Brand founders are being impressed upon to establish product-market fit during an economically precarious period in which business fundamentals are a focus. Exactly what constitutes product-market fit, however, is difficult to pin down. On Twitter, Sarah Moret, founder of deodorant and body care brand Curie, asked about reliable signals that capture it, and she received a variety of responses touching upon growth, profitability, retention rate, Amazon ranking, organic demand and much more.

Prompted by Moret’s tweet, we began thinking about how beauty industry insiders view product-market fit. So, for the latest edition of our ongoing series posing questions relevant to indie beauty, we asked 15 beauty entrepreneurs, executives, investors and consultants the following questions: What metrics do you believe best indicate product-market fit? What threshold should those metrics hit to prove product-market fit?

Laura Burget Co-Founder, Three Ships

I would say repeat rate is the largest indicator of product-market fit once the product is in someone’s hands. In beauty, you should be at 25% minimum, but best in class is 30%-plus.

The best indicator of product-market fit when it comes to your price point, branding and marketing strategy, though, is conversion rate. You should be at 2.5% minimum and best in class is 6% and above.

Martin Okner Board Member, Beia and Fazit

I believe the best indicators of a product-market fit are high levels of consumer engagement on social and an extraordinarily high rate of 5-star positive reviews posted across sales channels.

If engagement and reviews are heading in the right direction, a brand should next determine its ability to scale and think through what they need to be successful. This involves a much different set of metrics encompassing the following factors:

External—How big is the core addressable market? Can your product serve the unique needs of tens of millions or hundreds of millions of people?

If yes, the product-market fit is scalable. If it only serves the needs of a very small segment of the population, growth may be limited. I often advise brands to look at census data and various syndicated reports on consumer behavior/sentiment to try and go deep in analyzing the size of the addressable market for its products.

In cases where the market potential is high, but there is strong competition like in most categories of beauty, a brand should also try to ask themselves the tough questions on how many people will realistically try the brand and potentially change their behavior.

There is no perfect methodology to this, but it is always good to try and get to a starting point on market sizing with well documented assumptions. This will also help best understand where the consumers are and how to reach them.

Internal—Do we have enough resources internally to build awareness of the product-market fit and drive trial/repeat purchases among our addressable market? It’s not always about more money either! As customer acquisition and retention costs have increased post-iOS 14/15, brands are adopting other traditional and more creative approaches to reaching consumers with their product-market messaging.

Many brands are opting for doing more collaborations with like-minded companies, other more traditional affiliate efforts and/or sampling to build awareness and trial. Many companies are also becoming deeply introspective into what their organizations do particularly well.

Some brands are great at working with influencers and get far more mileage out of their collaborations than other brands. Some brands have founders that are amazing public speakers and can light up a room.

Bottom line, just how every person has a special talent, every company and brand as a construct of its people have special talents. If talents are nurtured properly to amplify product-market fit messaging in scale, they can become the company superpowers.

This requires extensive open dialogue in an organization, a bit of trial and error, and discipline in measuring the results of people’s time, effort and spend.

However, once that superpower is unearthed, the future capital requirements become much clearer, the organization becomes more focused, and the company scales more efficiently. That is where companies can realize much more favorable customer acquisition costs, conversion rates, repeat rates, and transform those who are aware of the brand and active customers into ambassadors.

I believe the best indicators of a product-market fit are high levels of consumer engagement on social and an extraordinarily high rate of 5-star positive reviews posted across sales channels. In the absence of sales channels or a large enough sample size of reviews, a brand can set up its own poll and have friends and friends of friends in the target market try the product and provide reviews via SurveyMonkey.

Anastasia Bezrukova Founder and CEO, Minori

We believe that product-market fit (PMF) in beauty has two separate and somewhat independent components. First, do the brand ethos and aesthetics resonate with the target audience?

The KPIs (key performance indicators) here are ROAS (return on advertising spend) and CAC (customer acquisition cost) on paid ads, and wholesale sales velocity per store. Second, do the products create a "wow" effect when used by customers? The KPIs here are repurchase rates, product reviews and organic sales (word of mouth).

At Minori, we took the approach of honing our brand messaging via in-person interactions with hundreds of consumers at local craft fairs before even thinking about deploying meaningful capital toward paid ads.

It has been amazing to see the differences in reactions to variations of our "elevator" pitches about our brand. Through trial and error, we discovered a crisp 15-second short pitch that consistently evoked a strong positive reaction among "non-makeup" people.

