Understanding how to measure customer loyalty is crucial for business success. Key metrics like CLI, NPS, and CES help track customer satisfaction and retention. By understanding customer behaviour and expectations, you can optimise your marketing efforts and improve the customer experience.
Introduction
Having a trustworthy relationship with your customers is the key to fostering customer loyalty — also known as "brand loyalty."
Brand loyalty stems from your customers' positive experiences with your company over time. These repeat customers are still one of the best forms of advertising.
But how exactly do you measure 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 post, we'll discuss how to measure customer loyalty. I'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.
Contents:
Key Takeaways
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Measuring customer loyalty helps identify effective retention strategies, treat loyal customers better, and turn them into brand advocates.
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Repeat purchase rate calculates how quickly customers make subsequent purchases and predicts their future purchase frequency.
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Net promoter score assesses customer satisfaction by asking how likely they are to recommend the brand to others.
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Customer engagement score demonstrates the impact of your product on customers' daily lives through their interactions with your brand.
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Customer lifetime value estimates the total monetary value a customer will contribute throughout their relationship with your company.
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Customer churn rate represents the percentage of customers lost during a given period compared to the total number of customers.
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Upsell ratio compares the proportion of customers who purchased different product types versus those who only bought one.
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Customer retention rate is the percentage of customers who continue to buy from a company after their initial purchase.
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Active engagement rate and redemption rate are key metrics for gauging the success and value of a customer loyalty programme.
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Understanding customer motivations and providing a tailored loyalty programme are crucial for maintaining and increasing customer loyalty.
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.
Those are just some of the benefits of measuring customer loyalty. And now we’ll discuss how you can claim these benefits for your brand.
How to Measure Customer Loyalty
It can be difficult to gauge customer loyalty. If 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.
Financial Metrics
These include metrics such as customer lifetime value and repeat purchase rate.
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).
Repeat purchase rate
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.
Behavioural Metrics
Key behavioural metrics to measure include the customer retention rate, net promoter score, and customer effort score.
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.
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:
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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.
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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.
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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 effort score (CES)
The customer effort score (CES) is a metric that measures the ease of a customer's experience with a product, service, or support interaction. CES surveys typically ask customers to rate how much effort they had to put forth to complete a task, resolve an issue, or interact with the company.
A low CES indicates that customers found the experience effortless and smooth, while a high CES suggests that customers had to exert significant effort, leading to frustration and dissatisfaction.
When customers experience a low-effort interaction, they are more likely to remain loyal to the brand and continue doing business with the company. In contrast, high-effort experiences can lead to customer churn and negative word-of-mouth.
Engagement Metrics
Several engagement metrics provide valuable insights into customer loyalty that can optimise your marketing efforts and the customer experience.
Customer loyalty index
The customer loyalty index is a comprehensive metric that combines multiple customer loyalty indicators into a single score. This index takes into account loyalty indicators such as repeat purchases, customer satisfaction, likelihood to recommend, and customer lifetime value.
The CLI considers multiple dimensions of customer loyalty, providing a holistic view of a customer's relationship with your brand. It does this with questionnaires addressing several loyalty indicators.
To calculate the customer loyalty index, you survey customers with these questions:
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How likely are you to recommend our products to people you know?
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How likely are you to make another purchase?
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How likely are you to purchase one of our other products?
Customers answer each question on a scale of 1–6. A score of 1 represents the most positive response, and 6 represents the most negative response. The corresponding weighted score ranges from 0 to 100, with higher scores indicating stronger customer loyalty.
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Customer score |
1 |
2 |
3 |
4 |
5 |
6 |
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Weighted score |
100 |
80 |
60 |
40 |
20 |
0 |
The average of a customer's three answer scores is their CLI. However, keep in mind that not every customer will be answering the questions honestly, making this method less accurate than when you track actual customer behaviour.
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:
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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.
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Pages visited per session: This Google Analytics metric displays the total number of pages that users have visited during a single session.
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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.
Additional Metrics
Here are some additional metrics that can make a difference when track and analysed correctly.
