8 Essential Loyalty Programme Metrics You Need to Track

In the wise words of Peter Drucker – “What gets measured, gets managed” – a quote that rings true for loyalty programmes. No doubt you already appreciate that measuring the right metrics is key for optimising your programme’s performance and driving customer loyalty. However, with a set of data at your fingertips, sometimes it can be overwhelming to know which KPIs to focus on.

That’s where this article comes in. I’ll break down 8 essential loyalty programme metrics that you absolutely need to track. From customer churn rate and average order value to net promoter score and redemption rate.

By the end of this article, you should have a clearer understanding of how to measure the success of your loyalty programme. Armed with that knowledge and data-driven decisions will help you engage your most loyal customers.

Contents:

• Key Takeaways
  

1. Customer Retention Rate: Tracking Loyalty Programme Success

2. Churn Rate: Identifying Areas for Improvement in Your Loyalty Programme

3. Purchase Frequency and Repeat Purchase Rate: Encouraging Customer Loyalty

4. Redemption Rate: Measuring Customer Engagement and Satisfaction 

5. Incremental Margin: Assessing the Profitability of Your Loyalty Programme 

6. Enrolment Rate: Gauging the Appeal of Your Loyalty Programme

7. Net Promoter Score (NPS): Measuring Customer Loyalty and Advocacy 

8. Participation Rate: Tracking Active Engagement in Your Loyalty Programme

• FAQs

Key Takeaways

• Customer retention rate is crucial for measuring the success of your loyalty programme. Calculating it regularly helps identify areas for improvement and implement targeted strategies.
  
  

• A high churn rate is a sign that a loyalty programme isn't meeting customers' needs. Analyse churn data to pinpoint areas for improvement and apply tactics to reduce churn and boost engagement.
  
  

• Purchase frequency and repeat purchase rate are key indicators of customer loyalty. Encourage repeat purchases through personalised experiences, regular communication, and a mix of rewards.
  
  

• Redemption rate gauges customer engagement and satisfaction with your loyalty programme. Boost redemption rates by sending personalised reminders, creating urgency, and optimising rewards based on customer preferences.
  
  

• Incremental margin measures the additional profit generated directly from your loyalty programme. Track this metric after a sufficient period to assess the programme's financial impact.
  
  

• Enrolment rate showcases the appeal of your loyalty programme's value proposition. Implement tactics like tiered structures, partnerships, gamification, and referral programmes to boost enrollment.
  
  

• Net Promoter Score (NPS) measures the likelihood of customers recommending your brand or loyalty programme. Collect NPS data through surveys and calculate the score to predict future growth.
  
  

• Participation rate measures the percentage of enrolled members actively engaging with your programme. Offer diverse earning and redemption options, create time-sensitive promotions, and use location-based marketing to drive engagement.

1) Customer Retention Rate: Tracking Loyalty Programme Success

We all know the importance of persuading customers to keep coming back. In other words, the percentage of customers who stay with your brand over a given period. An article on Smile found that first time buyers have a 27% chance of repeat purchases. After a second purchase that percentage increases to 49%. The likelihood increases to 62% after a third purchase.

Higher customer retention is the hallmark of a successful loyalty programme. Naturally then, myself and my team want our clients to see firsthand the impact that their loyalty programme has on customer retention. Which is why the Propello Cloud platform measures this metric. It’s a powerful indicator of customer loyalty and the overall health of your loyalty programme. 

Calculating and tracking customer retention 

Customer retention is a simple formula. You don’t necessarily need a loyalty platform to work it out (it does make long term tracking more convenient though!). Here’s the retention formula:

• (Number of customers at the end of a period - Number of new customers acquired during that period) / Number of customers at the start of that period x 100

For example, you had 1000 customers at the start of a specified quarter. During that quarter, you gained 200 new customers but lost 100. Your customer retention rate would be:

(1,100 - 200) / 1,000 x 100 = 90%. 

