How to Assess Product-Market Fit for Your SaaS Business
In the digital age we’re living in, software ideas are the main ingredient in starting a new business. In fact, research by Gartner shows that the SaaS industry is set to be worth over $140 billion by 2022, up from $104 billion in 2020.
Of course, you want to get in on that action (who wouldn’t?), so you’ve come up with a software idea of your own—and you might think it’s going to be the next big thing.
It’s great to have confidence, but how can you be so sure?
If you really want to ensure your SaaS product or service is a success, it’s crucial that you validate it by assessing it for product-market fit.
What is product-market fit?
If ever there’s a term that’s been bandied about in product development and marketing circles, it’s product-market fit.
But what does it really mean?
In its simplest terms, product-market fit refers to whether or not your product or service satisfies a need or demand in the market, leading to a customer base that’s happy to pay for and continue using your product. Why is this so important?
No one wants to build a product that turns out to be nothing more than a fad—loved one moment and then dumped the next—or worse, launch an idea that never gets off the ground.
On top of that, determining your product-market fit is critical because it helps you design an effective marketing strategy to grow your business.
5 ways to assess product-market fit for your SaaS business
Now that you know about product-market fit, let’s look at how you can assess it for your SaaS startup.
We should start by saying that there’s no one-size-fits-all product-market fit. It all depends on your product and target market. Because of this, there are no hard numbers to guide you. Instead, product-market fit is about gaining an in-depth understanding of your customers and how they feel about your product.
So how can you assess your product-market fit—especially without concrete numbers to work with?
1. Get customer feedback
One of the easiest and best ways to assess product-market fit is to get customer feedback. You can do this by conducting a survey or getting data from customer service.
Use this feedback to gauge whether your customers feel your product is really solving their problems. Positive feedback indicates an excellent product-market fit. However, it doesn’t necessarily mean your product is perfect. Always create better iterations to ensure your product continues to be relevant.
2. Measure your organic growth rate
Another way to assess product-market fit for your SaaS startup is to measure your organic growth. Organic growth results from people spreading the word about your product. When people begin to recommend your product, you can be sure you’re on the right track.
Organic growth also is also the result of your product autonomously marketing itself. This happens when you create a must-have product for your target market.
3. Analyze product usage
When you create a product that solves a defined problem, usage levels will be high. How your customers use your product is another way you can assess product-market fit. However, you need to do more than see how often users log in to use your product. You must also analyze how they interact with your solution’s core product value.
4. Measure your retention rates
Getting users for your product is half the battle. The other half is to retain them. That’s why user retention is another great metric to assess product-market fit. High retention rates mean a good product-market fit.
On the flip side, when you experience high user churn, that’s a sign that your solution is not addressing the primary problem users thought it would. It may also mean the way your product addresses their problem is not satisfactory. High user churn is an indicator that you've missed the product-market fit and must rework your product.
5. Use your Net Promoter Score (NPS)
Net Promoter Score is an index that measures how willing your customers are to recommend your product to friends and family. It's used as a proxy to gauge customer satisfaction and loyalty.
To calculate your NPS:
- Ask your users how likely they are to recommend your product to friends and family on a scale of 0 to 10.
- Group their responses as follows: <6, 7-8, and 9>.
- Subtract the percentage of responses <6 from >9. That’s your Net Promoter Score.
A higher NPS is an indicator of a good product-market fit.
Product-market fit is always evolving — keep up with the changes
Achieving a good product-market fit doesn’t mean you can rest on your laurels. Markets are always shifting, and current solutions can quickly become redundant. To ensure that you continue having a good product-market fit, you have to keep tabs on market shifts. This will help you know what your customers need at any particular time. As such, you’ll know what solutions to add to your product.
For more SaaS startup ideas and insights, including how to improve your product-market fit, make sure to sign up for the Software Ideas Foundation Course. As part of the Software Ideas membership, it will walk you through four distinct steps of starting a company, no matter where you are in the process—from idea generation to pre-sales and development.
Here’s to the next successful SaaS startup—yours!