5 signs you're on the right track for product-market fit

Do people need your offer? This is the most important question you need to ask yourself as a startup founder. If the answer is no, long-term success is next to impossible. If the answer is yes, then growing your business is like swimming with the current.

Knowing if you are on the right track to adapt the product to the market is where you should focus your efforts in the early stages of your startup project - the validation phase.

Of course, understanding whether or not you have PMF is harder than it looks. Most of the time, you would receive mixed signals from the market, which means being able to tell the difference between the right signals and the noise and even weigh the importance of the different signals appropriately is essential.

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In this article, we'll give you some tips on how to achieve this:

1. Growing clientele

Naturally, the biggest indicator that you're offering something valuable to customers is traction: your growing customer base. If your current customers are attracting new customers (this is called a high Net Promoter Score - NPS), this is an extremely strong indicator that you are very close to PMF.

If your customers aren't introducing new ones, that can be a bad sign, but it can also be expected for your offering or industry. Some products and services are much more conducive to high NPS than others, so in many cases you need to invest in active promotional and sales efforts to see a growing customer base.

2. Low customer acquisition costs (CAC)

If you are investing in promotional campaigns, it is essential to assess the effort and resources required to attract new customers. Unless your barrier to entry is naturally high, having an MFP in addition to competitive advantages over other similar offerings should help you attract new customers at a lower price compared to the industry standard.

3. High customer retention and business renewal

Keep in mind that it may be possible to brutally force a growing customer base, either through big marketing spend or great sales skills. Also, if you come up with something innovative, you might be able to attract new business because people are willing to try your innovation at least once. This is why the measure of growth could be misleading in itself. You have to combine it with retention.

Do the customers you bring in stay? If so, that's a great signal, it means they're getting value from your product. If not, this is one of the strongest signals indicating a lack of PMF.

If this is the case, be sure to interview your departing customers to gain a thorough and detailed understanding of their reasons for leaving. This feedback would be invaluable in making the most crucial changes to iterate your offering and move closer to PMF.

4. Revenue Growth

Of course, you need to find strong signals that users are willing to pay for your offer. It is possible to give people something they want but be unable to provide it at a price they are willing to pay.

While you can survive this problem by burning through investors' funds, it's a situation you need to address as soon as possible. If your offer is not economically viable, your project will not be able to turn into a stand-alone business.

5. Positive customer feedback

We've already mentioned the importance of customer feedback related to customer retention, but it's worth keeping in mind in other contexts as well. Direct customer feedback is crucial in the early stages, as quantitative metrics can tell with a high degree of certainty if there is a problem, but they don't give you a good idea of ​​what should be done to improve the situation. Talking to your customers is the best way to get a realistic idea of ​​what you need to do to get closer to PMF.