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

🌈 Abstract

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

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

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 ·