Finding and maintaining your product-market fit

Product-market fit (PMF) is an often referred-to business goal – but few companies have clarity about how to achieve it. However, marketing leadership can take four approaches to accelerate the iterative process toward achieving and maintaining PMF.

PMF has been defined in both qualitative and quantitative ways – but it’s essentially a point at which the market ‘pulls’ your product, rather than pushing it into the market. It’s an indicator of how much your customers depend on your product, how you retain them, how much they use the product, and how their use (and referrals) expands over time.

From my perspective, there are two aspects of maintaining fit: (a) Your offering, which needs to continually evolve to match the needs of your desired/ideal buyers (“inside-out” thinking), and (b) Your customer targets, who need to be continually adjusted and retargeted to match the value your product provides (“outside-in” thinking). Dynamically maintaining this fit needs to be a continual two-way back-and-forth process that the marketing organization is ultimately responsible to maintain.

The question is: How do you organize and maintain a marketing culture to achieve this? I have identified four clear steps that I’ll expand upon below:

Quantify how you’ll measure product-market fit
Measure leading (progress) indicators
Build infrastructure to instrument and measure indicators
Establish a culture and organization to promote a two-way product/customer dynamic

I personally like to think of PMF as a dynamic meeting (and continual adjustment) between your product and your ideal customers. Brian Balfour puts this concept best:

"This process never ends primarily for one reason - your market doesn't sit still. It is always moving. These days markets are moving/changing at an accelerating pace. As your market moves, your product needs to move with it making product/market fit a pulse that you need to constantly keep your thumb on."

PMF and the Marketing Function

Graphic showing different components of product-market fit

I see marketing’s overall role consisting of 5 conceptual PMF-related functions (not an org chart!) where the dynamic balance between inside-out and outside-in marketing functions meet:

Inside-out: Product functionality, features, and marketing infrastructure –
This entails working with product management and engineering to continually evolve the most important aspects of the product so as to meet customer needs.
Inside-out: Outbound communications of your offer –
Where you choose how to message and position your offer vs. competition and toward those who would consider your product. Adjust these messages to resonate with the market and ideal customer profiles.
Outside-in: Sensing the market –
Understanding of the market size, category types, segments, and competition. Communicate findings to product and communications teams to adjust messages.
Outside-in: Quantifying customer needs – Clearly defining ideal customer profiles, needs, pain points, and buying habits. Knowing what they respond to, and the value they’re seeking. Communicating this to product and communications teams.
Market Fit: Where you meet the market with the right product, value, channel, and price – This includes the Go-to-Market and sales motions to discover (and get discovered by) the right customers in the right market categories that match your product’s value. Ultimately, the inside-out and outside-in functions collaborate to ensure/maintain Fit.

Ultimately, it’s all of marketing’s responsibility to maintain PMF. For example, even Sales and Customer Success play a role in listening to customer needs, ideas, and frustrations, and feeding them back to product management. Demand generation teams will quickly inform product marketers as to whether the offer, pricing, and messaging resonate. Go-to-market campaigns need to synthesize messaging and customer profiles to deliver effective campaigns (and campaign feedback on results). It’s a team game.

4 actionable pillars to product-market fit

Pillar #1: Quantify your PMF

Finding PMF means determining how much ongoing value you provide to your ideal customer profile (ICP) – including customer engagement, retention, expansion, and referrals. So how do you quantify it in practice?

I like to think about PMF metrics as sensing long-term customer satisfaction and engagement, versus “vanity metrics” that usually only indicate sales and customer quantity. Examples should be Retention (vs. new user acquisition), User Activity (vs. passive user views), Active Use (vs sales conversions), and Net Retention Rate (vs. annual recurring revenue). All of the metrics here are important… it’s just that some are better at indicating PMF. (see more in Pillar #2).

There are two broadly accepted ways to measure PMF:

The “Sean Ellis test”: Ask existing customers (those who’ve actively used the product for 2 or more weeks) “How would you feel if you could no longer use it?” If 40% or more respond “very disappointed” then you are considered to have achieved “fit”. This metric is broadly accepted, although somewhat subjective.
Mark Roberge’s analysis: From his article The Science of Scaling: If P% of customers achieve E events within T time. For example, having P% of customers actively use a certain number of features (events) on a monthly (time) basis. A good target is > 40% (though your mileage may vary). This is a great quantitative metric to track using cohort analysis and is another key approach to gauging engagement and retention.

Whichever metric you opt for (both are good!) recognize that they aren’t achieved overnight. Maintain patience and direction with your teams as you monitor weekly/monthly trends.

