Product-market fit: what it is and how to find it

American entrepreneur and investor Marc Andreessen, who coined the term 'product-market fit' in 2007, defines it as “finding a good market with a product capable of satisfying that market.”

This comprehensive article will serve as a guide and tell you what product-market fit means for your product and how you can achieve and measure it to create customer delight.

What is product-market fit? 

Product-market fit happens when you build the right product to solve customer needs. Discovering the perfect product-market fit often distinguishes market leaders and top brands from the rest. 

It’s a really simple concept, but it’s difficult to achieve in practice—and a large part of the difficulty comes in being able to truly understand your current and potential customers so you can accurately address their needs. Getting there is a process that involves a lot of research and no small amount of effort from a product team.

Why is achieving product-market fit important for your business?

Product-market fit is important to identify whether you’re building a product that solves a real problem your customers are facing, or if you need to develop it more to reach the point of customer delight.

Here’s why it’s worth the product team’s time and effort to achieve product-market fit:

• Strengthening customer-product relationship: to achieve product-market fit, do user research to understand the psychology behind the customer’s specific needs—and how your product can help solve them. Designing a product with this in mind should strengthen the customer's relationship with the final product.

• Growth in the customer base: achieving product-market fit means your product is in a unique position to fulfill a need—and delight customers—which will naturally contribute to a growth in sales.

• Recognition in the market: one of the biggest indicators of product-market fit is that people are talking about your product and referring it to friends, family, and colleagues. This word-of-mouth promotion enhances your brand’s presence in the market and helps establish you as a leader in your industry.

6 steps to achieve product-market fit 

Product-market fit doesn’t look the same for every business or product.

Each product has its own market with varying customer needs and purchase trends. For example, a fashion ecommerce product may need to address customer needs around pricing, while a fintech SaaS product may have functionality-related priorities to address to satisfy its target customers.

So, it’s safe to say that product-market fit doesn't follow a linear method, and trying to find it can be challenging.

While there’s no quick-fix or easy answers for how to find it, here are six steps you can follow that will set you on the right path:

1. Define your target customer

The key to building a product your customers will love is to know who your customers are.

Do some market and competitor research to get an idea about your customer's needs and what solutions they currently use—and how your product can fill the gaps.

Once you have a basic understanding of who your customers are, define your buyer persona—a semi-fictional profile of your ideal customer based on psychographics, demographics, buying capacities, interests, and purchase history.

2. Understand your customer’s needs

Defining your ideal customer persona isn't enough. To build a product your target audience will love and want to buy, you need to go beyond who they are and identify their most significant needs.

It’s not viable to create a product for an existing solution in the market. Identify your ideal customer's pain points and build a solution to fill the gap in the market.

You can begin understanding consumer needs by learning from your customers: conduct customer interviews, perform product research, place on-site surveys on your website, and study behavior analytics.

3. Identify your value proposition

Your value proposition, or unique selling point, separates you from the competition and gives customers a significant reason to buy from you.

Ask yourself these questions while defining your value proposition:

• What are your customers' biggest pain points?

• What features and benefits does your product offer?

• What makes you stand out from the other products offering the same solution in the market?

• Which of your features or solutions address the customers' pain points effectively?

• Why should customers buy from you specifically, and not your competitors? For example, does your company match charity donations, or use sustainable materials?

These questions will help you understand what makes you different and why your product is best suited to solve the customers' problems.

A good practice for defining your value proposition is to offer something that the users are not already getting from other products and can significantly improve their lives. 

For example, Slack is a communication platform with a value proposition of being more productive with less effort. To build that value proposition, Slack first had to understand the pain caused by the siloed nature of communication within businesses and its effect on productivity. By making it very easy to send instant messages to people across an organization (and beyond), Slack solved a clear business pain point for their customers, increasing workplace collaboration and productivity—top priorities when you want to build a strong remote team.

4. Outline and build your Minimum Viable Product (MVP)

Use your product research, buyer persona knowledge, and value proposition to build a version of your product with only the basic functionality—this is your minimum viable product (MVP). It can help you:

• Move faster in the product development journey by testing core features sooner

• Prioritize features effectively by understanding which resonate with customers

• Base your product decisions on customer feedback rather than assumptions

This MVP will help you get validation for your ideas and features so you can improve them in the final product and get closer to achieving product-market fit. It’ll also allow you to test the waters before diving into the market with a full version, which brings us to the next point.

