What metrics do you look at to say that you’ve achieved product-market fit for a totally new product?

Ah, the elusive product-market fit…what Mark Andreesen once called ‘the only thing that matters’.

Broadly, there are two components that I look at: a defined and interesting market with a clear problem to be solved; and a capability (or product) that meets the need in the market.

With this in mind, the first metrics I look at are associated with the market. These metrics include Total Addressable Market – TAM, for short – and the competitive landscape. I find these two areas are good proxies that signal the market opportunity. For example, if the TAM is small or if the landscape is littered with competitors that have commoditized, undifferentiated offerings, then that is a signal that achieving product-market fit will be challenging and will require a disruptive product to reshape the category.

Next comes the capability that the company is offering the market. When I launch new products, I look at metrics associated with my messaging and how it is resonating with audiences. My former PayPal teammate, Matt Lerner, who is now the CEO of Startup Core Strengths, wrote a compelling article on finding language/market fit as a first step in achieving product/market fit – I refer to this piece often. At this stage, I’ll also look at demand metrics such as cost per acquisition. Of course, I know I’ve reached product-market fit when the product is flying off the shelf, so sales metrics are critical: pipeline coverage, deal velocity, win rates, and customer acquisition costs.

Finally, I know I’ve achieved product-market fit when customers are satisfied and they are expanding usage of the product. So, I look at Net Dollar Retention as well as Net Promoter Score and Customer Satisfaction scores.

This is a great question and totally depends on company stage. But for really early companies like seed stage or A-B, I think WAUs can be a solid metric. I also have fallen quite fond of superhuman's PMF survey where they:

"How disappointed would you feel if you could no longer use [x software]?

Possible choices: 

• very
• somewhat
• not disappointed

If your org gets on average 40% of survey responses are VERY dissapointed to no longer have your software - that my friends, is product market fit!

Some lesser known ways:

• A new metric my team is looking into is TAM (total addressable market) vs. SAM (sellable addressable market) and the delta between the two. The smaller the delta, the better the product fit.
• If customer acquisition cost is lower than the lifetime value of your customer
• User adoption (make sure you define the right base audience first) x value (could be Customers who buy that feature) = feature success

Some more common ways of analyzing market fit:

• consistent usage (i.e. frequency of feature usage per day)
• retention rate
• NPS/CSAT

When we launched a new AI suite, we had noticed that there was very low adoption at first. We discovered that there was friction in understanding HOW to use it, so we created "templates" in the product that customers could customize. So revenue and retention increased.

Product-Market Fit proves that users need the product. It can come in the form of time users invest in the product, revenue that the product generates, and high usage metrics.

As Marc Andreessen mentioned in his famous quote: 'You can always feel product/market fit when it's happening,' and you clearly see when it's not.

So to measure Product-Market Fit for a new product, keep an eye on such metrics:

• Customer Activation Rate

• Customer Retention Rate

• Customer Feedback and NPS

• Usage Metrics (e.g., time spent, frequency of use, feature adoption)

• Conversion Rate

• Growth Rate

• Revenue and Profitability

  
  
  

Some "industry standard" leading metrics to use -- besides the Sean Ellis test -- are the following: 

1. Retention: Cohort retention curves flatten (stickiness)
2. Net Retention Rate: > 1 (retention + upsell)
3. DAU/MAU: > 50% (it's part of a daily habit)
4. Engagement: Revenue, active-use, or activity expansion on a *per user* basis over time
5. Actives/registrations: > 25% (validates TAM)