What is a person’s main objective when creating a company, startup, or venture? Unless it is a non-profit foundation, it is to generate sales. And these sales need to be higher than the money invested in the business for us to be able to talk about a profitable company.
Nowadays, a good idea or a good product is not enough for a venture to take off and generate income because the volume of competition and market increase every day; for this reason, it is essential to have a broad knowledge of these two factors, to understand them and be able to provide that product that will satisfy the needs of the consumer and give an added value to facilitate their loyalty.
Understanding the market and the current situation of the business is fundamental to consolidating as a company and developing improvement strategies that focus on satisfying the needs of the consumer; to achieve this optimally there is the Product Market Fit, as an essential tool for every entrepreneur and to determine the performance of his idea or product.
What is the Product Market Fit?
This concept, coined by the founder of Netscape, Marc Andreessen, refers to the adequacy of the product in the market and consists of a method by which the target public is studied in depth to define its needs and, in this way, develop the product to provide a comprehensive solution. In addition, by having a PMF with MPF in place, strategies can be created that allows for the correct introduction and communication of the product in the selected market.
The Marketing Product Fit is the process by which the product is adjusted in the market, and the profitability of this expenditure is estimated (product, marketing, advertising, price, audience, promotion, indexing, payments) to understand if the product meets the needs of the people and the growth of the company.
To mathematically validate or confirm if a business has a good PMF, it is necessary to take the target group and study if it reacts positively to the purchase of the product and if the marketing of this does not generate losses, in addition to being subject to an improvement in conversion thanks to optimized digital channels.
The Marketing product Fit must give the company a solution in accordance with the money invested and ROAS (Return on Advertising Investment) to ensure higher profitability. To further explain how an MPF is calculated, we can perform a formula in which:
- X: Target group.
- Y: product value.
- Z: expenses and costs (production, marketing, and advertising).
- W: total value sold.
Then W = W (X, Y) must satisfy that W (total value sold) (X (target group), Y (product value) > Z (expenses and costs).
Under the set theory, where we delimit infinite countable sets for each one
A Marketing product Fit is based on three essential concepts or statements to confirm that it is available in a company:
- – A customer willing to pay for your product or service exists.
- – Having the finished product has a lower cost than the value for which it is sold to the public.
- – The business idea is well accepted by the public and can be profitable through strategic improvements that lower the CPA.
For a start-up business, it is essential to obtain the MPF, since it is essential to understand how to penetrate the market, overcome the competition, and what can be offered to the consumer as an added value, among many other variables that allow a business to grow.
It is essential to keep in mind that after obtaining the Marketing product Fit, it must be constantly reevaluated because, being based on the population, it is necessary to be aware of the changes in the needs and trends of this population.
Stages of Marketing Product Fit
To understand if your business has an MPF, three stages must be followed: The first is Costumer Discovery; in this, the target group must be analyzed in depth, segmenting in the most precise way to have an ideal buyer persona and understand what motivates them, what their income is and what needs you are going to solve with your product.
The second phase is Customer Validation, when the consumer has already made a match with the product, has bought it, and has become a customer; in this period, it is necessary to understand whether the product satisfies his needs and whether it is profitable for the company to market it by analyzing ROI, ROAS, and CPA.
This second stage is also composed of tests and trials designed to understand customer satisfaction.
Finally, the third stage is the Business Growth stage, and in this stage, in addition to analyzing the Lifetime Value of the customer, we work towards finding new buyer personas and niches that will allow us to increase the size of the current market.
What aspects should be analyzed?
To understand whether your business, venture, or company is complying with an MPF, you should analyze aspects that allow us to obtain insights about the market, competitors, and, of course, the target audience.
Firstly, there is the level of conversion and sales, where you must study the customer journey to understand how users go from being MQL (a contact who has interacted with digital assets but has not made a purchase) to becoming SQL (contact who has taken action intending to acquire your product or service) and generate a successful sale.
Subsequently, the cost per attributed conversion must be analyzed; that is, how much your company spends to make a conversion or capture a customer through different advertising strategies, social media, influencer marketing, automation, or referrals. Ideally, the cost per conversion should be lower than the cost of these efforts.
When studying an MPF, the users’ opinion should be a fundamental factor since this insight will allow you to know if your product is meeting the customer’s expectations; to know their level of satisfaction, you can use simple tactics that allow you to observe their behavior.
One of the most commonly used is to conduct a survey with short questions such as: If this product were no longer available, how would you feel? Leaving three alternatives as an answer: very disappointed, indifferent, or a little disappointed.
If 40% of the surveyed public answers »very disappointed», it can be affirmed that your product has a good adhesion in the market, since the thought of not being able to obtain it anymore would be disappointing for your community.
Additionally, to understand if the business idea will be profitable in the future, you should make a sales projection in the market, observing the media and channels through which it will be more consistent to develop performance and brandformance strategies in order to calculate how much the company must sell in a given period to have an income that exceeds the investment.
While conducting all of these studies is critical to understanding the market, and whether you have an MPF, Marc Andeerseen states that:
«You can always sense when the Product Market Fit is happening: customers are buying the product as fast as you can give it, or usage is growing as fast as the capacity you can add to the servers. Customer money is piling up in your company’s checking account. You are hiring sales and customer service staff as fast as possible.”
But this is unsustainable in marketing tactics in terms of time. In this process of guiding the company towards the right path, it must be clear that it is not enough to have a good product and develop an MPF, since it must be ensured that the excellent placement of the product in the market is at a favorable cost for the company, and that the optimization of this allows diversifying expenses to generate a better impact.
In conclusion, it can be said that a business has a high MPF when it complies with certain aspects:
- It provides a natural solution to users.
- It is in the appropriate market and has a compatible target audience.
- It has optimized digital channels.
- The cost of the above factors equals or less in revenue to the investment.
Having this high MPF, works as an optimized fuel that improves the impact, diversifies the company, avoids unnecessary expenses, and provides profitability that can be maintained in the long term.