Updated: September 2025
Contributors: Olena Petrosyuk, Partner at Waveup
Launch-first, learn-later is dead.
In 2025, investors expect evidence: retention that sticks, users who would be very disappointed without your product, and unit economics that improve as you grow.
In short, investors want to see a product-market fit – proof that you’ve done the work and have a unique take on how to win the market.
But what does this mean? How to find and measure product-market fit and, more importantly, prove it to investors?
In this guide, we’ll break down what PMF really means, how to measure it with the right metrics, and how to package that proof so investors can’t ignore it.
Let’s dive in!
What is product market fit?
Product-market fit (or simply PMF) is the moment when your product clearly solves a real, pressing problem for your target audience, and you can see the proof in your customers’ behavior. They keep coming back, they would be really disappointed if your product disappeared, and they start recommending it to others (or in B2B, you see expansion and stronger net revenue retention).
Marc Andreessen, an American entrepreneur, investor, and software engineer who coined the term product–market fit, defined it simply as “being in a good market with a product that can satisfy that market.”
But he left words like “good” and “satisfy” open for interpretation. And that’s where most founders get stumped.
Why do many startups fail to prove their PMF to investors?
Working with our clients on fundraising has shown us that founders often don’t really understand what product-market fit is, why the success of their business depends on it, and what it should look like.
As a result, clients frequently:
Think they achieved product-market fit when they didn’t
Use the wrong indicators to demonstrate PMF to investors
As a result, these clients may see a spike in website traffic, increased sales, or low CAC and assume that they’ve landed on their PMF. In reality, however, all those things can occur without PMF.
Here is how Marc Andreessen has famously put it:
No matter how on-point this description is, it’s not a universal truth for all startups. While his example is certainly appealing, fundraising would be a cakewalk if every company had the same results when they sought to raise Series A.
In reality, early PMF is unlikely to manifest itself in such an apparent form, especially if you take a bottom-up, product-led approach. For such cases, there are indicators that will help you determine whether you’ve arrived at product-market fit, and, if that’s the case, guide you in easily proving it to VCs.
How to measure product-market fit?
To measure your product-market fit, you should combine quantitative indicators (hard data) and qualitative signals (the why behind numbers).
Product-market fit is achieved when they all tell the same story: customers stay, recommend your product, and your revenue grows efficiently.
But which metrics actually matter? We’ve broken them down below.
Block #1: Quantitative indicators of product-market fit
These indicators are composed of the so-called “hard data” – the answer to the “What?” question without providing any context. This data allows you to understand the state of your business.
- Customer retention > 90%
High customer retention is one of the most important signs that you’ve arrived at PMF. It’s the foundation – and the absolute minimum – of what you need to claim that your product fits the market, and investors know that. Your sales might be through the roof, but if the majority of the clients drop out, your product or market needs an overhaul.
The benchmark for top SaaS players is an annual customer retention rate (CRR) above 90%.
Here is how to measure your CRR:
It may seem simple, but there is nuance involved. Customer retention is a lagging indicator, meaning it could take up to a year to accumulate the amount of data needed to draw conclusions. If you don’t have this data or the time to wait for it to mature, you should determine a leading retention indicator* *that will indicate the early signs of PMF in real-time.
The leading retention indicator must be tailored to your company and reflect your customer journey. Here is the formula for determining yours:
As a rule of thumb, your P value should be between 60% and 80% and should continuously grow over time. The key is to identify the right E (event) representing the indicator. You can use events related to product setup, usage, or results. In his ‘Science of Scaling’ framework, Mark Roberge describes what attributes the E variable should have.
T is the time by which the leading indicator event is achieved. Keep the timeframe as short as possible, but always consider how hard it is to adopt your product and see its value.
- High net promoter score (NPS)
NPS metrics measure how satisfied your customers are with your product and how likely they are to invite others to use it.
For example, Robinhood had a waitlist of one million users before raising their Series A, which they achieved with zero marketing legwork.
Here is the NPS formula:
For example, if 50% of respondents are promoters, 10% are detractors, and 40% are passives, your NPS would be 50–10=40.
The benchmarks for NPS vary across industries. But, on average, having an NPS > 40 would mean that your product is doing quite well.
Note: Only use the NPS rate in conjunction with other metrics like customer retention and supplementary surveys.
- Surveys: the rule of 40%
Surveys can work as both qualitative and quantitative metrics; here, they serve as a quantitative signal.
Ask your customers the following question: How would you feel if this product stopped existing?
Then, provide them with the following options:
Very disappointed
Somewhat disappointed
Not disappointed
I no longer use [product]
If > 40% of people choose “very disappointed,” that’s a very strong indicator of PMF, and you should most certainly show it off to investors.
- Growing monthly recurring revenue (MRR)
MRR is one of the core metrics for subscription businesses (SaaS). Steady MRR growth usually reflects two things working together: customers stick around (strong CRR), and they recommend your product (high NPS).
While the speed of your MRR growth may look different for every company, the overall dynamics must show an upward trend.