5. Test the MVP with potential customers

Now that you have the product prototype, it's time to test it with real customers.

Launch your MVP with a small target audience to get their feedback on the product. You can collect feedback through interviews, surveys, and feedback widgets—or product experience (PX) insights tools like heatmaps and recordings.

The idea is to understand if your basic product is helping the customers—and if it's not, which improvements you can introduce in the final product to help bridge the gap.

You can also use your MVP to test your value proposition and ask customers what they think about your product, how it addresses their needs, and what changes you should bring around to meet their expectations.

6. Iterate and improve 

Testing your MVP will help you gather authentic customer insights and opinions about the product to understand which features you need to prioritize and the changes you need to introduce to achieve product-market fit.

Use the data you collected in the previous step to create a product roadmap and break it down into product stories as you develop a backlog to help you prioritize the workflow to maximize time, energy, and resources. . 

Establishing a roadmap boosts continuous discovery—gathering information about your customers to validate and refine your product ideas. Here’s how you can do this:

• Build a discovery team that includes a product manager to focus on business needs and goals—such as increasing revenue or product adoption—a designer for prioritizing user experience, and a tech lead to offer feasibility ideas

• Ensure your team is consistently looking for new ways to refine their product ideas by being connected to the product vision

• Encourage your team to dig deeper and identify the why behind each customer's needs instead of taking your understanding of customer feedback at face value

This helps you increase  customer satisfaction levels,   and create a a product your users love and can’t live without.

Finally: check in with other teams and stakeholders (not just the product team) throughout this six-step framework to ensure everyone understands what they’re working towards and why, and can bridge the gap between where your product is and where your customer wants it to be.

Why cross-functional collaboration is vital to achieving a strong product-market fit

The product manager and their team aren’t solely responsible for achieving product-market fit—it’s a collective win accomplished through a collaborative effort. 

Product-market fit isn't just about creating a product to sell, but also developing the product’s design, presentation, and marketing. Align your product, marketing, sales, customer management, and design teams to reach a point where you can proudly say you’ve achieved product-market fit. 

Here’s how you can promote cross-functional collaboration across your organization:

• Create a centralized communication structure: it can be challenging to coordinate tasks and keep everyone in the loop with multiple communication channels. Instead, streamline communication by investing in a tool like Slack and integrating it with third-party tools like Trello and Hubspot for efficiency.

• Set clearly defined shared goals and metrics: having shared goals—and shared metrics to measure their effectiveness—is essential for managing initiatives. They enhance transparency and clearly define what each member is responsible for in a cross-functional environment. Department heads can create a collective document to align goals and related metrics to measure progress and avoid confusion.

• Organize regular data-driven meetings: data-driven meetings use empirical evidence to back team decisions and progress rather than opinions and gut feelings. You can democratize data to make it accessible to everyone in the team. This approach to including data in your meetings helps align initiatives effectively in a cross-functional environment because everybody understands why certain decisions are being made, or certain initiatives are being prioritized. Before every meeting, ask objective owners and team leads to analyze the data from their product-related activities to discuss insights and next steps. Organize these meetings weekly or bi-weekly to check progress, address concerns, and ensure goal alignment.

How to measure product-market fit

There’s no standard metric that can tell you whether you’ve achieved product-market fit. 

But some qualitative and quantitative metrics and measures can tell you if you’re moving in the right direction to achieve product-market fit. Let’s take a look:

Quantitative metrics and measures to check product-market fit 

1. Churn rate: the rate at which people stop being your customers. A high churn rate means customers are not enjoying your product—be it features or customer service—because they’re moving away from it by unsubscribing or canceling renewal. A high churn rate can indicate that you aren’t achieving product-market fit.

2. User retention rate: the percentage of users who continue using your tool or app after signing up for it. A high user retention rate means customers are happy and want to continue using your product, which might suggest you have found a fit.

3. Growth rate: growth in variables like sales and number of customers over a specific period. A high growth rate means your product sales are growing quickly, which could mean you’ve found a great fit. 

4. Market share: the percentage of total sales in the market generated by your company. A high market share means customers prefer you over other products, making you a key player in the industry. A dominant market share is a huge indicator that you’ve arrived at product-market fit.

5. Net Promoter Score (NPS): a metric used to understand a customer’s loyalty to your product through rate of recommendation and promotion. A high NPS suggests customers love your product and are generating positive word-of-mouth through referrals.

