For a fast-growing company, there are many highs (and lows) to navigate, and the path to scalability is full of milestones for product, revenue, adoption, and customer satisfaction that deserve celebration.
However, rapid growth can only take a business so far, and overinvesting in sky-high marketing budgets, lengthy sales-led motions, white glove service, and discounting to win and retain market share will all hit long-term profitability. The better way? Finding and optimising for product market fit (PMF).
Let’s start by defining product market fit. Often shortened to PMF, this is a widely used framework that measures how well a product satisfies the problems of its target persona, begins to generate demand, and can generate revenue profitably.
Put simply, PMF is about finding a sweet spot in a given market, but with strong ROI on any money, time, and resources spent to achieve that growth.
How do you know you have PMF?
The most widely known measurement for PMF was popularised by Superhuman back in 2018. It involves a simple survey that is sent to existing users and asks the simple question, “How would you feel if you could no longer use the product?”.
If 40% of respondents reply “Very disappointed”, the desired benchmark for PMF is met.
While this is a great starting point for a business to do a pulse check on PMF, product marketing is ideally placed in the business to dig into this in greater detail.
By segmenting your existing customers above and below the 40% benchmark, it’s possible to dig deeper into other revenue health and efficiency metrics, such as:
- Lifetime value (LTV)
- Cost to acquire (CAC)
- LTV:CAC ratio
- Average contract length (ACV)
- Sales funnel metrics
- Win rates
- Cost to serve
- Churn rates
- Discounting rates
- Retention rates
- Annual Recurring Revenue (ARR)
Warning signs of weak PMF, even if growth is strong
As outlined above, while growth is one critical measure, PMF is a tool to evaluate if that growth is scalable and efficient for the long term.
Some of the warning signs that may indicate that growth is not sustainable include:
- Churn increases, often disproportionately to growth
- Struggles to expand to new markets, personas, or verticals
- Repeated pinch points in the buyer and customer lifecycle slow down growth
- Aggressive discounting to win or retain customers
- Bespoke services and high-touch account management are needed for customers to achieve product milestones, e.g., manual reporting, hand-holding through onboarding, and manual enablement for new features
- Inconsistencies in how customers and users engage with the product
PMF in early-stage businesses
Initially, your business might find a small number of customers who are problem-aware, and your product solves their immediate business needs.
Sometimes, businesses conflate this “right to win” with PMF because the feedback from sales cycles is strong, and the types of customers fit the initial definition of the ideal customer profile.
A clear warning sign that there’s still work to be done in finding PMF could be that growth stalls beyond these initial early adopters, or various customers value different features and use cases.
What’s missing here is the consistency and scalability of true PMF, so it may be time to reevaluate.
- Are there opportunities to find the most consistent buyer and user journeys?
- Are there customers who seem like ICP targets but have a higher cost to serve that we should refine our ICP definition to reflect?
- Is the value of the product as described by messaging and positioning different from how customers describe it in their own words?
Maturing PMF
As a business looks to refine and evolve past the early stages of PMF, it reaches the maturing stage.
Here, the product is meeting market demand, but still relies on heavy support from sales, marketing, and service to hit required milestones.
For example, the business may be relying on cold outreach over inbound sales and referrals. Sales cycles may be longer, but average contract value stays flat, and the business is not seeing an increased ROI from greater internal investment.
Once again, with a greater data set and by looking at each stage of the buyer and user journey, a business can overcome these hurdles to optimise personas and how the product tackles their specific problems.
Strong PMF
At this stage, a company will see healthy metrics like Lifetime Value to Cost of Acquisition (LTV:CAC ratio) appear healthy.
Market reputation, referrals, and product strength mean that inbound sales contribute to growth. Investing additional budget sees incremental and efficiency gains rather than flatlining growth.
By investing in automation, AI-powered efficiency gains, and product-led growth, a company doesn’t have to rely on costly manual services to ensure a customer reaches product and lifecycle milestones.
Product marketing’s impact on PMF long-term
While everyone in the business should be measured for efficiency and scalability, product marketing is ideally placed to continuously iterate and measure market performance.
As well as running periodic PMF surveys, product marketing can continue to run qualitative and quantitative surveys, keep a keen eye on customer insights through interviews, shadowing, and joining customer advisory boards.
What’s more, by continuing to monitor the health of buyer and user journeys, product marketing can work with different owners of the customer lifecycle to improve efficiency and proactively improve PMF at scale.
