Complete guide to choosing the right product-market fit framework

It’s not easy to find a good job. It’s even harder to find one you love. But once you do, it’s like slipping on a glove tailored just for you. And you’ll want to do everything you can to keep it. That means showing up on time, putting in the extra effort, and never taking your boss for granted.

The same goes for products and markets.

Much like Goldilocks and her three bowls of porridge, product-market fit (PMF) is when you have a product/service that’s just right for your customers. They love it, sales are booming, and everyone is happy. It makes sense that once you find this sweet spot, you’re going to want to hang onto it for dear life. Because if you don’t, your competitors will gladly step in and take your place. So, how do you achieve this balanced product-market fit?

In this article, we’re going to take a closer look at creating a PMF strategy, including how to measure product-market fit and maintain it. So, if you’re ready to give your customers the Goldilocks experience (and we don’t mean being eaten by bears…), read on!

What is a product-market fit framework (PMF)?

Product-market fit is when your product satisfies a specific market need. In other words, it’s when you have a product that people want, need, and are willing to pay for.

To achieve PMF, you need to identify a consumer or business problem and create a product that solves it better than the existing solutions. Your product also needs to be accessible and affordable to your target market. Sounds simple, right? Well…

It’s important to note that PMF is not a static concept. It can change over time as markets evolve and new competitors enter the scene. You need to continually monitor your product-market fit and make adjustments as needed to keep your product relevant.

How to tell when you have product-market fit (and how to tell when you don’t)

A few key indicators can help determine whether your product has found its niche: 

1. People use your product regularly.
2. People pay for it (if it’s a paid product).
3. Customers talk about and recommend the product to others.
4. You’re seeing organic growth.
5. You have a low churn rate.

On the other hand, there are a few signs you don’t have product-market fit.

1. You aren’t seeing much growth, or it’s slowing down.
2. Your churn rate is high.
3. Current customers are using your product less and less.
4. You aren’t generating much (if any) revenue.
5. You aren’t getting much feedback from users.

Why is product-market fit important?

• It helps you attract and retain customers. If people love your product, they’re going to keep using it and telling their friends about it. That’s great for business!
• It boosts your sales. When people look for a solution to their problems and find your highly relevant product, they’re more likely to buy it.
• It makes you more efficient. If you know how your product satisfies market needs, you can focus marketing and sales efforts more effectively. You’ll spend less time and money trying to sell people a product they don’t need or want.
• It reduces risk. Developing a new product is always a bit of a gamble. But if you have PMF, that means people want and need your product. So, you’re more likely to succeed.
• It increases your valuation. When investors believe your product fulfills a real market need, they’re more likely to see the long-term value in your company. And that can mean big things for your business!

How to measure product-market fit

So, you have a great product and a good idea of key signs that things are going well (or not). But how can you be sure it’s hitting the mark with your target customers? Here are two approaches that will help you evaluate the health of your product. 

The Fuzzy Logic approach 

The most popular product-market fit framework is the FUZZY LOGIC model. This model takes into account 4 factors:

• The number of people who are aware of your product
• The number of people who have tried your product
• The number of people who have purchased your product
• The amount of satisfaction (or dissatisfaction) customers feel about your product

Using this model, you can get a rough idea (hence the ‘fuzzy’ in the name) of how well your product is doing in terms of meeting market needs. However, it’s important to note that this model isn’t perfect. Think of the information as a starting point rather than relying on it entirely.

The Kano Model

The second most popular framework for measuring product-market fit is the Kano model, developed by Professor Noriaki Kano. This model takes into account 5 factors:

1. Basic needs. These are essential features every customer expects from your product. Meeting these needs is a baseline requirement for success; anything above it is a luxury. It’s important to distinguish between the two, especially during the early days.
2. Performance needs. These are features customers want but don’t necessarily need. Satisfying these needs can make your product stand out from the competition and improve customer satisfaction.
3. Excitement needs. These are features customers love but don’t really need. For example, an e-commerce site might change buttons to bats in the days leading up to Halloween. Offering these features can make your product more appealing to customers and help you stand out from the competition.
4. Surprise needs. These are features customers didn’t know they wanted until they saw them in your product. Satisfying these needs can help you capture new customers and increase loyalty among existing ones.
5. Indifference needs. These are features customers don’t really care about one way or the other. Offering these features won’t make or break your product, but it’s still important to consider them carefully because investing in them won’t have much positive impact on your ROI. 

Both of these frameworks can be helpful in measuring product-market fit. However, they’re only models and shouldn’t be used as the sole basis for decision-making. Always use them as a starting point, and supplement them with other research and data.