In the makeup category, where repurchase rates are lower than in skincare/haircare, we believe that a 20% to 25% 12-month repeat rate in direct-to-consumer distribution is a good indicator of PMF.

In wholesale, we like to see reorders from our retail partners every two months or less. We haven't yet deployed paid ads, but we believe achieving ROAS of >2.5x in the first few months is a positive sign.

Ultimately, our view is that PMF for small indie brands boils down to sustainable growth. Can you grow continuously at triple-digit rates year-over-year while generating positive cash flows? If the answer is yes, then you have a PMF!

Aisha Khan VP, Strategy and Insights, Momentum Commerce

LTV (lifetime value) to CAC (customer acquisition cost) is a foundational metric to measure product-market fit because it essentially answers two crucial questions at once: Can customers be acquired profitably? And do they keep coming back enough to build a sustainable business?

4:1 is ideal for an LTV:CAC ratio, but closer to 3:1 is more common, especially with rising CAC due to digital privacy hurdles.

A secondary metric we like to use at Momentum Commerce is branded search volume on Amazon. Regardless of whether the brand is distributed on Amazon, a rise in Amazon search volume means that more consumers are proactively seeking out the brand by name. This only happens with strong product-market fit.

Christine Holcomb VP, Cult Capital

When trying to understand if your brand has achieved true product-market fit, we recommend starting by asking your consumers. It’s important to understand who would be very disappointed if your product no longer existed and why.

Once you uncover the group of consumers who would be very disappointed if your product or brand did not exist, you can start to understand their customer profile, what they love about the product, and where there are opportunities to improve.

If you are effectively targeting the consumer profile(s) who benefit the most from your product, then you will start to see improvements in holy grail key performance indicators such as repeat purchase rates, retention metrics, velocity gains and profitable customer acquisition costs.

There is no specific metric that translates directly to achieving product market fit, but, if you are able to scale a brand without overspending on marketing costs, then that begins to indicate there is true organic demand for your product and that you are targeting the right consumer.

Rohit Banota Founder, Jump Accelerator

Product-market fit is rarely achieved fully, and brands are usually on a spectrum between no product-market fit and a full product-market fit.

The best indicator is more demand than you can supply. As a rough approximation, a brand should have >50% year-over-year growth, ideally>80%, to truly be on the road to a product-market fit.

Beauty brands like Glossier, Hero Cosmetics, Drunk Elephant and Vegamour went to $100 million in approximately four years with (in a rough approximation) average growth rate of >300% year on year.

A startup brand has three growth engines. Below are the leading indicators for each. These indicators should trend upwards for a startup brand to reach a product-market fit.

1. Loyalty: How loyal are your consumers?

Ideally, >50% repeat purchase year over year with multiple orders every year

The below should all trend upward:
-$/loyal consumers
-Purchase beyond hero products
-Number of products
-Routines and bundles

How to trend upward? You come up with your value hypothesis. Why do your consumers repeat buy your brand? Then you validate by focusing on increasing the value and checking if the above loyalty metrics show an increase or not.

2. Consumer Acquisition: Is your consumer acquisition cash flow and consumer lifetime value positive?

E.g., consumer acquisition through the below channels and initiatives should trend upward:

-Social
-SEO
-Partnerships
-Any channel. If in retail, then velocity month on month from a channel, account and doors

Paid Ads should become more and more profitable for consumer acquisition through any media or channel.

3. Advocacy: How effectively is your brand recommended?

How strong is word of mouth for your brand? The brands I work with and are growing at >50% year on year usually have>25% to 30% WOM. Having said that, I have seen brands acquiring 15% to 20% new consumers through WOM, but, since they don't proactively drive the WOM, it tends to flatten or decline. This is worsened because they may fare poorly in loyalty and direct consumer acquisition growth engines.

WOM needs to be >30% for your brand, and you should leverage it proactively to drive consumer acquisition, especially if you are a resource-constrained beauty brand. If you are not funded, then the higher the advocacy, the faster you will reach product-market fit. Why? Advocacy/referrals have the highest conversion rates.

In contrast, loyalty is heavily dependent on the frequency of usage unless you have a decent assortment of hero products that you can cross-sell. There is a cap on how much loyalty can help you grow.

Have you validated the positive correlation between fueling word of mouth and profitable consumer acquisition? How? You can fuel initiatives targeting buzz/WOM leading to new consumer acquisition and see if more effort or design leads to more buzz and, finally, more attributable consumer acquisition.

Validate your value and growth hypothesis and double down on the same, and you will be on the way to product-market fit.