Pillar #2: Establish your leading indicators to show progress

Since you can’t manage what you can’t measure, you’ll also need to monitor “leading” indicators that show progress toward your PMF goal. These are metrics that don’t give you a direct read on PMF but are practical to measure and tell your team that you’re heading in the right direction. Andrew Chen (of A16z) has written significantly about what to measure and recommends the following metrics:

User Retention Rate: User retention tends to drop off rapidly with time - but with products that are “sticky”, there is usually a plateau that they settle into. Ideally, your user retention cohort curves will flatten to a suitable rate, rather than ultimately drop toward zero.
Net Dollar Retention Rate >1: Measuring retention as well as upsell effectiveness. This metric takes into account churn as well as customer expansion. Whenever you exceed 1.0, you know that the rate of customer use expansion is outpacing churn.
Time-to-Upgrade: This is a newer metric based on a cohort analysis of customer upsell and/or new feature discovery and adoption. It essentially measures the time-to-the-second-dollar, indicating deepening customer engagement and stickiness.
DAU/MAU > 50%: Daily active use / monthly active use is at least 50%, indicating that the product is becoming part of a daily habit of customers. (Depending on your product, the denominator could be weekly rather than monthly). Again, a good metric for product stickiness.
Power user curve shows a “smile”: The “power user” curve indicates which users regularly use a certain number of product features. Typically the curve may decline over time – but satisfied “power users” will tend to come back to use again in the future… causing the curve to rise again after perhaps 30 days. This forms a “smile” with an upward curve over time, ultimately indicating a concentration of engaged longtime users.
Viral Factor: This measures the number of users you gain via referral, relative to the number of active users. A good goal is > 0.5 – while an outstanding, truly viral factor is >1.0. But even a 0.5 factor is a massive contribution to regular marketing outreach.

Note that the metrics might best be measured by organizations most closely monitoring the data. For example, NDRR is likely a sales/upsell/CS team, while Feature Adoption might be best measured by Product Management. Organizations should cooperate on what metrics to choose, who instruments them, and how/when the data is shared (see pillar #4).

Similarly, not all metrics are appropriate at each company stage. New businesses might place more focus on early Retention Rates and the Viral Factor, while more mature businesses may have an eye on Power User Curves and Time-to-Upgrade.

Pillar #3: Build your marketing technology/infrastructure

Metrics aren’t useful if there are no ways to regularly collect them. To achieve Pillar #2, you need to instrument your product, sales, renewals, and marketing campaigns so you can collect the data you’ll need. Hence I always recommend a dedicated Marketing Operations function. I’ve also developed a tech stack that’s based on product-market fit components, though there are other very good tech stack options, including one offered by the Product Marketing Alliance.

If you’re just getting started with MarTech, I recommend beginning by instrumenting your product using tools like Amplitude or Mixpanel, as well as instrumenting your website/customer journey with tools like Heap, and then work out from there.

Pillar #4: Tune your organization to sustain pillars 1,2,3

Graphic showing organizational frameworks for achieving product-market fit.

Finally, you need to organize your team so that the effort you put into people, processes, and technology will pay off. Consider these 3 focus areas:

Build a marketing culture and structure around PMF - Employees need to recognize that PMF is never-ending in terms of finding and maintaining fit - for different audiences, verticals, and product/feature sets. Everyone’s job is to understand market information and product resonance (outside-in data), as well as product features, value, and messaging (inside-out data) so that they’re constantly in tune. There is no marketing function that isn’t bi-directional – everyone has a hand in ensuring constant product feedback.
Organize using “Team APIs”- These are agreed-upon give-and-take information that’s exchanged between teams on a regular basis. First, define what joint goals/outcomes the two teams are collectively trying to achieve. Next, define the team “gives” and “gets” between each other, and finally, define the cadence (e.g. monthly or quarterly). Using this model, teams can always depend on the right information being exchanged, e.g. in support of the outside-in and inside-out PMF approach.
Set individual and team goals/OKRs that are outcome-based - Finally, individuals and teams will create goals/OKRs. But the devil’s-in-the-details when structuring them. A well-structured goal is based on an outcome, not an activity – in fact, it shouldn’t mention the “how” at all… just the outcome. For example, “1000 blog pageviews” is a well-worded goal, versus “publish 10 blogs”. The former is the desired outcome, while the latter is simply an activity that may not result in the desired outcome.

Get fit.

Most early-stage companies believe a great product will simply attract customers. The truth is, only the right customers will perceive it that way, and your job is to find those ideal customers. And then you’ll find that they actually ask for something a little different. And so begins the dynamics of maintaining product-market fit.

Marketing’s job is to do less “product push”, and instead to think more “customer craving” - that is, finding and maintaining the balance between the ideal product/features, and the ideal customer/user. If you do, you’ll enjoy more “customer pull” - stickier product, more loyal customers, and a healthier business.

Got any thoughts or questions about finding product-market fit that you want to share? Join the conversation with a global network of CMOs and market leaders on the CMO Alliance Community Slack channel.

Finding and maintaining your product-market fit: 4 actionable pillars

Ken Oestreich