Blog post

How to measure product-market fit using RFM analysis

What does product-market fit really show? People’s behavior.

It's not their disappointment. They can be disappointed from various reasons. It's also not the state in your company. You have a product-market fit if someone wants and/or needs your product or service. You can still have your company absolutely under control. Most people will tell you they don’t mind if your company dies. But if they use and buy your services or products again and again, you still have it. Plain and simple. This means your product or service:

  1. has been Recently used or purchased by them.
  2. is Frequently used or purchased by them
  3. is paid for by them – they give you Money or time for it

How do you measure product-market fit? Use RFM analysis.

RFM is an abbreviation for Recency, Frequency, Monetary – you’ve just read these words together in the paragraph above. It’s used primarily while creating remarketing campaigns, but it suits really well also for measuring product-market fit. It’s also extremely simple because...

  1. It works with people’s behavior and just 1 metric. For e-shops, this is a purchase. For software, this can be logging on or the use of a key feature – for example a sent message if you’re a chat, or an API call if you’re an infrastructure startup.
  2. You have the data for this – you collect those data as a byproduct of the purchase process (bookkeeping) or when people use your product (your database).
If there is a significant segment with lot of customers and they are more or less the same, you won. Scale as fast as you can.

The very first thing you should look for is if there is a big segment with lot of revenues in the up right area. Then you look for something else that connects these people – a country, specific advertisement, a person’s position in the company, or a function used. When you find the common characteristic within a segment and scale on it. The goal is to find the most connections.. Then, ideally, you should also look for differences between this segment and other segments.

Make it easier with Salesfit’s free toolkit

Segmenting customers manually is definitely possible, but why to do it manually if you can automate it for free? Use our free toolkit and measure product-market fit via RFM segmentation automatically. We give you:

  1. A manual in PDF with example data and easy-to-follow steps on how to make this toolkit work for you
  2. A segmentation algorithm with a graphic user interface available on Mac, Windows or in the cloud. It will automatically sort your customers into the most similar segments so you don’t have to do it manually.
  3. A dashboard in Google Data Studio, where you can display and work with segments.

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