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). An ever-increasing churn rate over time is indicative of dissatisfied customers who are increasingly likely to abandon ship in favour of a competitor.
The typical customer churn rates for business-to-consumer (B2C) and business-to-business (B2B) companies are 7% and 5%, respectively.
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.
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.
Loyalty Metrics to Track for Your Customer Loyalty Programme
Customer loyalty programmes are one of the most effective strategies for cultivating brand loyalty.
They 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.
Optimise Your Results By Tracking Customer Loyalty Metrics
The aforementioned metrics will give you a clearer picture of how to measure customer loyalty. With valuable insights into how customers feel about your brand, you can identify improvement areas to keep them satisfied.
Remember that 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.
FAQs
What is the Customer Loyalty Index (CLI) and how is it calculated?
The Customer Loyalty Index (CLI) is a metric that measures customer loyalty by considering factors such as repeat purchases, customer satisfaction, and likelihood to recommend. You can calculate the customer loyalty index by surveying customers and assigning a weighted score to their responses.
How can understanding the average customer lifespan help with customer acquisition?
Understanding the average customer lifespan helps businesses plan their customer acquisition strategies more effectively. By measuring how long customers typically stay loyal to the company, businesses can allocate resources to acquire new customers and retain existing ones for optimal long-term growth.
What role do customer success teams play in meeting customers' expectations?
Customer success teams play a crucial role in meeting customers' expectations by proactively engaging with customers, understanding their needs, and ensuring they achieve their desired outcomes. They work to build strong relationships with customers, provide timely support, and drive customer loyalty.
How can businesses reduce customer acquisition costs while still acquiring new customers?
To reduce customer acquisition costs while still acquiring new customers, businesses can focus on targeted marketing efforts, referral programmes, and optimising their conversion funnel. By attracting the right customers and providing a smooth onboarding experience, businesses can lower acquisition costs.
What is the customer effort score and how does it relate to customer loyalty?
The Customer Effort Score measures how much effort a customer has to exert to resolve an issue or complete a task. A low effort score indicates a positive experience, which can lead to increased customer loyalty and advocacy. But a high effort score indicates a negative experience, which can dampen brand loyalty.
How can social media engagement and website traffic be used as metrics to measure customer loyalty?
Social media engagement and website traffic can be used as metrics to measure customer loyalty by tracking customer interactions, sentiment, and behaviour across different social media platforms. High engagement rates and repeat website visits would suggest a loyal and interested customer base.
What are the different types of customers and how does customer buying behaviour vary among them?
Although it varies, the main types of customers include loyal customers, impulse buyers, discount seekers, and need-based buyers. Each type exhibits different buying behaviours, such as purchase frequency, price sensitivity, and brand loyalty, which businesses must understand to tailor their strategies.
How can businesses effectively use marketing efforts to attract new customers and retain existing ones?
To attract new customers and retain existing ones, businesses should use targeted marketing efforts across various channels. By understanding customer preferences and behaviour, businesses can create personalised campaigns, loyalty programmes, and content that resonates with their target audience.
How can businesses use customer feedback to improve loyalty and reduce churn?
Businesses can use customer feedback to identify pain points, improve products or services, and enhance the overall customer experience. By actively seeking and analysing feedback through surveys, reviews, and support interactions, companies can address issues proactively and reduce churn rates.
How can tracking metrics help optimise customer loyalty programmes?
Tracking metrics like purchase frequency, customer health score, repeat customers total, and percentage of detractors helps businesses understand customer behaviour, and optimise their loyalty programmes. By monitoring these metrics, businesses can make data-driven decisions to improve customer loyalty.
Author Bio, Written By:
Mark Camp | CEO & Founder at PropelloCloud.com | LinkedIn
Mark is the Founder and CEO of Propello Cloud, an innovative SaaS platform for loyalty and customer engagement. With over 20 years of marketing experience, he is passionate about helping brands boost retention and acquisition with scalable loyalty solutions.
Mark is an expert in loyalty and engagement strategy, having worked with major enterprise clients across industries to drive growth through rewards programmes. He leads Propello Cloud's mission to deliver versatile platforms that help organisations attract, engage and retain customers.
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