When I first started looking at consumer brands circa 2011, an NPS measure was in almost every deck (at least the good companies). Today, not so much. Granted, I work with earlier-stage companies, and we have other, arguably better, measures to track customer sentiment, especially for DTC brands. In evaluating a brand, I look at all the basic metrics incl. customer acquisition cost, customer lifetime value, retention by month (A16Z does such a good job of putting together the most important metrics here, here and here, that it would be silly for me to try). I’m here to make a case for Net Promoter Score (NPS). Let’s bring it back! Note, this post isn’t about calculating or defining NPS. For that, look here.
I welcome you to share your views on NPS with me on Twitter (aditi_sf).
Why continue to use NPS?
NPS continues to be the easiest, most straightforward way to measure consumer sentiment (in a way that’s comparable to other brands/categories). While I like the simplicity of the happy face vs. sad face measure that some companies have started using, I think there’s less nuance in that metric and less of an ability to benchmark.
Furthermore, I like to use NPS as a proxy for retention. Many businesses that I look at are too new to have real retention data. The cohorts just haven’t been around long enough. The thesis is that higher NPS leads to higher retention, and I think more DTC companies should be using this metric. I’d love to see it in every company’s deck(even one that has been around for only a few months). NPS is a number that a company can get right away (well, maybe not right away, since it requires a survey) instead of having to wait years. And, it’s a number that can be actively tracked by the company (I recommend every 6 months or before/after any major initiatives that can have an impact on customer sentiment, if possible).
With churn being so important for DTC and subscription businesses, NPS can provide an early look at risks of losing a customer. A company that values a NPS measurement can analyze and try to understand consistent increases or declines in NPS. Even knowing which of your customers are promoters vs. detractors can be helpful for an early-stage brand. According to Bain, “customers who are promoters spend 3.5 times more than detractors.” The link also has some great NPS comps for larger companies i.e. Amazon, Ulta.
What’s a good NPS in consumer?
Now, to benchmarks! We know that eCommerce tends to have high NPS scores — average across eCommerce businesses is 63. But, what’s considered good within eCommerce and CPG?
Here’s what I like to see for NPS score within the consumer sector. A few notes:
- Businesses with strong presence on social typically have higher NPS. Sharing a product on Instagram is the ultimate recommendation. I look at high social engagement stats (likes, positive comments, shares) alongside or instead of NPS. This includes beauty & personal care, athleisure, fitness studios (anything you want to show-off).
- NPS for products we don’t actually use ourselves tends to be higher (i.e. stuff for your baby or your pet). We don’t get tired of them since we don’t actually consume them.
- NPS is lower in food & beverage. I think it’s because food preferences are more fragmented/personalized
- Expect some decline in NPS as a brand scales. Startups that are getting early traction tend to have higher NPS scores (early adopters tend to be fanatics). But, the decline shouldn’t be drastic. For example, meal kit companies have suffered a drastic decline in NPS scores in the last 5 years. Companies that started with scores between 60–70% are now between 10–20%.
- The ranges below are for best-in-class, early-stage consumer companies that I’ve seen. There are always exceptions and outliers.
**Source for Image: https://webengage.com/blog/net-promoter-score-how-to-automate-when-to-send/