Startup words, jargon and slang, business english

What is a Product/Market Fit?

The meaning of product/market fit is self-explanatory at first: how much can your product satisfy the market demand. But what does that actually mean?

It’s the stage when a startup achieves to serve the target audience with:

  • all the key features of the product
  • USPs, that eventually convince the customer to use their product over someone else’s
  • the compelling business model which gives a reasonable price (i.e. not higher than the reservation price) for the customer as well as a sufficient margin for the startup.

Product/market fit describes the stage of a startup company where they have successfully identified a target customer and served them with the right product.

After achieving product/market fit, the next step is to scale by finding more customers within the target market through research (i.e. user feedback and interviews).

“What gets measured gets managed”. Can I measure product/market fit?

Yes you can, even though it’s not a simple equation. You first have to calculate your customer acquisition cost (CAC). You gain a p/m fit when this is lower than the lifetime value of your customers. Also, if existing customers are referring to your product and recommending it to potential users, your customer acquisition cost is decreasing since you don’t “pay” anymore for the new customers, who use your product via recommendations. Consequently, your net promoter score increases.

 

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