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Last updated on: Dec 20, 2022

Product-Market Fit: Why it Really Matters

by Cherie Foo

Estimated Reading Time : 5 mins

If you’re working on a business idea, or you’ve been talking to folks in the start-up space, you might’ve heard the term product-market fit before.

But what is product-market fit?

Simply put, product-market fit refers to when you target a specific market with a product capable of satisfying that market.

If you have product-market fit, that means:

  • Your product meet the customer’s needs and/or solves their problems
  • Your product is appealing to the customer
  • You have enough customers and can generate enough revenue to grow and sustain your product

Now, you might think that this is pretty obvious—why would anyone waste time on an idea that doesn’t have product-market fit?

Here’s the thing: Most entrepreneurs set out by trying to address their customer’s problem. But there are a million ways to go from there, and many scenarios in which product-market fit might not be achieved. For example:

  • You might pick the wrong problem to focus on. The problem might not represent a large enough pain point for the customer to actively search for and pay for a solution.
  • Your product might not adequately solve the problem.
  • Your product might solve the problem, but it might also have too steep of a learning curve to be deemed a satisfactory solution.

In this article, we’ll unpack everything you need to know about product-market fit, and teach you how to find product-market fit for your new business.

Read on to find out more!

A customer carrying shopping bags

How can you tell whether you have product-market fit?

Unfortunately, there’s no one-size-fits-all test or metric that can help you determine whether you’ve achieved product-market fit.

However, there are certain signs that can indicate that you’re on the right track. When explaining your product to potential customers and performing user testing, do your potential customers…

  • Understand your product and the problem it’s trying to solve?
  • Understand your product’s Unique Selling Proposition (USP), or what differentiates it from other products?
  • See value in your product and indicate that they might use your product?

If so, then there’s a good chance that you have product-market fit.

Once you’ve launched your product, there are other signs that you can watch out for as well. Pay attention to see if your customers…

  • Switch from other brands to use your product
  • Talk about your product to their friends and family
  • Are loyal fans of your product, instead of churning quickly

Again, if that’s the case, you’re on the right track.

Why is product-market fit so important?

  • It can dramatically increase your potential revenue if you develop the right product for the right market.
  • Product lifecycle is extended beyond typical projection because of the fit to market.
  • If your product is a really good fit for the market, the marketing dollars spent will be worth more and go farther, giving you better returns on ad spend (ROAS) and return on investment (ROI).

Identifying product-market fit for online businesses

For those running online businesses, it’s also a good idea to look at your website metrics such as bounce rate and time on site. These can give you insights into whether you have achieved product-market fit.

Bounce rate: the percentage of visitors to a particular website who navigate away from the site after viewing only one page.

Time on site: the total amount of time that someone spends navigating through your website.

Here’s how to evaluate product-market fit with these metrics:

  • Low bounce rate + average-to-high time on site = ideal
  • High bounce rate + low time on site = not ideal

Let’s break it down: If most users land on your website and then navigate away almost immediately, this will result in a high bounce rate and low time on site.

This is a sign that your product/service isn’t exactly what they were looking for.

On the flip side, if most people spend a ton of time browsing through your website and looking at several pages (rather than just exiting from the homepage), this translates into a low bounce rate and high time on site.

That’s good, because this means that people are genuinely interested in your product/service, and might convert as a customer. Meaning… product-market fit!

Of course, this isn’t a foolproof way of telling whether you have product-market fit. For instance, say your website isn’t optimized for mobile, and your layout is buggy and formatted poorly when users view it on their mobile devices.

In this case, your users might not even get to digest your site and understand your product/service—they might just bounce off the site within two seconds because the User Experience (UX) is horrible.

Bottom line? If you’re running an online business, your website metrics may be a good indicator as to whether you have product-market fit. Just make sure your website is well-designed and has good UX, so that your results don’t get skewed by poor web design. (Not sure? Embed a website feedback survey and find out!)

Using the MVP approach to achieve product-market fit

If you’re still in the midst of fleshing out your business idea and haven’t started building your product, one recommendation is to use the Minimum Viable Product (MVP) approach to achieve product-market fit.

For those who haven’t heard of this, an MVP is a product with enough features to attract early-adopter customers and validate a product idea early in the product development cycle.

Here’s the difference between the MVP approach vs the traditional approach:

MVP approach Traditional approach
Build an early iteration of your product, and soft launch it to potential customers Build the full product, and launch it to potential customers
Feedback is collected while the product is still a work-in-progress, so that you can constantly improve upon your product and build a product based on actual customer insights Feedback is only collected after the final product is launched, so it will be difficult/expensive to improve the product based on the feedback
Allows the entrepreneur to validate their product and ensure that there’s product-market fit Does not allow the entrepreneur to validate their product and ensure that there’s product-market fit

As you can see, the MVP is all about flexibility, and utilizes a customer-centric approach. You’re taking your potential customers’ feedback into account whilst building the product, which increases the chances that you’re able to achieve product-market fit.

A final word on product-market fit

Here’s the harsh truth: anyone can come up with business ideas, but it’s much more difficult to come up with ideas that are feasible, workable, and can achieve product-market fit.

In order to make it as a successful entrepreneur, you’ll need to be able to evaluate your ideas objectively, and prioritize the ones that have a better chance of succeeding. Of course, product-market fit plays a key role here.

We’re all about feedback here at Sogolytics, and in-depth market research with our powerful analytics can inform smart decisions. From your product development cycle to your customer experience with your products, consistently listen to your market to ensure the best product-market fit!

Ready to turn your business idea into reality? All the best!

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