Reaching Product Market Fit is like crossing a desert.
It’s a long, arduous journey that few will survive.
You start to build something good, but it will take months, or even years before you can start charging your customers.
And while you’re out wandering in that desert, it’s easy to get distracted by mirages. You think you’re approaching revenue. But are you?
How do you know if you’re heading towards Product-market fit when you seem so far from it?
You need a compass: Metrics.
But to point in the right direction, you need to focus on just the right data.
Today we’ll be looking at the three key metrics you should focus on Pre-PMF:
- Active Users
- User Retention
- Core Feature Engagement
If you’re building a B2B SaaS or a B2C mobile app that depends on recurring usage, these three metrics are the only ones that really matter pre-revenue.
However, if you’re an eCommerce platform or any other business that relies on driving sales to stay afloat you should focus on KPIs like revenue or gross merchandise volume instead.
Let’s start with the most important metric: Active Users.
1) Active Users: The Heart of Your Product
If you only pick one metric to focus on, pick active users. This is a measure of the number of unique users who get value out of your product.
Active users tells you whether your product is getting early traction or not. Why? Because it shows you the number of people that are interested in what you're offering - and is an unbiased indicator of stickiness.
An active user for Airbnb would be a user who books a stay, as opposed to a user who merely opens the app or browses some properties.
For Uber, an active user would be one who books a cab, as opposed to one who simply checks to see if there are any cabs in the area.
You need to be very strict about what “active” means for your business. Otherwise, this metric will make no sense to you. Then, pick daily, weekly, or monthly active users based on the ideal frequency of usage of your product.
An app like Snapchat, for example, will probably want its users to be active every single day.
But Airbnb knows that people are only likely to use their service when they’re planning a journey, in which case the number of daily active users might not be the best KPI.
For a business like Airbnb, it makes more sense to track monthly active users or even quarterly active users.
Most B2B SaaS products are best measuring their weekly active users (WAU). Also bear in mind that if you’re building a B2B SAAS, you’ll be more likely to measure active companies than active users.
Active Users is a metric that you can impact quickly, which is why it’s the first one I’m talking about. Make improvements to your product, and you may see positive results almost immediately. This can be incredibly motivating for startups who feel like they’re lost in the desert!
Active User Benchmarks
In terms of week-over-week growth of active users:
Here's another breakdown:
2) User Retention: The First Sign of PMF
Think of user retention as the flipside of the active users coin: Active users shows the number of people using your product. User retention gives you the overall percentage of users who return to your product.
A flattening retention curve is a good sign that consistent numbers of users are coming back over time. This is a strong sign that you’re heading towards PMF.
This is a harder metric to move, compared to the number of active users. But when it improves, it’s a great indicator that you’re doing something right!
Let’s be honest – improving user retention is easier said than done.
It can take months. In the traditional mythology of startups, companies either have PMF, or they don’t. Your retention curve is flat, or it isn’t.
But in my experience, business’s user retention curves tend to increase little by little over time. You may start with a low and bad user retention which will slowly improve over the course of months until it’s pretty high and, crucially, flat.
High user retention means that you’re becoming a reliable part of your users’ lives. There’s a good chance that returning users value your product. And if they value your product, then they’ll keep coming back for it, and there’s also a good chance that they’ll ultimately consider paying for it.
Once again – if you’re building a B2B SaaS, you can measure company retention instead of user retention. All of these metrics scale from the user level to the company level.
User Retention Benchmarks
A good user retention benchmark looks at the percentage of users who are still back after six months of use:
Why is the B2B benchmark higher? For three reasons:
- B2Cs tend to get a higher volume of users than B2Bs. So B2Bs will always need higher retention in order to generate revenue.
- B2C consumers tend to have a shorter attention span than B2B users.
- B2C products tend to solve “less painful” problems. They’re more likely to provide a fun or useful service, as opposed to the valuable or integral service that B2B products often provide.
3) Core Feature Engagement: Your Rocketship
If your product has multiple features, then measure the number of interactions of one of your key features.
For example, Snapchat would do well to measure the number of snaps sent, as it demonstrates how much users are engaging with their app’s fundamental feature.
Core feature engagement pulls everything else up. It’s a reliable sign that you’re going in the right direction. If engagement skyrockets, then it’s very likely that your business is going to skyrocket too.
This might sound simplistic. But trust me – it works.
Even if some of your users barely use your product, if the overall core feature engagement is on the rise, then it’s likely that a lot of your users are finding true value in your product. If they’re finding value, then they’re likely to come back. And if they keep coming back then, eventually, they may be willing to pay.
Consumer startups like to post their core feature engagement rates on the walls of their offices. This is because it can be a powerful motivator – if this metric’s going up, then everything else is probably going up too!
Final Thoughts: Don’t Get Lost in the Desert
If you ever feel lost in the desert as you struggle toward product-market fit, then all you need is a sense of direction.
Pick one of the metrics above to get you started, and you can’t go wrong.
The great news is that these are also good metrics to track post-revenue and post-PMF since they’ll help you understand whether you’re growing a sticky product.
These three metrics are very relevant after PMF - they help you make sure you're growing efficiently, and that you're not throwing money at your growth without a healthy product.
One last thing: Metrics are not all you should care about.
Yes, they’re great indicators of how things are going. But they will never tell you the full story.
You also need to pay attention to your message market fit, your PMF surveys, and your Net Promoter Score – anything that’s going to help you gauge long-term customer loyalty, satisfaction, and enthusiasm.
What other metrics are valuable to measure pre-revenue? DM me on LinkedIn!
Need some further guidance on the long road to PMF? Take a look at my recommendations for the 10 best books to read if you’re pre-PMF in 2023.
We also recently shared our journey to Product Market Fit and the challenges we faced along the way.
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