Customer Loyalty & Rewards
January 5, 2023

How to Measure Customer Loyalty: Tracking the Metrics & KPIs that Matter

How to Measure Customer Loyalty


 

The days of merely counting purchases are long gone; measuring customer loyalty has evolved into a nuanced science. It's about understanding the deeper connections, the emotional bonds, and the overall experience your brand offers. In this blog we'll look at how to measure customer loyalty.

We'll not only introduce you to the key performance indicators (KPIs) and metrics used to measure customer loyalty but also shed light on the importance of each.



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Why Measure Customer Loyalty?

Keeping track of customer loyalty can help you identify effective customer retention strategies, treat loyal customers better, and turn them into strong brand advocates. 

Small businesses can learn about their most valuable customers by keeping track of how loyal their customers are. The more information you have about your most important customers, the better you can create marketing plans that bring in more customers and make more money.

Here are some other excellent reasons to measure customer loyalty:

Track your business goals 

You can use metrics like customer loyalty as a yardstick for business expansion. You won't be able to appreciate your growth without it.

Improve service delivery by listening to feedback

It allows you to improve customer experience and retention by making more well-informed decisions based on a combination of retention rates and deeper insights into customer loyalty drivers.

Justify your customer loyalty programme

With reliable metrics, you can confidently assert the value of your customer loyalty programme. Knowing the value of your investment can help you overcome any reservations that may arise.

Now that’s sorted, here are some key metrics you should track to get started on your customer loyalty journey.

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How to Measure Customer Loyalty

It can be difficult to gauge customer loyalty. Simply put, you want to find out how committed your repeat customers are. You can't get there with just one simple equation.

Instead, you need to examine several metrics to get a more detailed picture of your connection with your most valuable clients.


Repeat Purchase Rate (RPR)

Repeat purchase rate is a metric that calculates customer value and simply measures how quickly a customer makes a second purchase after the first one. The goal of the metric is to predict how quickly and how often an existing customer will place a subsequent order.

The rate at which customers return (repeat business ratio) is a good indicator of how loyal they will be to your company. To gauge your company's success, track how often customers make repeat purchases. One-time buyers or subscribers are not a valuable part of your business. However, if you can keep returning customers happy over time, your business will thrive even if economic conditions change.

The RPR is derived by dividing the number of customers served over a given period by the overall number of customers served.


Net Promoter Score (NPS)

Customer satisfaction can be determined using the Net Promoter Score. It involves asking respondents to rate how likely they are to refer your brand to people they know.

Respondents to an NPS survey are classified based on the responses they give on a scale from 0 to 10:

Promoters 

These buyers gave their experience a score of 9 or 10. They are, essentially, your supporters. They are so satisfied with your service that they are willing to brag about it to their friends.

Passives

These customers have provided a score of either 7 or 8. It's difficult to predict how satisfied these customers will be. They keep quiet about their experiences, however, and don't promote the brand.

Detractors 

Customers who gave a score between 0 and 6 on a scale from 0 to 10 are included here. It's possible that they're unhappy with your services or that they had a negative experience. They may also hurt your company's image if they share their experiences with others.

The Net Promoter Score is determined by subtracting the detractors from the promoters. If the NPS is high, that's a good sign. Getting over 50 is a good sign, and anything over 70 is fantastic news for your brand.

The problem with the Net Promoter Score is that it provides only a rough estimate of customers' true intentions. It's possible for a consumer to say they would recommend a product to a friend but never follow through. It's not the most practical approach because of that. However, your NPS can still provide insight into how users feel about your product.

The NPS can help you figure out where you can make changes to your customer service that will have the most significant impact on bringing in new "promoters", who will likely become lifelong customers and vocal advocates for your business.


Customer Engagement Score (CES)

Measuring customer engagement is crucial for any business. To put it another way, it demonstrates how much of a difference your product makes in the lives of your customers on a daily basis.

The higher the score, the more active your customers are on your website, social media, and other media, as well as how often they submit reviews.

You can tell how well your customers feel heard and understood by your company by how much they interact with your brand and what it has to offer.

But some loyal customers might not be active on social media or leave reviews often, so this metric works best when combined with others and tracked together. Here is what to keep an eye out for: 

Conversion rate

Your conversion rate is the primary CES to track. The conversion rate is derived by taking the total number of customers who converted and dividing it by the total number of people who visited the site. Multiply by 100 to get the percentage.

Pages visited per session

This Google Analytics metric displays the total number of pages that users have visited during a single session.

Average session duration

The average amount of time a user spends on a website is measured in minutes and is referred to as the "session duration." You want this score to be as high as possible. Session duration is one of the most powerful loyalty KPIs that often gets overlooked because conversions are regarded as the key to success.


Customer Lifetime Value (CLV)

One popular way to measure customer loyalty to your brand is through the concept of "customer lifetime value," or CLV. A higher lifetime value indicates greater customer loyalty.