I just want to reiterate that to track customer retention rate effectively, it’s important to measure it regularly. Whether that’s monthly, quarterly or annually is of course, up to you. With increased regularity however, I would argue that the viability of using some form of metric tool also increases. 

Strategies to improve customer retention rate

You’ll find more retention strategies on our blog. We’ve gone into depth and details in articles such as this blog Customer Retention Strategies. For the sake of brevity, I’ll run you through a quick couple of pointers:

•  Personalise the experience: Use data from your loyalty programme to tailor rewards, offers, and communication to each customer’s preferences and behaviour.
   

• Communicate regularly: Keep your brand top of mind by sending targeted emails, push notifications, and other messages that provide value and encourage engagement. 
  
  

• Offer a mix of rewards: Combine transactional rewards (like points for purchases) with experiential rewards (like exclusive events or early access to sales) to keep things fresh and exciting. 
  
  

• Make it easy to earn and redeem: Ensure your programme is simple to understand and use, with clear earning and redemption options. 
  
  

• Gather feedback: Regularly survey your loyalty programme members to understand what they like, what they don’t, and what they want to see more of. 

Customer retention rate is a crucial metric for measuring the success of your loyalty programme. Calculating it regularly identifies areas for improvement and paves the way for implementing targeted strategies. This helps to keep customers engaged, drives long term loyalty and growth for your brand, as well as boosts their lifetime value. 

You’ll need the formula for customer lifetime value too. As we’ve seen in the stats above, there’s a direct relationship between higher customer retention and increased customer lifetime value. Here’s the CLV formula:

• Average purchase value x Average number of purchases per year x Average length of customer relationship (in years)

For instance, if your average customer spends £100 per purchase, makes 5 purchases per year, and stays with your brand for 3 years, their CLV would be:

£100 x 5 x 3 = £1,500.

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2. Churn Rate: Identifying Areas for Improvement in Your Loyalty Programme

Churn is the silent killer of poorly designed or executed loyalty programmes. Sometimes in spite of their best efforts, some businesses see customers leave their programme faster than they can say “rewards”.

Think of it this way; every customer who churns is a lost opportunity for future revenue. Not only do businesses miss out on their repeat purchases, they also lose the chance to upsell, cross-sell, and build long term relationships with churned customers.

Cross-sector benchmarks of overall customer churn currently stands at 4.1%. Whilst no company can completely eradicate churn, at least you’ll know how your business is faring in comparison to this percentage. Well, if you know how to calculate churn that is! I’ll show you how.

Analysing churn rate for optimisation

High customer churn is often a sign that a loyalty programme isn’t meeting the needs of customers or providing them with enough value. If customers aren’t seeing the benefits of sticking around, they’ll take their business elsewhere. To get a handle on churn requires a deepdive into data. That starts with this formula:

• (Number of customers who left during a period / Number of customers at the start of that period) x 100

For example, if you had 1,000 customers at the start of the month and lost 50 by the end, your churn rate would be:

(50 / 1,000) x 100 = 5%

Quick tip: don’t stop there. Look for patterns and trends in your churn data. Are certain customer segments more likely to churn than others? Is churn happening at a specific point in the customer journey? Identifying these data points will put you on a good start for pinpointing areas of impactful improvement. 

Tactics to reduce churn and boost engagement

Bear in mind that tactics for cutting churn are interchangeable with the retention strategies above. Apply these as you see fit as all will increase customer retention, thereby reducing customer churn. 

• Offer a compelling value proposition: Make sure your loyalty programme offers rewards and perks that customers actually want and value. 
  
  

• Simplify the user experience: If your programme is too complicated or confusing, customers will bail. Streamline the sign-up process, make it easy to earn and redeem rewards, and communicate clearly. 
  
  

• Address issues proactively: If customers do run into problems, be quick to resolve them. Show that you care about their experience and you’re committed to making things right. 

Every customer you retain is one less you have to replace. That makes a massive difference to your programme’s success. Armed with the know-how for detecting churn stops it from sneaking up on you. Stay vigilant of your customers needs, be proactive when you detect churn, and you will keep customers loyal for longer. 

