Our Early Learnings From Quantifying Product Market Fit (PMF)

You may be asking why we care about quantifying PMF. Strong PMF is highly correlated with efficient growth.  If you care about metrics like LTV/CAC, CAC Payback Periods, Magic Number…. then you’ll want to start quantifying PMF.

SaaS products are typically good at solving for a limited number of use cases.  As you begin selling to different segments and personas, over time you will see your SaaS has varying degrees of product market fit.  Put differently, our GTM (e.g. product, pricing, services) is a system that works exceptionally well for a percentage of customers, but typically not as well for a large percentage of our customers.

Today we are thinking about PMF incorrectly.  PMF is not binary.  There are varying degrees and it evolves over time.  It’s also not just something for startups. We should be tracking PMF for scale ups and probably using it to drive compensation.

The variables that are indicative of product market fit are logo retention, customer lifetime value, NPs, and potentially (but not always) new business win rates.  Once we see strong PMF, the next question becomes, “Is this a sizable market that is worth pursuing”?  This is where Serviceable Obtainable Market (SOM) becomes important.  It helps us understand the size of the associated market that our company can potentially capture.

Once we have quantified PMF we can take the insights and use them to look at adjacent markets to understand how to unlock TAM.  Typically SMB customers need more vertically integrated solutions.  Meanwhile, enterprises value solutions with fewer layers of the value chain.  They lean into solutions that fit into their existing technology stacks.  

Please let us know if we can help!