After estimating how much each customer is worth monetarily, you can calculate how much it will cost to keep them as clients. You can use the CLV to estimate how much money a customer will contribute throughout their relationship with your company. 

Among the many factors that go into determining CLV is the typical length of time that a customer spends as a devoted patron of your business. Simply divide the number of months you’ve been in operation by the number of lost customers during the same period, and you'll have your answer.

It is an important metric for identifying valuable customer groups and making predictions about their future spending habits. Marketing campaigns can then be tailored to these customers.

Customer lifetime value can be derived by dividing the annual revenue generated by a customer by the customer’s average lifespan (years). 


Customer Churn Rate (CRR)

The percentage of customers lost during any given period against the overall number of customers you had is known as the "customer churn rate" (CCR). A period's churn rate is determined by dividing the number of lost customers by the total number of customers at the start of the period. The churn rate is typically reported as a percentage.

The typical customer churn rates for business-to-consumer (B2C) and business-to-business (B2B) companies are 7% and 5%, respectively. An ever-increasing churn rate over time is indicative of dissatisfied customers who are increasingly likely to abandon ship in favour of a competitor.

Only cancellations should be counted in the numerator. Future cancellations should be left out of both the numerator and the denominator when calculating your CCR.

The number you arrive at represents an estimate of the number of customers who will terminate service during the specified period. Either due to dissatisfaction with the service or relocation outside of the coverage area.

You need an accurate idea of your churn rate to gauge how well your business retains existing customers and what percentage of future revenue will come from current services. 


Upsell Ratio

The upsell ratio is another useful indicator of customer loyalty. It compares the ratio of customers who purchased different product types with those who only purchased one.

Buying more expensive options rather than cheaper ones is considered upselling. Selling additional products to those intended is called cross-selling. Consideration of both the number of products purchased and their average value is a key component of the upsell ratio.

To determine the upsell ratio, divide the number of additional service buyers by the total number of buyers.


Customer Retention Rate 

The percentage of customers who continue to buy from a company after the initial purchase is known as the “customer retention rate”. Businesses generally report CRRs as a ratio, displaying the percentage of repeat customers for every set of 100 new customers. If this ratio is high, then you can be optimistic about your company's future sales and growth prospects.

To avoid long-term financial losses, businesses often calculate their CRRs to see how successful their customer retention strategies are. It is also a method of determining what kind of customer loyalty programme would be most effective in keeping your company's current clientele happy. 

An important point to remember is that CRR accounts only for those who return for additional purchases from the original vendor. Not customers who defect to competitors’ products or services.

You can determine your CRR by dividing the overall number of returning customers by that of new customers. This ratio can also be calculated in other ways, such as dividing the total returning customers by active accounts.

 

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Loyalty Metrics to Track for Your Customer Loyalty Programme


Customer loyalty programmes typically offer discounts, rewards, or points that can be redeemed for future purchases. By giving customers advanced notice of new sales, access to exclusive products, and personalised offers, a loyalty programme can help businesses retain and grow their customer base.


"Customers who participate in successful loyalty programmes are 80% more likely to buy from that brand than from a rival. The likelihood of them recommending that brand to family, friends, and coworkers is equally high."


The following metrics are useful for gauging customer loyalty in the context of a loyalty programme.

Active Engagement Rate

The active engagement rate is another indicator of loyalty programme success. Take your total customer count and divide it by the percentage of those customers who are actively participating in your loyalty programme.

This provides a visual representation of your loyalty programme's point-earning and redemption activity, which can help you determine how to increase participation.

Redemption Rate

This metric can be used to gauge the value of your customer loyalty programme. Your redemption rate can be calculated by dividing the sum of all redemptions by the overall number of points or coupons that were initially distributed.

The positive experience produced by accumulating points and redeeming rewards is what drives customer loyalty in a successful loyalty programme. The rate of redemption is a useful metric for gauging the efficacy of your customer retention initiatives.

Participation Rate

Customers' participation in your loyalty programme can be measured in the same way as their active engagement by tracking the percentage of your total customer base that has enrolled. Find out if your programme is engaging its audience by monitoring the number of participants.

Divide the number of customers participating in the loyalty programme by the overall number of customers you have. This rate can help you understand customer behaviour, measure the success of your loyalty programme, and guide your efforts to win their business.

 

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Optimise Your Results By Tracking Customer Loyalty Metrics

The aforementioned metrics will give you a clearer picture of how loyal your customers are to your brand and provide you with insights you can use to win over new customers and make your current ones more loyal.

Understanding what motivates people to feel loyal to an organisation is crucial for maintaining customer loyalty. Identify their motivations for making purchases, and think about ways to make their visit memorable. 

Provide them with a loyalty programme that is ideally suited to their preferences and watch them come back for more.

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