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What is Product-Market Fit and How to Achieve It?

Updated on June 18, 2021

8 Min Read

It takes a wild optimism and a revolutionary mindset to launch a good startup model. Why? Because 90% of the startups fail in their early stages of development and don’t even see their fifth year. There are various reasons why startups fail to garner the needs of the market, but the most obvious one is their product itself.

Many startup founders fail to recognize the need of the market or they lack in determining the product goal. That is where the ideation of ‘Product-Market Fit’ begins – the phenomenal concept which can reap you long term benefits, and make your product successful amongst the top giants in the market.

So, let’s quickly dive into the details of the concept and understand why your business badly needs it.

What is Product-Market Fit?

When launching a startup, founders believe that they are actually putting out a revolutionary business model. They think that their product will gauge the market interest and will become a standout performer. But actually, that doesn’t happen and eventually, they face some unpleasant odds.

Their biggest folly is not recognizing the need of the market, as they roll out a product that is already in service in the market or doesn’t even need sometimes.

That is where the equation of Product-Market Fit arises. It can be classified as the bar level which determines the product’s market need. Whether your product satisfies the market, where does it stand and what are its growth opportunities.

The term Product-Market Fit was first coined by Marc Andreesen. He describes the theory as:

“Product/market fit means being in a good market with a product that can satisfy that market.”

This statement indicates that finding Product-Market Fit helps you determine the product features according to the needs of the market. You can always roll out a good product in the market if you have done right analysis.

Addressing some important aspects via Product-Market Fit helps you to decide your product goals. The goals that can bring a change in the market and help people to start loving your model as their everyday need.

Another short but comprehensive definition was given by Josh Porter as:

“Product/market fit is when people sell for you.”

This one-liner is, in fact, a complete explanation of Product-Market Fit. When people start getting excited about your product and become a voice of it, that is when you actually achieve Product-Market Fit.

How to Achieve Product-Market Fit?

When finding Product-Market Fit, you have to go through a complete thought process that entails a market-based brainstorming session that can help you figure out the futuristic revolution. So, here are some key points which can help you achieve Product-Market Fit. Charting out your strategy and goals can help you build the right product that can grow, optimize and ever-last with the emerging industry standards.

Product-Market Fit Pyramid -


Determine Your Target Customer

Plotting the Product-Market Fit, the first and foremost objective is to determine your target customer. It is the research that gives you insights about your buyer personas. It helps you to analyze the customer needs, what he wants, how he wants it and in which capacity he wants. Identifying that target customer gives you valuable data as to how to structure your product so that it can meet their needs.

You can also use segmentation for that customer market, as it will help divide customers into separate segments. Because there are various cases when personalization is needed within the product so that it can interact more with the end-user to fulfill their required needs.

You can identify your target customers by starting from high-level research and then narrowing down to the least possible persona so that you are completely mindful about the product specifics and marketing strategy.

Identify Underserved Customer Needs

The next step while achieving the Product-Market Fit is identifying the underserved customer needs. This is the phase which can help you figure out the problem of your intended customers. To go into further details, divide this phase into two sections i.e. the “problem space” vs the “solution space”.

The problem space will help you figure out the customers’ problems, what are the things they are lacking and in which segment is lacking. This gives you a clear idea about what features you will need to add in your product in order to address those issues.

Meanwhile, the solution space gives you ideas on how to address your customers’ problems. It identifies those key points which your product should have in order to stand out in the market. It actually tells you about the true competition in the market, and how your product can win within it.

Hence, identifying the underserved customer needs with these points is quite simple and necessary, as it lays out the objectives your business model should attain, in the manner a user wants.

Define the Value Proposition

Determining the value proposition of your product is the next step, once you are done with the identification of customer problems and their solution(s). You should find out how to add value to your product so that it differentiates from the other competitors in the market.

A lot of companies don’t go through this process and start building the model which is already in service or have no significant importance in the market. Defining the key points as to how your product adds value to the customer problem helps make you stand out and win the competition in the market.

The exercise also gives you a clear picture of whether your product actually addresses the real problem and what benefits it can add to different segments, as described in the target customer phase.

Building the MVP Feature Set

The next phase in achieving the Product-Market Fit is specifying the feature set of your Minimal Viable Product (MVP). These are the core features your product should have in order to achieve maximum growth in the market. This MVP feature set is ideally divided into four sections i.e. functionality, reliability, usability, and delightfulness.

Your product should comply with these four feature set if it wants to get intended Return-on-investment (ROI) in the market. You should not be spending extra time to think whether your customers will like your product or not, as this MVP feature set will help you ensure that your product builds maximum value in the eyes of target customers. Make sure it is functional, problem-oriented and time-saving so that it can provide maximum benefits to the customers for their desired intentions.