Jamika Martin Founder, Rosen

Looking back, the strongest metrics that I saw with Rosen indicate a product-market fit really were a bit more qualitative than quantitative. I think, in those early days, when you're consistently reinforced by a growing customer base that you're solving X problem for them or that they resonate with the problem your brand is looking to solve, you're on your way to achieving product-market fit.

Once you get those customers to try your brand and return, that's when I feel like it begins locking in because now you've identified the issue you're looking to solve, validated it with customer sentiments, and proved that you're solving it in a way that makes sense and works well.

Those early customer conversations and tracking new customer growth and retention can give you a strong sense of if you're locking into the market in the right way or if some pivots still need to occur. Additionally, I think, once you land with a major retailer, that's a huge validation for product-market fit.

Scott Gurfein Founder, Skyefox Ventures

My perspective on product-market fit is borne from my experiences as a beauty brand founder and investor several times over and will differ from that of a straight investor’s and the academic definition.

The concept of product-market fit must be considered within the context of a company’s chosen vertical and ambition, with key supporting metrics generated from actual commercial traction. In other words, actually proving out that the product as a component of the business works in the real world versus on paper.

Such metrics include, but are not limited to:

1. Will a customer buy the product? What I mean is, do customers buy the product? I don’t mean, will they buy the product? While metrics like add-to-cart and click-through rates are good indicators of interest, conversion rate tells you that customers value your product at your price point and that you’ve effectively conveyed your unique selling points.
2. Customer repurchase of the product. Actual customers repurchasing the product, even at small scale, is gold. It proves the potential in the business model as well as product quality. It also helps identify the optimal target customer, all critical elements for success. Key metrics include repeat purchase rate and customer lifetime value, depending on the age of the business.
3. Profitable customer acquisition demonstrates your ability to attract new customers at a cost that is sustainable and generates positive returns. Due to the nature of the beauty industry and its strong repeat purchase rate, this calculation is often based on long-term customer value and not first-time purchase value. If you can efficiently acquire customers while maintaining healthy profit margins, it signifies a strong alignment between the product offering, target audience and marketing strategy, all of which are essential components of product-market fit.
4. Size of the prize. How big is the market relative to your category and competitive cohorts? Sizing this up along with the proof points outlined above provides valuable insights around potential.
5. Customer advocacy, which represents the strong emotional connection between customers and a brand, is hugely important. This connection manifests in social media engagement through shares, comments and word of mouth. Passionate customer advocates actively promote the brand within their networks, creating a snowball effect that amplifies brand reach, credibility and sales.
6. Indicators that the marketing plan and unit economics support a scalable and profitable business model. To ensure you’ve got the right product-market fit, you must create an economic model that supports profitable growth at scale. Having started multiple beauty companies in the past, I cannot express enough the importance of this exercise.

In terms of thinking about metric thresholds and milestones to prove product-market fit, there is no single answer. Rather, you want to think about the ideas of de-risking and clarity. The more you know, the more likely you will be to succeed.

At best, launching a product with soft data. Customer intent surveys, market research, etc., is still guesswork. That’s why I recommend proving out product-market fit. Yes, this will require resources, but if you’re committed to building your beauty empire, then you need to do it right from the start—and you want to know.

Metric/milestone thresholds:

1. Sales! Whether it’s $100,000, $250,000, $750,000 or $1 million-plus, the higher the sales, the better! Bonus points if you’ve managed to generate sales from your best-performing audiences as this will lead to a higher rate of repeat purchase. This is proving that the customers do buy the product and that you have product-market fit.
2. For a beauty brand, a conversion rate of between 2% and 5% indicates that you have a strong product offering and that you’ve generated high-intent traffic to your store, both strong indicators that you’ve found product-market fit.
3. Customer repurchase of the product. A good repeat purchase rate in beauty is around 35%, so a repeat purchase rate early on in excess of 15% to 25% is a good start in my view. While retention efforts take time to build, simply having customers that rebuy the product proves you have product-market fit.
4. Cost-effective customer acquisition. If your ratio between cost per acquisition and lifetime value is positive, you’re building a business with sustainable and predictable profit, a necessary foundation for growth and scale.
5. Customer advocacy. Shares, engagement, comments and word of mouth are signs of rabid fans. Examples include new followers gained after making a post about the product, engagement rate (the sum of people who interact with a post versus those who view a post) and view-to-like ratios. The higher the organic engagement, the faster you begin to build brand awareness and social proof. As you build your digital footprint, you’ll achieve more efficiency in your paid media strategy and an increase in your site traffic. Earned media and high engagement are definite indicators that you’ve got the right product-market fit.
6. Indicators that the marketing plan and unit economics support a scalable and profitable business model include proving out gross margins in excess of 70% and either actual profitability or a clear path to profitability once product, marketing and G&A (general and administrative) costs are factored.

