Dear SaaStr: What Is The Best Indicators of Product Market Fit at an Early Stage SaaS B2B Startup?

Dear SaaStr: What Is The Best Indicators of Product Market Fit at an Early Stage SaaS B2B Startup?

This is a rough metric, but I’d say from experience working closely with 25+ SaaS companies … if you aren’t growing > 10% a month after $10k in MRR or so … then you don’t yet have product-market fit. Not yet at least.

One way or another, every reasonably fast-growing SaaS company hits double-digit growth, for a while.

It mathematically can’t last forever. But it usually kicks in once you have true product-market fit … somewhere between $10k and $40k-$50k in MRR. If you’ve somehow gotten to $20k in MRR, have happy customers, a few good leads a month … and can’t add $2k or more in MRR the next month … you probably just aren’t there yet.

And you’re past say $20k in MRR and that growth hasn’t kicked in yet, no criticism, but I’d challenge you to make changes.  You may be closing customers, but I’m not sure you have true product-market fit yet.  You may rather be at the edge of it.  A compelling pitch, or idea, but you’re not quite delivering the promise.

Why is double digit growth a sign of true product-market fit?

Math.  It’s because most SaaS markets are large enough that once you figure out what 10, 20, 50 happy customers want … you can get another 50. And so on. And the law of smaller numbers means once you have fit, you generally see double-digit growth for a while. It’s very hard to have double-digit monthly growth after $10m ARR. But not as hard as $10k in MRR.

And generally, when I meet with a SaaS company between $10k and $50k MRR and they are growingly more slowly … say 6% a month … they may have an awesome product and team, and even some happy customer. But the true product-market fit isn’t there. They can’t clearly explain it to the market, or truly access the market, etc.  Any growth at all with happy customers is a good sign. Just < 10% in the early days may be a signal to keep iterating on your core value prop, customer, and insertion point.

A little more here: Growth and Burn Rates at $1m ARR for 20+ Fast Growing SaaS Companies | SaaStr