Create your MVP Prototype and Test to Iterate

Now, based on the feature set defined above, it’s time to create a prototype of your minimum viable product (MVP). Building a prototype of the product will help you to gather critical feedback regarding it from the potential customers. Whether it fits their needs, provides them the required solution or have any room for more improvement.

Building an MVP prototype gives you an opportunity to test it with what your competitors are offering. You can always find improvement prospects in UX design, functional attributes, error-logging features and more.

Whereas your MVP prototype can also vary infidelity, which means you can decide what features and details you can demonstrate to your customers in the trial version. In short, it’s a simple, reliable and effective way to know about the product’s market feedback before releasing its final version.

How to Measure Product-Market Fit?

1. Churn & Retention Rate

Churn and retention rate are the two best metrics to know whether you have achieved the right Product-Market Fit or not. If your customers are leaving out just after first product usage, it means it has not achieved the desired customer satisfaction level. The higher the churn rate is, the lower will be the prospects of right Product-Market Fit.

You can figure out the churn rate on various points, like which product features failed to meet user requirements, whether the UX design was less user-friendly, or there were other features that need improvement.

Similarly, if your intended audience likes your service and provides positive feedback, it means that you have hit the right Product-Market Fit. That is why, analyzing the ratio between churn and retention rate is a significant factor, as it helps you to know more about the trend and gives you clear insights about the market’s product feedback.

2. NPS & Referrals

Net Promoter Score (NPS) is the best medium with which you can get direct user feedback about the product. It is a questionnaire-based survey that helps you to know what people think about your product – the things they like, what they don’t like and what improvements they want to see in the product.

NPS actually gives you the measure of your customers’ willingness to promote/refer your product to their friends, colleagues, and family. If your product referral chain is increasing day by day, it means it has pitched the right business model.

NPS has become an important KPI performance indicator among marketing and customer support teams. If your customers are rating you good in the score of 1 to 10, it means your product is having a good run in the market.

You can include those key questions in NPS which could help you to know more about the growth opportunities. These questions may include:

  • How to improve Product UI and visibility?
  • What more functional features are required?
  • Are there any security loopholes within the product?
  • Is product support good enough?
  • Where does product rank among its competitors?

The Need for a Referral Marketing Program for Startups

3. Customer Lifetime Value

Customer Lifetime Value (CLV) refers to the average profit you get from each customer during their total product usage lifetime. This directly relates to your profits, as if you want to have a successful business journey, you want your customers to retain and produce as much profit as they can.

Having a good customer life value not only increases the business profits but also allows you to allocate money and open new ventures in marketing, operations and more. As a product owner, you can measure customer lifetime value via different profitability means and can build detailed business data with relevant insights. Moreover, this customer lifetime value will also validate your Product-Market Fit success, as to how long your model keeps the clients stay intact with the business for a period of time.

4. Bounce Rate

Bounce rate is the percentage that indicates whether a visitor stays on your product or not. If your product is facing more than 60% bounce rate, its growth is in serious danger. It means that your intended service is not giving the required impression to the visitors, and hence they are exiting from it without taking any action.

It directly relates to your Product-Market Fit approach, as more visitors will stay on your page, the better they will interact with your product. Having a high bounce rate doesn’t always mean that your product is not worth the customer expectations. Slow UX performance, poor on-page content and other petty reasons are also sometimes the cause of higher bounce rate.

However, you should look into this matter as a whole, to make sure that even your good product doesn’t lose out on the web just because of little ignorant reasons.

5. Leads vs Customers

Identifying the ‘leads’ and ‘customers’ is an important aspect of measuring Product-Market Fit. A lead is just a starting point – a person who has just landed on your product page with real intentions. It is up to your product features and qualities to turn that lead to potential customers.

It has a direct impact on your Product-Market Fit approach, as converting leads into customers is the surety that your product is viable for the competitive market, and can stand out amongst others. Therefore, identifying leads and then the process to make them customers is one of the key measuring points as it gives product owners the path to plan their goals accordingly.

Final Words

For a startup or any other business, it is vital to understand that whether they are putting out a model that is just a problem-solver or is an innovative method to eliminate a huge burden of users. These two approaches can help business owners to achieve their Product-Market Fit. It requires product brainstorming to be so strong that it actually becomes revolutionary in all tech domains. Hence, allows business owners to roll out a product that is futuristic and advanced according to all market standards.

If you still have some more queries regarding this article or want to contribute your thoughts about it, please feel free to write down your suggestions below in the comments section.

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Arsalan Sajid

Arsalan, a Digital Marketer by profession, works as a Startups and Digital Agencies Community Manager at Cloudways. He loves all things entrepreneurial and wakes up every day with the desire to enable the dreams of aspiring entrepreneurs through his work!


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