You may need to change the definition of the market to find customers with higher willingness to pay. If you do increase prices, you need to make sure that Channel Model Fit still holds true. If you find this to be too low to fit the Model Market Fit equation, then you can think about increasing prices. ARPUĪfter you have defined the market, you can do some qualitative research to understand what their willingness to pay is for your solution to build your ARPU hypothesis. You also need to understand if customers meeting the expanded criteria are willing to pay the same amount. If you find that this number is too small, then you can expand the criteria to target a larger market, but then you need to return to the Market Product Fit step to see if that remains true. Once you have this definition you should do some research on how many target customers meet those criteria. You should have done this already at the Market Product Fit stage anyway.
Each variable in this equation has some assumptions, and I recommend thinking through them in this order: Total Customers In Marketįirst, define your target market. This might seem simple, but many teams I see and advise don't do this.
That should equal or be greater than $100M. Take the average annual revenue per customer/user, multiply it by total number of customers/users in your target market, then multiply that by the percentage you think you can capture. But what about before that point? Your Model Market Fit hypothesis revolves around some simple math:ĪRPU x Total Customers In Market x % You Think You Can Capture >= $100M Of course, once you have a $100M business its easy to understand where you end up on the Model Market Fit graph. Understanding If You Have Model Market Fit Flies - Products that get 10M customers generating $10 per year typically via ads.These are typically products that target prosumers like Dropbox, or companies that are subscription ecommerce like Ipsy or Dollar Shave Club. Mice - Products that get 1M customers paying $100 per year.For example companies in real estate, insurance, etc. Products targeting consumers at high value moments also live here. These are typically products targeting small businesses like SurveyMonkey, Mailchimp, or Gusto. Rabbits - Products that get 100,000 customers paying $1K per year.These are typically products built for the mid market like HubSpot. Moose - Products that get 10,000 customers paying you $10K+ per year.These are typically products built for enterprise customers like ServiceNow. Elephants - Products that get 1,000 customers paying $100K+ year.Most companies end up falling in one of five areas that Christoph named: On the X-Axis is the total number of customers you need to create a $100M+ Business. On the Y-Axis is the average annual revenue per customer that you generate from your model. Which brings us to part five, Model Market Fit.Ĭredit: Christoph Janz and Point Nine Capital
I went through the ARPU ↔ CAC spectrum and how your product and product tiers need to align on this spectrum. In part four I covered Channel Model Fit - that channels are determined by your model. In part three, I covered Product Channel Fit - that products are built to fit with channels, channels are not built to fit with products.
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In part two, I talked about why we should think about Product Market Fit as Market Product Fit, how to lay out your Market and Product hypotheses, and how understanding whether you have Market Product Fit comes down to Qualitative, Quantitative, and Intuitive indicators. The difference between these two are not the common mantras of build a great product, product market fit is the only thing that matters, or growth hacking.
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This is part five in a series about 4 Frameworks To Grow To $100M+.
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