The e hustle 45: Does your brand have Product-Market Fit?

Some ecommerce stores just won’t work. 

The founders have found a product and brought it to market, and it’s ok - but just ok, and just ok aint where the money is.

In ecommerce (or any business really) we need to have something called Product-Market Fit, or PFM.

What is Product-Market Fit?

Product-Market Fit occurs when your product meets the needs, or solves the problems of a well-defined niche, or target market. The product meets the needs so strongly, that it results in organic, significant demand. In other words, PFM occurs when your brand’s products align perfectly with the wants of your customers.

What happens when you don’t have Product-Market Fit?

You have to work a lot harder for sales, usually by spending more on advertising, which eats into your profit margins. On the other side of the coin, brands that do have strong Product-Market Fit will often grow organically, and very quickly, and be able to spend significantly less on advertising, because work of mouth and returning customers does the heavy lifting on traffic 

How do you know if you have Product-Market Fit?

From my experience, brands with strong Product-Market Fit can scale to $20-40k in monthly sales without spending anything on advertising. Some of the best in the world can scale to millions per month in sales without spending on advertising. Globally, think about Tesla, at least initially when they were one of the first (if not the first) to meet the growing demand for electric vehicles. Elon Musk’s Tesla company built a car that met that demand, and he scaled that business quickly, without spending anything on advertising.

Famously, Musk says it’s more beneficial to put money into product research and development than marketing, as if the product is great, the chances of success are great.

Within the brands that I work with, think about Geedup, an Australian streetwear brand that recently made $2m in a week with no advertising spend. 

There’s another way to tell if your brand has PFM, called the Sean Ellis Test.

Sean Ellis, a growth expert, suggests asking your customers:

"How would you feel if you could no longer use our product?"

• Answers:
• Very disappointed
• Somewhat disappointed
• Not disappointed
• N/A (no longer use the product)

If 40% or more of respondents say they’d be “very disappointed,” you likely have product-market fit.

I’d encourage brands to ask that question as part of their Net Promoter Score (NPS) surveys. 

Some indicators of a lacking Product-Market Fit are:

• Reliance on paid media. When ads are off, sales decline sharply or even totally.
• Low conversion rates. Contrary to popular belief, the greatest cause of low conversion rate is a lack of desire to buy the product.
• High churn rate, or low repeat purchase rate of say sub 20% (depending on category).
• Low review score, sub 4.6 stars.
• A lack of reviews. Brands that have PMF can often accrue reviews organically at a much faster rate than those that don’t have PFM, who have to work a lot harder for reviews.

If you have a brand that has to spend over 25% of its revenue on paid media, and every time you try and scale that spend, the efficiency decreases (meaning the percentage of sales spent on advertising starts to grow), and if you’re having to show your ads with very high frequency, with a low conversion rate, then you’re trying to jam your product down people’s throats, as opposed to them seeking you out because they’ve heard about your great product.

What to do if you don't have Product-Market Fit?

• Iterate on Your Product: Use customer feedback to refine your offering.
• Refine Your Target Audience: Ensure you’re marketing to the right people - Your ideal customer profile.
• Problems solve: Work out the problem your ideal customer has, and how your product solves them.
• Improve Messaging: Clarify your value proposition.
• Be different: Is it clear to your customers, how you’re actually different from your competitors?

Here's a reminder on how to work out your Ideal Customer Profile, and solve their problem.

It's likely that if you spend as much time on your product development as you do on your marketing efforts, and find your PFM, that you’ll grow your business considerably faster.

Remember, the world doesn’t need another ecommerce business. Customers don't go around looking for businesses, or great ads - they look for great products.

Until next week,

Paul

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