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3) Purchase Frequency and Repeat Purchase Rate: Encouraging Customer Loyalty

When it comes to measuring the success of your loyalty programme, purchase frequency and repeat purchase rate are two metrics you can’t afford to ignore. These KPIs give you a pulse on how often customers are buying from you and whether they’re coming back for more.

First thing’s first; let’s break down what these metrics actually mean. Purchase frequency is the number of times a customer buys from you over a given period. This could be a month, a quarter or a year – whatever makes the most sense for your business.

Repeat purchase rate, on the other hand, is the percentage of customers who come back and buy from you again after their initial purchase. It’s a key indicator of customer loyalty and the “stickiness” of your brand…for lack of a better word! 

Tracking and interpreting purchase frequency and repeat purchase rate 

Encouraging repeat purchases is not just a means of driving revenue. Building a base of loyal repeat customers uplifts average spend. Since repeat buyers also trust you that little bit more with every purchase, they’re increasingly open to try new products or services. 

• Purchase Frequency = Total Number of Purchases / Number of Unique Customers 

• Repeat Purchase Rate = (Number of Customers Who Made Multiple Purchases / Total Number of Customers) x 100 

Repeat purchases are the lifeblood of any successful loyalty programme. After all, repeat buyers despite typically being in the minority, generate the majority of revenue.

We’ve seen this firsthand when our clients begin to implement initiatives to nurture loyalty. The impact becomes widespread and begins to have a positive impact on repeat purchase rates in the customer base at large. 

The strategies and tactics in the previous sections will help you encourage and incentivise purchase frequency rates. 

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4) Redemption Rate: Measuring Customer Engagement and Satisfaction

Redemption rate is the percentage of loyalty points or rewards that customers actually use. It's a crucial metric for gauging customer engagement and satisfaction with your loyalty programme.

A high redemption rate indicates that customers find your rewards valuable and easy to use. On the flip side, a low rate suggests that your rewards may not be hitting the mark. 

Calculating redemption rate

Here’s the formula for the redemption rate metric. Divide the number of points or rewards redeemed by the total number issued, then multiply by 100:

• Redemption Rate = (Number of Points/Rewards Redeemed ÷ Total Number of Points/Rewards Issued) × 100

Use insights yielded from redemption rates to optimise your rewards and incentives. If certain rewards have low redemption rates, consider replacing them with more appealing options. 

There’s a huge variety of rewards available and even the method of earning (such as conditional rewards) add definition and meaning to the customer journey. 

Strategies for boosting redemption rate and engagement

Let’s take a look at some best practices or strategies you should implement in your loyalty programme that encourages engagement and boosts satisfaction.

• Send personalised reminders to customers about their available points or rewards.
• Create a sense of urgency by setting expiration dates for points or rewards.

I always encourage our clients to keep track of redemption rates. That way, during reviews our CS teams are able to understand what’s resonating with our clients’ customers. From there, we’re able to assist with optimisations that continue to encourage long term engagement and lift overall customer satisfaction.

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5) Incremental Margin: Assessing the Profitability of Your Loyalty Programme

Incremental margin measures the additional profit generated directly from your loyalty programme. It takes into account the cost of your rewards along with other expenses. This metric is a good indication as to whether your loyalty programme is profitable. 

A positive incremental margin indicates that your loyalty programme is generating profit. Whereas a negative margin shows the costs of the loyalty programme exceed the money it generates. 

Aside from the financial implications, your loyalty programme having negative margins limits your ability to improve and optimise your loyalty initiatives. 

How to calculate incremental margin

To calculate incremental margin, subtract the cost of your loyalty programme from the additional revenue it generates. Bear in mind that ROI will take time to generate. Your loyalty programme will need time to generate profits that offset the sum of money you initially invested. 

• Incremental Margin = Additional Revenue Generated by Loyalty Programme - Cost of Loyalty Programme

Track this metric after a sufficient period of time after your loyalty programme has matured. The specific timeframe for tracking incremental margin will depend on factors. These include your industry, customer purchase cycle, and the nature of your loyalty programme (i.e., programme type). 

