How do you know when a new product launch is successful?  When you’ve reached a critical mass of customers.  Now, what exactly is “critical mass” for your customer base?

There are two ways to measure this, and they both have their places depending on the market you’re trying to reach.

Percentage of the market

If your market is somewhat small and the real total size is easily accessible, you can consider your critical mass to be a certain percentage of the total addressable market.  For a market on the size of 1-100k people, about 1% of the market would be sufficient.  Once more than one percent of your market is using (and is satisfied) with your current product it’s time to move on to more ambitious goals.  Market expansion, heavy advertising, product change and diversification – until you’ve captured at least 1% of your market, hold off on these potentially costly (and failure-prone) activities.

Customer demographic ratios

Sometimes, it’s impossible to know the size of your market.  Either it’s too large or too disperse to measure.  In this case, put your current customers into two different buckets: internal and external.  Anyone who has a financial incentive (you employ them, they’re a stockholder, they’re your spouse, they owe you money, etc.) to use your product should immediately be considered internal, whether they’d self-identify that way or not.

Now look at usage trends both across the entire customer base (everyone) and against just the external customers.  When the trends yield the same data for both groups, then you’ve captured just enough of the market that your internal users aren’t contaminating your data.  Until you reach this point, though, don’t make any long-term assessments of your enterprise based on the data you have – the data you do have is still heavily biased towards people who have a reason to see the company succeed, not towards your real customers.

Which method do I use?

In reality, you should look at both.  The first method is somewhat arbitrary and is useful for ventures that have little to no access to post-purchase customer information.  If you’re selling widgets from a brick-and-mortar storefront, this will likely be the only reliable metric you have.

If you can measure both, though, do so.  Then err on the side of creating a larger customer base.  If the Percentage model claims you need 1,000 customers to reach critical mass, but the Demographic model claims you only need 10, go with the larger number.  This will push out your objectives a bit farther, but it will also make your enterprise less risk-prone and pad your chances of success.