As for the benchmarks, the variation is too broad to give one-size-fits-all advice. Different VC firms expect to see different MRR numbers depending on your industry and the amount of money you raise. At Waveup, we consider all these factors first to help our clients determine the perfect MRR benchmark.
- LTV > CAC
Low customer acquisition cost (CAC) alone doesn’t indicate PMF. When it is compared to lifetime customer value (LTV), however, it will paint a clearer picture of where your business stands. If customers make you more money than you spend acquiring them, it’s a pretty good indicator that:
You’ve chosen the market correctly, and/or
Customer retention brings in enough money
In other words, if your business is already (or about to become) profitable, you can give yourself a huge pat on the back and expect to encounter very few problems securing the round.
***Want to know your CAC and CLTV ratios? Check our custom calculators. ***
Block #2: Qualitative indicators of product-market fit
Qualitative data can’t directly measure product–market fit, but they explain the why behind the numbers. They give you the context and guidance on where to move next.
- Positive customer reviews and media attention
Customer feedback of any kind is your best friend at any stage of business. It’s especially crucial in the early stages, as it navigates you in the right direction. Naturally, if you’ve achieved PMF, your feedback will be predominantly positive – and vice versa.
The same goes for media mentions. If your product has gained traction (which it should’ve by this stage) and fits the market, you will receive numerous positive social media references and numerous inquiries from various outlets. Not only is it a significant driver for revenue growth but also a great signal of PMF for you and investors.
While these things alone don’t prove that your PMF is secured, they work as an amplifier for any quantitative indicators of PMF. For example, amazing reviews and ample media attention can compensate for lower-than-ideal MRR growth and convince investors to give you a shot.
What should you do if you don’t have PMF or your indicators aren’t good enough?
Looking into the above-listed metrics might reveal that your PMF only existed in your head. Or maybe the early signs are there, but the traction is not enough to convince investors to give you the funding you need.
Your main focus here must be on finding the reason you have not achieved a product-market fit yet. In this case, we always prescribe our clients to do the following things:
Interview your customers
Conduct user surveys
Collect product usage data
Conduct usability tests
If your quantitative indicators look pitiful, qualitative analysis in the form of customer interviews will help you understand why. No one can explain why your customers don’t stick around better than your customers themselves.
WAVEUP STORY:
One of our clients came to us claiming that, while they had PMF, they were not able to raise the round for months and months. Upon further inspection, we revealed that they had confused demand (high website traffic) for PMF and, in fact, had a very high churn rate – a straightforward sign of a lack of PMF. Following Waveup’s advice, the client organized qualitative sessions with consumers and found the reason for churn hiding in their poor UX. They quickly fixed the problem and saw a significant boost in usage metrics within a few months. They successfully raised the round shortly after.
Sometimes, the problem lies on the surface (e.g., clunky user design, a missing feature, or a glitch that ruins the user experience). It might even be as simple as miscommunicated product value that gives your customers false hopes. Fixing such things will be a piece of cake and will likely result in quick improvement.
Other times, you might need to pick a different crowd for your product or pivot your business model or the product itself. For example, if you choose the wrong revenue streams or pricing approach, you will struggle to achieve PMF no matter how well-honed your product is. Or, in another scenario, you target small businesses with a solution that is too heavily reliant on features they don’t even need and aren’t willing to pay for or vice versa.
A classic product-market fit example is Instagram. Founded as a location-based game, it received $500,000 in seed funding but soon realized they were seeing low traction and customer engagement. They began analyzing user data and realized that image-sharing was their single most popular feature. In 2010, they stripped all other features and re-emerged as a photo-sharing app. The rest is history.
Wrap-up: Proving to investors that you have PMF is easy – you just need to have one!
If you want to prove to investors that you can lead your category, you need to start with an honest look at your metrics to ensure that you’ve actually got what it takes. Here are some primary indicators that demonstrate you have crossed the PMF threshold:
Customer retention > 90%
Growing MRR (for SaaS)
LTV > CAC
NPS > 40
Don’t be fooled by temporary spikes in sales, website traffic, or any other signs of demand but not necessarily product-market fit. And don’t get disheartened if your numbers aren’t quite there yet. If you invest in qualitative analysis, implement the feedback, and iterate, your fundraising efforts will be bound to succeed!
If you need help preparing investor materials that VCs will like, just drop us a line. The Waveup team has helped our clients raise over** $3 billion**, and we’d be happy to help you!
FAQs
When does product-market fit occur?
Product-market fit shows up when everything starts moving in the same direction: customers stick around, word spreads on its own, and growth doesn’t feel like a grind. It’s not about chasing one perfect metric, but seeing consistent signs across retention, referrals, and revenue.
What are the 4 levels of PMF?
Product-market builds in phases, usually moving from Nascent to Developing, then Strong, and finally Extreme. Each stage signals a different level of pull from the market: early interest, growing stickiness, real traction, and eventually, a point where the product almost sells itself.
When speaking about product-market fit, what’s the 40% rule?
It’s a quick gut-check for PMF, often called the Sean Ellis Test. If 40% or more of your customers say they’d feel disappointed if they could no longer use your product, you’re likely on the right track. It’s not the full picture, but it’s a strong signal that the product matters to your target audience.