When to track incremental margin

We’re going to depart from the usual structure of this blog next. I think giving you some general guidelines around timelines and what to track would be more useful for you here. 

• Short term: In the first 3 - 6 months after launching your loyalty programme, focus on metrics like enrolment rate, participation rate, and redemption rate. These early indicators signal customer interest and engagement as well as identify any initial issues or opportunities for improvement. 
  
  

• Medium term: After 6 - 12 months, start tracking incremental margin and ROI. At this point your programme should have a solid member base and enough transaction data to assess its financial impact. I’d suggest comparing the purchasing behaviour and value of loyalty members against non-members. 

• Long term: Continue monitoring incremental margin and ROI on an ongoing basis. Typically I’d suggest our clients to do this annually at the most or quarterly at the minimum. Of course, much of this depends on internal governance as you decide the length of your reporting cycles.

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6) Enrolment Rate: Gauging the Appeal of Your Loyalty Programme

Enrolment rate paints a picture of the eligible customers who sign up for your loyalty programme. It’s a metric that showcases the appeal of your value proposition. Especially with regards to your loyalty programme; does it enhance or take away from your offer? 

A high enrolment rate suggests that the loyalty programme is resonating with your target audience. In this scenario we would advise our clients that their customers see value in the new loyalty programme. It means the programme benefits, communication, and positioning are hitting the mark. 

Measuring enrolment rate and identifying areas for improvement 

It’s a simple formula to calculate enrolment rate. Here it is:

• Enrolment Rate = (Number of New Programme Metrics / Total Number of Eligible Customers) x 100 

For example, if you have 10,000 eligible customers and 3,000 of them join your your loyalty programme, your enrolment rate would be: 

(3,000 / 10,000) x 100 = 30%.

Proven tactics to boost enrolment rate and attract new members

Once you've identified areas for improvement after using the Enrolment Rate metrics, it's time to take action. Here are some proven tactics to boost enrollment rate and attract new members:

• Offer a tiered programme structure: Provide increasing benefits and status as customers move up the ranks. This creates a sense of exclusivity and motivates customers to enrol and engage more frequently.
  
  

• Partner with complementary brands or services: Provides additional value to members. For example, a hotel loyalty programme could onboard a partner with a car rental company to offer discounted rates or bonus points to members.
  
  

• Use gamification techniques: Challenges, badges, or progress bars make the enrollment process more engaging and rewarding. This helps to create a sense of achievement and encourages customers to complete the process.
  
  

• Create a referral programme: At Propello, we always say referrals are the ultimate expression of loyalty. Reward existing members for bringing in new enrolees. Leverage the power of word-of-mouth marketing and incentivise members to act as brand advocates. 

Enrolment is just the first step in building long term customer loyalty. As you implement the suggested strategies above, you should begin to see an uptick in enrolment rates. 

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7) Net Promoter Score (NPS): Measuring Customer Loyalty and Advocacy

Net Promoter Score (NPS) is a widely used metric that measures the likelihood of customers recommending your brand or loyalty programme to others. It provides a clear, quantitative measure of customer satisfaction, helping you to predict future growth. 

It’s based on a single question: “On a scale of 0-10, how likely are you to recommend our loyalty programme to a friend or colleague?” Based on their responses, you would place a customer into one of three categories. These are:

• Promoters (9-10): Loyal enthusiasts who will keep buying and referring others. 

• Passives (7 - 8): Satisfied but unenthusiastic customers who are vulnerable to competitive offerings. 

• Detractors (0 - 6): Unhappy customers who can damage your brand through negative word-of-mouth. 

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8) Participation Rate: Tracking Active Engagement in Your Loyalty Programme

Participation rate is a critical metric that measures the percentage of enrolled loyalty programme members who actively engage with your programme. It takes into account all interactions, from earning and redeeming points to making purchases and responding to promotional offers.

A high participation rate indicates that members find value in your programme and are motivated to engage with it regularly. In my experience, high participation rates means rewards are resonating, communications are clear, and the overall customer experience is exceeding customer expectations.  