Drew Fallon COO, Mad Rabbit

There are a few metrics one can look at in order to determine market fit. When trying to assess strength of demand (aka PMF), it behooves us to look at metrics whose outputs are functions of demand. Customer acquisition cost (CAC) is the ultimate indicator of product-market fit.

High levels of brand search will result in low CAC. Unpaid new customer acquisitions definitionally is a $0 (low) CAC.

Amazon prioritizes products with strong demand. If you are No. 1 on Amazon, you have a low CAC not only because that's what it takes to get there, but also because you are No. 1 on Amazon. This is a positive flywheel effect.

High conversion rate = more visitors are buying = your traffic wants your product = strong demand = low CAC.

CACs differ greatly across sectors. If you are running a profitable business on the unit economic level driven by the quality of your customer acquisition cost, that is the threshold. It is hard to answer this across sectors. If I were going to try, I would say that it is the point where CAC is an insignificant percentage of your dollars per net new transaction.

Christina Okubo Managing Director, Odepartment

Odepartment

Odepartment

Product-market fit is such a difficult concept to pinpoint because I think everyone has a different interpretation of it. In summary, I think of it as the intersection of excellent relevancy, positioning and awareness.

That being said, it ultimately depends on your business goal because, broadly speaking, one of the main aspects that you need to consider is whether you’re defining it in terms of short term versus long term.

Having great product-market fit in a "snapshot of time” (i.e., short term), while great, is not my definition of success. I definitely think that success over a longer period of time is the ultimate sign of building a strong brand. Thus, the ultimate metric to be looking at is repeat customers and loyalty.

Customer acquisition is the name of the game, but the real question is, are they coming back? Are they believers? Because the ultimate sign of product-market fit is when, despite new products and brands entering the market, your product is relevant and serves your customers in a way that no other brand is serving them.

Teri Levy Owner, Radiance Collective

When it comes to figuring out product-market fit and depending on the industry, there are a few metrics that can give us a good idea. One is the NPS (net promoter score), which measures how likely customers are to recommend a product to others using a scale from 0 to 10.

Customers who score 9 or 10 are considered promoters. Those who score 7 or 8 are considered passive, and those who score less than 6 or below are considered detractors. The NPS is calculated by subtracting the percentage of detractors from the percentage of promoters.

Other helpful metrics to know market fit include things like customer retention rate, customer lifetime value, customer acquisition and revenue growth rate. These numbers can all give a sense of how well the product is doing in terms of attracting and keeping customers, and whether the business model is sustainable.

It's important to keep in mind that the specific threshold for each metric will vary depending on the industry, product and target market. But, generally, if the product is scoring high on these metrics, it's a good indication that it has found its footing and is likely to be successful long term.

Here are some thoughts with a hypothetical example for those points:

Let's say there's a new haircare product on the market, and the company wants to know if it's a good product fit for the market. To evaluate the product fit, outside of the NPS score, they could look at three key metrics: customer retention, customer lifetime value, customer acquisition and revenue growth.

The customer retention rate would be how many customers continue to use the product over time. For example, if 100 customers buy the product and 80 of them buy it again the following month, the retention rate is 80%. A high retention rate would suggest that customers like the product and are willing to continue using it.

The customer lifetime value would be how much money a customer spends on the product over their lifetime. For example, if a customer buys a $20 bottle of shampoo once a month for a year, their lifetime value is $240. A high lifetime value would suggest that customers not only like the product, but they're also willing to spend more money on it over time.

Finally, customer acquisition and revenue growth would be how many new customers the product is attracting and how much revenue those customers generate over time. For example, if the company offers a new shampoo that's really popular and attracts a lot of new customers who keep buying it, that would indicate strong customer acquisition and revenue growth.

When a beauty product or any product has a high retention rate, lifetime value, and steady growth in customers and revenue, it indicates that the product is meeting a need in the market and has the potential for long-term success. The company can use these metrics to evaluate whether the product is a good fit for the market and adjust its marketing and product strategies accordingly.

Chris Hobson President and CEO, Rare Beauty Brands

For metrics for PMF, we primarily look at Amazon ratings, with 4.0 stars being the minimum and 4.3 stars or more as a signal for future success, though these numbers can vary a bit depending on sub-category within beauty, and assuming a large enough number of reviews that it is statistically significant and too large to be gamed by fake reviews (e.g., 500-plus).

