How to Measure Product-Market Fit for SaaS Products

Achieving product-market fit (PMF) is one of the most critical milestones for any SaaS product. For a product manager, it signifies that the product you’ve worked tirelessly to develop resonates with the market and meets the needs of your target users. However, measuring product-market fit is often easier said than done, especially in the fast-evolving world of SaaS.

With over 25 years of experience building and launching SaaS products in various sectors, including healthcare, I’ve seen firsthand the importance of accurately measuring product-market fit. It’s the foundation upon which you scale, iterate, and refine your product. In this article, I’ll break down key strategies for measuring product-market fit for SaaS products, along with practical tips to ensure your product is positioned for long-term success.

What is Product-Market Fit?

Before diving into measurement techniques, it's essential to understand what product-market fit truly means. Coined by venture capitalist Marc Andreessen, product-market fit occurs when “you are in a good market with a product that can satisfy that market.”

In simpler terms, product-market fit happens when your SaaS product solves a real problem for a substantial group of users who are willing to pay for it. This is typically evidenced by strong user engagement, consistent growth in your customer base, and a clear path to scaling.

However, PMF isn’t a one-time event. As market needs change, product managers must continually evaluate whether their product continues to meet the evolving needs of their users.

Key Metrics to Measure Product-Market Fit in SaaS

Net Promoter Score (NPS)

The Net Promoter Score (NPS) is one of the most popular ways to gauge customer satisfaction and loyalty. NPS asks your users one key question: “How likely are you to recommend this product to a friend or colleague?”

Users respond on a scale from 0 to 10, and their answers fall into three categories:

• Promoters (9-10): Loyal users who are enthusiastic about your product.

• Passives (7-8): Satisfied but unenthusiastic users.

• Detractors (0-6): Unhappy users who may spread negative word-of-mouth.

By calculating the percentage of promoters minus the percentage of detractors, you get your NPS score. A high NPS indicates that you’ve likely achieved product-market fit, while a low score signals that adjustments may be needed.

An important consideration here is to segment your NPS data based on customer type, geography, or use case. For instance, in healthcare SaaS, you may find that certain segments like hospital administrators or clinicians have vastly different satisfaction levels. By diving deeper into specific segments, you’ll gain a more nuanced view of your product’s fit.

Retention and Churn Rates

Customer retention is one of the strongest indicators of product-market fit for SaaS products. If users are continually using your product over time and renewing their subscriptions, you’re likely meeting their needs effectively.

• Retention Rate: The percentage of customers who continue using your product after a specific period.

• Churn Rate: The percentage of customers who stop using your product.

A high retention rate combined with a low churn rate is a good indicator of product-market fit. For example, if you see a high percentage of users churning after a free trial, it may indicate that your product isn’t addressing their core pain points or providing enough value.

Customer Engagement

Tracking user engagement is another key metric for measuring product-market fit. Engagement metrics can include the frequency of logins, time spent in the product, and the depth of feature usage.

• Daily Active Users (DAU) and Monthly Active Users (MAU): These metrics help you track the frequency of use.

• Feature Adoption: Are users engaging with the core features that deliver the most value? If a significant percentage of users only engage with secondary features, your product may need refinement to better align with customer needs.

In my experience, especially in the SaaS healthcare space, observing which features users frequently engage with can also help product teams prioritize what to develop next.

Growth and Sales Pipeline

Growth is a direct signal of demand and, subsequently, product-market fit. If your sales pipeline is strong, with a growing number of leads and closed deals, it’s likely that you’re on the right path. Measuring growth through metrics like Monthly Recurring Revenue (MRR) and Customer Acquisition Cost (CAC) can provide valuable insight.

• MRR: Consistent growth in MRR shows that your customers are renewing and new customers are coming on board.

• Customer Acquisition Cost (CAC): Compare your CAC to your Customer Lifetime Value (CLV). A lower CAC and a higher CLV suggest that you’ve found product-market fit because customers see long-term value in your product.

Qualitative Approaches to Assessing Product-Market Fit

Customer Feedback

While metrics provide quantitative insight, qualitative feedback from users can help uncover nuances about product-market fit that data alone might miss. Engage users through surveys, interviews, and focus groups to gather direct feedback about what they like, dislike, and wish to see in your product.

For example, in my work developing SaaS solutions, we’ve regularly held user advisory boards and customer interviews to get real-time feedback on how well our product fits within the workflows of different healthcare organizations. This feedback is invaluable in fine-tuning product features and validating product-market fit.

Product/Market Fit Survey

Sean Ellis, a growth expert, developed a simple but effective survey to measure product-market fit. Ask users the following question: “How would you feel if you could no longer use this product?”

The response options are:

• Very disappointed

• Somewhat disappointed

• Not disappointed

If more than 40% of users say they would be “very disappointed,” you’ve likely achieved product-market fit. If fewer than 40% feel that way, it’s a sign that you need to improve your product to better align with the market's needs.

Understanding Sales Cycle Length

A short sales cycle often indicates that your product aligns well with market demand. If prospects quickly understand the value of your product and convert into paying customers, it’s a strong signal of product-market fit. Conversely, if your sales cycle is unusually long or stalled, it may indicate that the market doesn’t fully grasp or need the solution you’re offering.

Challenges in Measuring Product-Market Fit

While there are numerous ways to measure product-market fit, it’s important to recognize that not every metric will tell the full story. SaaS products, particularly those in niche markets or emerging industries like healthcare, may take longer to achieve widespread adoption.

Additionally, market conditions can change rapidly, meaning that achieving product-market fit is not a one-time event. It’s a continuous process of testing, learning, and iterating based on user feedback and market trends.

Conclusion: Measuring Product-Market Fit is Key to Scaling Your SaaS Product

Product-market fit is a critical milestone for any SaaS product, and measuring it accurately is key to long-term success. By using a combination of quantitative metrics (like NPS, retention rates, and growth) and qualitative feedback (like customer interviews and product/market fit surveys), product managers can gain a holistic view of how well their product aligns with market demand.

As someone who has spent years guiding SaaS product development across different industries, I can attest to the value of continually measuring and refining product-market fit. It’s not just about knowing if your product fits today’s market; it’s about preparing your product for tomorrow’s challenges.

Achieving and sustaining product-market fit should be a top priority for any product manager, as it sets the stage for scaling, growth, and long-term success.