Qualitative metrics and measures to check product-market fit

1. Referrals and word of mouth: the more customers come to you through referrals, especially loyalty programs and word-of-mouth, the more your product grows. You can use surveys and other feedback-gathering tools to find out how your customers arrived at your product and whether they’d recommend you to friends and colleagues.

2. Media coverage and publicity: if you’re getting a lot of calls from media publications and are often mentioned on social media and internet news channels, your presence increases and contributes towards the company and product growth.

If you have a high percentage, rate, or score in these quantitative and qualitative metrics, then it’s likely you’re on your way to finding product-market fit.

Apart from the metrics and measures you can track above, these positive signs could indicate you’ve found a product-market fit:

• You need to hire more customer and sales representatives because your current team can’t handle the volume of interest in your product

• You need to invest in an advanced tech stack to serve customers more effectively

And these red flags could indicate you haven’t achieved product-market fit and need to troubleshoot the process and work on it again:

• Lack of customer satisfaction: if you’re getting complaint emails, negative reviews, or refund requests, or if your customer service reps are overworked solving major problems, your customers are clearly not satisfied. Get some feedback, try to understand the source of the problem, and revisit the product-market fit framework.

• Low product usage despite high iteration: if you’re constantly iterating, improving features, and even introducing new ones, but customers are still not using your products after signing up (or your churn rate is high), you need to reexamine your product roadmap. It’s also possible that the issue lies in your initial MVP, with subsequent features building on faulty analysis of customer needs.

• Elongated sales cycles: your marketing game is on point, and your iterations are getting good feedback, but you cannot translate leads into paying customers. This can indicate a problem in the sales or marketing process or a broken product sales funnel. Like we said, product-market fit requires cross-functional collaboration, so ensure your product team is in touch with other areas of the business to learn from their struggles.

3 ways Hotjar helps you move closer to product-market fit

By now, you understand how vital achieving product-market fit is for your product—and that doing so requires you to understand your customers. This is where tools like Hotjar can help. 

Here are three ways Hotjar can help you move closer to achieving product-market fit and guide you on your journey to product success:

1. Heatmaps: identify low satisfaction points

Heatmaps show you how customers interact with your website and where they spend most of their time in your product, so you can iterate, improve, and prioritize brilliantly: moving even closer to achieving product-market fit.

Heatmaps are color-coded visual representations of user behavior on your website. If you want to study which website elements are causing drop-offs or high bounce rates, Hotjar Heatmaps can help you identify and fix them.

Heatmaps help identify low satisfaction points—maybe people aren't clicking on your most important call-to-action button like you anticipated, or they’re just scrolling through your product walkthrough on the website. Heatmaps show you this and give you the consumer insights you need to create a brilliant product for your users.

2. Session Recordings: view the product from the customer’s eyes

Hotjar Session Recordings show you a replay of how individual customers interact with your product—where they click, how they move their mouse, how they scroll, and where they encounter bugs and issues. Recordings give you direct insight into what the customer is experiencing while they use your product.

There’s nothing that promotes empathy for your customer more than seeing your product through their eyes—and recordings allow you to do just that.

Use what you learn from recordings to identify pain points or issues with your product, or develop ideas for improvements and iterations, all of which will make the product more user-friendly.

3. Surveys and Feedback: test effectiveness and hear directly from customers

What if, instead of making assumptions, your customer’s voice could guide you through the product development process—highlighting where you’re going wrong, what more they need, and which issues they’re facing? Surveys can help you reduce assumptions and truly understand your users.

Place on-site surveys on specific product pages to ask customers questions that'll help you understand what they think of your product or your latest iteration. Use this first-hand, voice of the customer (VoC) feedback to iterate and improve your product.

To get even more in-context feedback on your pages without interrupting the product experience, use a Feedback widget—which is like a real-time suggestion box. 

The feedback widget captures customer feedback to understand their problems and pain points with specific page elements so you can make improvements or collect ideas for entirely new solutions.

The secret to successful product-market fit

Achieving product-market fit is key to product success—but it is not a shortcut through the customer journey. 

You must keep in mind that achieving product-market fit doesn’t mean you have a perfect product: you still need to work on customer service, improve your existing features, address customer feedback, and give them new reasons to continue being a customer. 

Continuous discovery is essential when it comes to building a product and features that delight customers—the process of soliciting customer feedback and monitoring user experience should be ongoing. 

Achieving product-market fit is a significant first step to ensure your product has value and to help your business get ahead of competitors.