We also look at repeat rate (benchmarks for success are category dependent) on DTC and net promoter score (NPS), where we're looking for a score of at least 60-plus. Note on repeat rate, it is not "percent repeat customers," but cohort-based repeat.

Repeat rate is highly category dependent. For example, deodorants would have a really high rate because they're used every day (hopefully!), bought relatively frequently (3X to 4X per year), and people get very loyal to their favorite scent or one that works.

In contrast, sheet masks are less of a regimen category and purchased relatively infrequently. So, it's really best to learn what works for your category and benchmark against that.

Jason Mahendran Partner, Active Partners

This varies by category and business model, but some of the key metrics we look to include customer repeat rate (more relevant for DTC brands), net promoter score and rate of sale (more relevant for wholesale brands). These metrics capture customer satisfaction and loyalty, providing a holistic view of whether the company is resonating with its target customer.

A high customer repeat rate indicates that the product is meeting the expectations of its consumers and generating customer loyalty. This leads to an engaged community of followers who become advocates for the brand, increasing word-of-mouth referrals and recommendations. NPS measures the likelihood of customers recommending a product to others, acting as your ambassadors, and increasing brand awareness and customer acquisition.

When a company sells wholesale, the rate of sale and the velocity at which products are selling on the shelf are indicative of a strong product-market fit. This will need to be benchmarked to competitors in the category to be meaningful.

Ultimately, however, reaching a meaningful level of revenue (that’s not too fragmented across different markets) that is consistently growing over a number of years is the best indicator.

The threshold for each of these metrics really varies by category and product. In the beauty industry, you’d expect to see a higher customer repeat rate for makeup than for skincare or hair, so the threshold indicating good product-market fit will be higher.

While a higher score is generally indicative of better product-market fit, it’s also crucial to track the revenue split between new and existing customers to demonstrate continued enthusiasm from repeat customers (and the ability to successfully develop and launch new product) and build valuable new customers for the future.

Rose Fernandez Beauty Industry Expert and Advisor

Product-market fit is important as it determines success. It is as basic as it sounds. Does the product fit the identified market?

Ultimately, when launching a new product, you are going after an opportunity to address an underserved or unserved need. Depending on the life stage of the brand this process will vary.

Using an existing brand for discussion, this can be accomplished through social listening. What are your customers telling you they want or what are they complaining about?

Surveys to VIPs in the database are always insightful or building a list of key customers to provide feedback on new product development. Research and insights from reports, competitive analysis and your key retail partner are required as the product-market fit is being determined.

Once the product exists, in order to prove product-market fit, I like to look at a few metrics, the most obvious one is achieving/exceeding revenue targets. Others are found in the data and within the customer journey. These will not be presented in any order of importance.

Customer acquisition cost (CAC) to lifetime value (LTV): This equation and metric is probably one of the most telling of your product-market fit as it demonstrates how much revenue is being generated by a customer relative to how much you spent to acquire them.

Repeat purchase rate: The number of customers who purchase over a set period of time. Using a moisturizer as an example over a year. what percent of the customers repurchased at a high rate? Let’s say +50% or more would be a success.

Net promoter score (NPS): It can be ascertained with a simple survey, usually one question to demonstrate if a customer is a promoter of your product and how likely they are to recommend it to others. The higher the NPS score, the better.

Ratings and reviews: Standard metrics on websites and apps to provide a rating system usually 1 to 5 stars, 5 being the highest and customer testimonials. These are gold to me as they are insightful as to the customers’ experience. They can tell you if you have product-market fit and are guides for potential new customers who are looking to try your product.

Ultimately, you want your customers telling everyone about your product. They should be your best advocate.

Gloria Luna Principal and COO, The Glow Group

Because part of achieving market fit speaks to creating that strong emotional connection with your consumers, I consider a variety of factors when assessing a brand’s market fit. Assuming we’ve done a good job of clearly defining and communicating our value proposition to our target customers, I would be looking at retention metrics such as repeat purchase rates.

At the beginning, I want to see sustainable growth in website traffic and increases in conversions that are exceeding industry standards. Are we maintaining healthy, consistent sales without heavy promotion?

There are also qualitative metrics such as percentage engagement and word of mouth that are helpful. Are people talking about your brand/product(s)? Are they sharing content? Are they interacting by providing their feedback and offering reviews? The key is listening to that feedback and acting on it where it will improve the brand experience.

If you have a question you’d like Beauty Independent to ask beauty entrepreneurs, executives, investors and consultants, please send it to editor@beautyindependent.com.