In "Dont do anything before you sell", we explained what we think about product-market fit or PMF.
"While there are many explanations of a product-market fit, we think of it in very simple terms. A product-market fit happens when you get more customer calls to inquire about your product, than you calling them to pitch your product. When this happens, the team focus shifts from reaching out to people, to managing the people. You need more customer service people than marketing people. More customer service means customer delight, leading to more retention, leading to lower customer acquisition costs, leading to scale!
And this is why having a product-market fit is essential. The business model develops after you achieve product-market fit."
When is organic traction an indicator of good PMF? When most sign-ups come from non-paid sources, and consistently increase MoM.
When is organic traction an indicator of bad PMF? When most sign-ups come from paid sources.
When are sign-ups an indicator of good PMF? When sign-ups are more than 5% (i.e. visitor to sign up ratio)
When are sign-ups an indicator of bad PMF? When sign-ups are less than 2% (i.e. visitor to sign up ratio)
When are conversion rates an indicator of good PMF? When sign-ups are more than 5-10% (i.e. free trials to paid users)
When are conversion rates an indicator of bad PMF? When sign-ups are less than 2-3% (i.e. free trials to paid users)
When is the length of sales cycle an indicator of good PMF? When sales cycle is less than 30 days, or when low-to-no-touch sales start happening
When is the length of sales cycle an indicator of bad PMF? When sales cycle is more than 60-90 days, and a high touch model is required
When are churn rates an indicator of good PMF? When churn rates of new users is less than 1-2% per month
When are churn rates an indicator of bad PMF? When churn rates of new users is more than 2-3% per month
All the above will depend from industry to industry, however the general sentiment remains the same for a SAAS business, edtech, e-commerce, and other enterprise software models.