How to find your crowd: two product-market fit frameworks for success

There are two primary methods for achieving product-market fit:

1. The Lean Start-up Method. This approach is similar to the Build-Measure-Learn method, but it also includes a focus on customer development. Not only do you measure customer feedback, but you also actively seek it out through interviews and surveys.
2. The Build-Measure-Learn method. This common approach involves building a minimum viable product (MVP), measuring customer feedback, and learning from that feedback to improve the product.

The Lean startup method

The Lean startup method helps you learn about your product and your market as you go. The key is to create a minimum viable product (MVP) you can use to collect feedback, measure progress in iterations, and make improvements within a shorter timeframe.

You should never stop measuring customer feedback. Even after launching a product, you should continue gathering data and improving your product so that it better meets customer needs.

The Lean method includes 4 overarching steps:

1. Measure your market.
2. Create your MVP.
3. Don’t force features.
4. Experiment with pivots.

1. Measure your market

First, find out if a market exists. We call this the Total Addressable Market (TAM). Your TAM is the total number of potential customers for your product. It’s a good way to measure whether or not you have an audience and/or potential for growth. To calculate it, you need to know:

• The size of your current market
• The size of your potential market (aka your SOM, or Service Obtainable Market)

To figure out the size of your current market, look at data like customer numbers, revenue, and market share. To estimate the size of your potential market, use things like population size, economic indicators, and technological trends.

Once you have these numbers, you can calculate TAM by multiplying the two together. This will give you an estimate of the size of your potential market.

There are other ways to measure market fit as well, but TAM is a good starting point. By understanding the size of your current and potential markets, you can get a sense of how well your product is doing. And if it isn’t meeting customer needs, you can adjust your strategy accordingly.

2. Create your MVP

The MVP is the most basic version of your product you can launch. It should include only the essential features, and it should be launched as quickly as possible. The goal of the MVP is to validate your hypotheses about the product and the market with the minimum spend possible.

Once you’ve launched your MVP, you need to start measuring customer feedback. You can do this via surveys, interviews, and user testing. Based on that feedback, you can then make changes to the product in line with your findings. Much better than taking a stab in the dark, right? 

3. Don’t force features

One of the biggest mistakes companies make is pushing too many features (a.k.a. ‘feature creep’) in early development, rather than adding them to the finished product after getting relevant feedback. Resist the temptation to add every single feature that customers ask for, or you’ll end up draining your funds, building an overly complex design, and running around in circles. 

The goal is to find the right balance between too few features and too many. You want to include enough features to meet customer needs, but not so many that the product becomes overloaded and complicated.

To find this balance, prioritize the features on your backlog. Not all features are created equally, so some will be more important than others. Prioritize based on customer needs and business goals, but also your resources. 

Top tip: Doing a cost-impact analysis can help you understand which features are worth implementing and which ones aren’t. This will help you focus on features that will have the biggest impact on your product-market fit.

4. Experiment with pivots

A pivot is a change in strategy designed to improve the chances of success. It’s important to experiment with different pivots until you find one that works, in much the same way that software developers and website designers use A/B testing. 

There are three common types of pivots:

1. The customer pivot: this is a change in the target customer base.
2. The market pivot: this is a change in the target market.
3. The product pivot: this is a change in the product itself.

Pivots are often necessary when companies realize they aren’t achieving the desired results. If you aren’t seeing the growth you want, it may be time to try a different pivot. The key is to be flexible and willing to experiment.

Remember to conduct quantitative and qualitative product research to validate each feature before investing time and resources into development.

The Build-Measure-Learn method

The build-measure-learn method is a cyclical process that helps you improve your product. It consists of four steps: 

1. Build something.
2. Measure how people are using it.
3. Learn from the data you collected.
4. Repeat.

Step 1: build something

Simply put, create a product you can test. You need to put something — anything — in front of your customers and start collecting data. This could be a prototype, an MVP, or even just an idea. The goal is to start gathering feedback as soon as possible.

Step 2: measure how people are using it

Once you build something, you need to start measuring how people are using it. This includes tracking things like user engagement, conversions, and bounce rates. You can use the data to determine whether or not your product is meeting customer needs. Again, a mix of qualitative and quantitative methods is your key to a fuller picture.

Step 3: learn from the data you collected

Now, it’s time to start analyzing the data and identifying trends. You can use your insights to improve the product. For example, do you need to add a new feature, simplify a key process, or expand options in an existing feature?

Step 4: repeat

The final step is to continue learning and improving your product, building upon its success with each design iteration. The goal is to keep repeating the cycle of building, measuring, and learning to make progress and achieve increasingly better results.

