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What Makes a Good Product Market Fit Metric? Is Cohort Retention Rate the Best Metric for PMF ? | VC Jobs

๐ŸŒˆ Abstract

The article discusses what makes a good product market fit (PMF) metric and whether cohort retention rate is the best metric for PMF.

๐Ÿ™‹ 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
ยฉ 2024 NewMotor Inc.