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What Makes a Good Product Market Fit Metric? Is Cohort Retention Rate the Best Metric for PMF ? | VC Jobs
๐ Abstract
The article discusses what makes a good product market fit (PMF) metric and whether cohort retention rate is the best metric for PMF.
๐ Q&A
[01] What Makes a Good Product Market Fit Metric?
1. What are the key characteristics of a good PMF metric?
- A good PMF metric should:
- Signal when the product is ready for broader distribution, without leading the startup astray
- Minimize the chances of false positives (scaling too soon) and false negatives (delaying growth efforts)
- Indicate when the product is good enough to start working on acquisition channels
2. Why are survey-based metrics like NPS and the "40% Rule" not ideal PMF metrics?
- NPS can lead to both false positives and false negatives - a low NPS doesn't mean a product can't achieve massive growth
- Survey-based metrics like the "40% Rule" have issues with response bias, timing of the survey, and a mismatch between what users say and what they actually do
3. Why is cohort retention rate a stronger PMF metric?
- Cohort retention rate captures actual user behavior over time, rather than just a single point-in-time survey
- It provides a complete view of the user lifecycle without response bias
- As product improvements are made, newer cohorts should show higher retention rates, indicating progress towards PMF
[02] Is Cohort Retention Rate the Best Metric for PMF?
1. What are the typical cohort retention rate benchmarks for different types of products?
- For consumer products, 25% cohort retention is often considered the minimum for PMF
- For B2B SaaS products, the minimum is typically around 70% cohort retention
- Top-performing products often exceed these numbers, with great consumer products achieving over 40% and B2B SaaS over 80%
2. Why is cohort retention rate a strong PMF metric?
- It captures data from all users, not just those who respond to surveys
- It provides a full view of the user lifecycle, rather than just a single point in time
- It reflects actual user behavior, not just what users say they will do
3. How can founders use cohort retention data to assess PMF?
- Track cohort retention using a "triangle" chart to visualize how retention changes over time with each new cohort
- Find the retention rate of comparable successful products and set a PMF goal
- Improve the product and watch retention improve with new cohorts to indicate progress towards PMF
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Shared by Daniel Chen ยท
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