4. How to Measure Product-Market Fit (PMF)

Introduction: The Challenge of Measuring PMF

One of the biggest challenges for product teams is determining whether they’ve achieved Product-Market Fit (PMF). Product-Market Fit represents a key milestone where your product satisfies a significant need in the market, evidenced by strong user adoption and engagement. However, many teams struggle to pinpoint when they’ve achieved this fit, as the process is often subjective and not tied to a single, precise metric.

In this section, we’ll explore methods for estimating PMF, introduce key metrics, and provide real-world examples to help clarify this process.

Understanding Adoption and Traction

PMF is closely related to adoption curves. A product achieves PMF when it gains enough traction to reach the inflection point, where user adoption grows significantly, and users willingly engage with the product—whether through financial transactions or other forms of value exchange, such as clicking on ads or sharing content.

Adoption Curve Stages

  1. Early Adopters: These are the first users to engage with the product, often more forgiving and enthusiastic about innovations.
  2. Early Majority: This group adopts the product after seeing its utility validated by early adopters.
  3. Late Majority: These users are more cautious and adopt after the product has become mainstream.
  4. Laggards: The last group to adopt a product, often reluctant to change.

While the goal of PMF is to gain traction across these groups, determining where you are in this curve can be difficult. There are no absolute rules for identifying PMF, but there are frameworks that help estimate your progress.

Eric Ries: If You’re Asking, You Don’t Have It

Eric Ries, a prominent figure in the startup world, famously said, "If you have to ask if you have product-market fit, the answer is no." His statement highlights the subjective nature of PMF—if you’re unsure, you likely haven’t reached it yet. While this may seem discouraging, there are ways to more objectively measure your progress toward PMF.

Key Metrics for Measuring Product-Market Fit

Pirate Metrics: AARRR Framework

Developed by Dave McClure, the Pirate Metrics framework breaks down the key stages of user interaction with a product into five categories:

  1. Acquisition: How are users discovering your product?
  2. Activation: Are users experiencing the core value of your product? (This is often called the “aha moment.”)
  3. Retention: Are users coming back and engaging regularly?
  4. Revenue: Are users generating income for the business, either through direct payments or other monetization strategies?
  5. Referral: Are users recommending your product to others?

Activation and Retention as Indicators of PMF

Two of the most important metrics for PMF are activation and retention. These indicate whether users are not only trying your product but also continuing to use it.

Ideal Retention Curve

An ideal retention curve is one where retention plateaus over time. This means that after an initial drop-off, a consistent percentage of users continue to use the product. Products with PMF show a stable retention curve, while those without PMF typically show declining retention over time.

Sean Ellis Test: A Simple PMF Survey

Sean Ellis, a growth expert, created a popular framework for measuring PMF using a simple survey question:
"How would you feel if you could no longer use [product]?"

Users are given three response options:

  1. Very disappointed
  2. Somewhat disappointed
  3. Not disappointed at all

According to Ellis, if more than 40% of respondents say they would be "very disappointed," your product likely has PMF. This method has become a benchmark for assessing early-stage products.

Example: O Boticário

At O Boticário, the team used this framework after launching their initial MVP with a small group of sales representatives. They asked users if they would be disappointed if the product didn’t exist. By analyzing the responses, they could better understand if the product was delivering value and if it had PMF potential.

Analyzing User Feedback

While quantitative metrics like activation and retention are essential, qualitative feedback is equally valuable. Early on, qualitative feedback helps identify user pain points and opportunities for product improvement.

Real-World Application: O Boticário

The O Boticário team used both qualitative and quantitative feedback to track how sales representatives were using their digital storefront product. By focusing on whether the representatives were consistently receiving orders through the platform (activation), they were able to measure if the product was providing value. Over time, they also tracked retention—whether representatives continued to use the platform across multiple sales cycles.

To address any pain points, O Boticário introduced features like storefront personalization and inventory management, which encouraged users to return to the product. These iterations helped achieve stable retention, signaling that they were on the right path to PMF.

Product Retention vs. Revenue: A Balancing Act

Achieving PMF isn’t just about retaining users—it’s also about driving sustainable revenue. For instance, while companies like Uber and Nubank had high user adoption early on, profitability remained a challenge for years. This brings up the question of whether PMF can be achieved before a company generates profit.

Example: Nubank

Nubank launched its business account product with minimal features—users could only receive and transfer money and pay bills. Over time, the company added features like debit and credit cards, payment tracking, and invoices. Through regular user feedback and metrics like NPS and Sean Ellis surveys, Nubank continuously improved the product and reached over 1 million customers in the PJ segment.

While Nubank achieved high user adoption and strong engagement, profitability came much later. This raises an ongoing debate: Can PMF exist without revenue? Many argue that a product can have PMF if it delivers value at scale, even if profitability hasn’t been achieved.

Conclusion: Measuring PMF Is Both Science and Art

While there are frameworks and metrics to help measure Product-Market Fit, it’s ultimately a combination of quantitative data (activation, retention, revenue) and qualitative insights (user feedback, surveys) that paint the full picture.

You’ll know you’ve achieved PMF when users consistently return to your product, find value in it, and show clear signs of disappointment if they can’t use it. However, the journey to PMF is ongoing—continuous testing, iteration, and user engagement are critical to maintaining it.