However, it takes time to achieve results, so don’t get discouraged if things don’t happen overnight. Keep repeating the cycle, and you’ll eventually see success.

How to maintain product-market fit with the ‘SaaS rule of 40’

Once you find your product’s sweet spot and sales are going well, how do you stay in this hallowed place?

The SaaS Rule of 40 is a guideline that helps companies maintain product-market fit using profit and growth. The rule states that for a company to be successful, its growth rate plus profit margin must equal or exceed 40%. This number should be relative to your overall business.

For example, if you’re a small startup with a profit margin of 35% and a growth rate of 5%, you might be hitting 40, but still have cause for concern with a growth rate that low. It could indicate something is off with your product or you’re not reaching the right market. On the other hand, if you reverse those numbers, it could be a sign your product is positioned perfectly, but your spending is too high or the product is priced incorrectly. You’ll either need to adjust or wait until you grow and can cool down on your spending

The SaaS Rule of 40 is a guideline, not a hard-and-fast rule. There are always exceptions, and there’s no magic number that guarantees success. However, it’s a good way to gauge whether or not your company is on track.

General tips for ensuring product-market fit

Consider a well-rounded range of factors when measuring PMF. For instance, does the product solve a real problem for customers? How well does it meets their needs? How much are they willing to pay for it, and how much price flexibility do you have?

Remember, there’s no single answer to the question of whether or not you’ve achieved PMF. It’s something you need to constantly assess and adjust as needed. Here are some additional tips to keep in mind. 

1. Segment your customers 

To market effectively, you need to know who you’re speaking to and understand what they want out of a product solution.

Ask insightful questions like ‘how would you feel if you couldn’t use our product an more?’ Those who answer ‘very disappointed’ will show you right away what your market fit is and who you should be tailoring your product for.

Once you have this group of people, get to work creating user personas for the main groups, using various demographics and data to group people. Once you have these, you can get to work on ensuring product-market fit for each group.

2. Get a good range of customer feedback

Getting feedback from customers is essential for understanding whether you’ve achieved product-market fit. After all, it’s the customers who will ultimately decide whether or not your product is a success.

Talking to existing customers is one of the best ways to get feedback and see what they think. If people consistently use and enjoy your product, that’s a good sign that you’ve achieved PMF. This data can also help you work out what’s holding back others who are on the fence about trying your product. Armed with this data, you can start addressing these concerns.

3. Create a product roadmap

A product roadmap is a document that outlines your plans for the future development of your product. Take into account things like customer feedback, market trends, and your business goals. 

Having a roadmap will help you stay focused on achieving product-market fit and ensure you double down on the features your target market loves without distractions. Keep the feedback going so you can measure the positive impact of your changes. And they’re easy to create using a product roadmap template.

4. Pay attention to your customer CPA and churn rate

Your customer CPA (cost per acquisition) is the amount of money you spend to acquire each new customer. If this number starts to go up, it could be a sign that you’re having trouble achieving product-market fit. 

Of course, you have to spend money to make money, and in the early stages, your marketing and sales spending will be high as you raise awareness. Our tip? Don’t get too hung up on CPA. Many companies assume the lower the better, but that’s not always the case.

In some cases, a higher CPA can indicate that you’re targeting high-value customers. Plus, markets change, and easy customers get snapped up, which means you might need to spend a bit more to discover and target new audiences.

Churn, the number of people who stop using your product over time, is another important metric to keep an eye on. If you have a high churn rate, that’s a sign people aren’t finding your product valuable, and you may need to make some changes.

5. Set attainable goals 

Trying to achieve product-market fit can be a bit of a chicken-and-egg situation. You need customers to validate your product, but you need a product that people want in order to get customers. So, it’s important to set attainable goals that keep you moving forward even if you don’t have everything figured out from the start.

When it comes to goal-setting, it’s important to have a good understanding of your TAM, your Serviceable Available Market (SAM), and your Serviceable Obtainable Market (SOM). 

SAM is the size of the market you’re able to reach with your current product. Understanding you SAM helps you determine how much room you have to grow. SOM is the size of the market you can realistically capture with your product. Knowing all three figures will enable you to set realistic goals for growth.

6. Use diagramming tools 

Diagramming tools are invaluable for mapping out the user flow and seeing how everything fits together. This can be an effective way to visualize goals and user journeys and turn your dense data into something that’s easier to digest.

With Cacoo, you can create user personas, user journeys, and Kanban boards and collaborate on virtual whiteboards — all from one easy-to-use tool.

By taking the time to assess product-market fit, make adjustments, and document your progress, your team can have the best possible chance of success.