changes to get your target. You should be ready to change your messaging, pricing and value proposition from time to time.
Treating product-market fit as the end goal and not a process
Many companies fail to know that product-market fit is an endless process. That means you should treat it as an end goal but rather a process. You should also not be complacent once you achieve it but be willing to roll up your sleeves when required.
Not measuring well
As much as you have to measure to know if you have the right product-market fit, you should avoid getting opinions from the wrong places. You should just target opinions from your perfect buyer persona.
Conclusion
As we clearly know by now, product-market fit is paramount for the survival of any company. At Sulma & Sulma, we help companies find the perfect fit in a short time. We have a team of experienced experts that ensure that so that your business can remain profitable. We have experience across different industries and products hence we can easily help you find a unique selling point. We have many happy customers and you can join the band and become one of them.
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