Calculating and monitoring participation rate

To calculate participation rate, use this formula:

Participation Rate = (Number of Active Members / Total Number of Enrolled Members) x 100. 

For example, if you have 50,000 enrolled loyalty members and 15,000 of them made a purchase or redeemed a reward in the last month, your participation rate would be:

(15,000 / 50,000) x 100 = 30% 

It’s important to track participation rate over time so that you can identify trends and opportunities for improvement. Monitor how the rate fluctuates month-over-month or quarter-over-quarter. Look for any spikes or drops that could indicate changes in customer engagement. 

Also, you could always segment your participation data by specific factors. Demographics, purchase history and even communication preferences, identify your most engaged customers within the loyalty programme. 

Strategies to improve participation rate and drive active engagement

If your participation rate is lower than you’d like, don’t worry. There’s many proven strategies that you can use to drive active engagement and get more members excited about your programme. Here’s just a few: 

• Offer a variety of earning and redemption options: Cater to different customer preferences. Some members may prefer to earn points through purchases. Others on the other hand, may respond better to non-transactional activities like social media engagement.
   

• Create time-sensitive promotions: Scarcity and urgency are fantastic psychological pushes that agitate basic human desires. For example, Fear of Missing Out (FOMO) is a very real human drive. Leveraging these prompts will incentivise engagement. 
  
  

• Use surprise and delight rewards: Tailor rewards to individual members’ interests and preferences. This can help to create a sense of joy in a moment that the customer won’t soon forget. 
  
  

• Use location-based marketing: Believe me when I say, this will absolutely reverse a stumbling participation rate. Location-based marketing pings customers with personalised offers and rewards whenever they are near your store or even a partner location.

  
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Putting your loyalty programme metrics into action

You should now be better equipped to effectively measure the success of your existing or future loyalty programme. Tracking these essential metrics provide you valuable insights into what’s working well and where there’s room for improvement. 

But remember, measuring is just the first step. The real work (and rewards) happen when these insights are put into action. Use the data to test new strategies, optimise your rewards and communication, and continuously refine your loyalty programme. The beauty of having a robust set of metrics is that you can quickly see the impact of your changes and make data-driven decisions. 

Start measuring, start testing, and start optimising your loyalty programme today. Not only will your customers thank you. Your bottom line will too! 

FAQs 

What is a successful loyalty programme, and how can I measure its success?

Key metrics to measure success include customer retention rate, churn rate, purchase frequency, repeat purchase rate, redemption rate, incremental margin, enrollment rate, Net Promoter Score (NPS), and participation rate. Tracking these loyalty programme KPIs helps optimise performance and drive customer loyalty.

How do I calculate customer retention rate, and why is it important?

Customer retention rate is the percentage of customers who remain with your brand over a given period. Calculate it using the formula: (Number of customers at the end of a period - Number of new customers acquired) / Number of customers at the start of the period x 100. 

What is churn rate, and how can I reduce it in my loyalty programme?

Churn rate is the percentage of customers who leave your loyalty programme within a specific timeframe. Calculate it using the formula: (Number of customers who left during a period / Number of customers at the start of that period) x 100. 

How can I encourage repeat purchases and increase customer lifetime value (CLV)?

Personalise the experience using data from your loyalty programme, communicate regularly to keep your brand top of mind, offer a mix of transactional and experiential rewards, make it easy to earn and redeem points, and gather feedback to understand your customers' preferences and needs.

What is redemption rate, and how can I boost it in my loyalty programme?

Calculate it using the formula: (Number of Points/Rewards Redeemed ÷ Total Number of Points/Rewards Issued) × 100. To boost redemption rate, send personalised reminders, create a sense of urgency with expiration dates, and optimise rewards based on customer preferences.

How do I calculate incremental margin, and when should I track it?

Calculate it by subtracting the cost of your loyalty programme from the additional revenue it generates. Track incremental margin 6-12 months after launching your programme, once you have a solid member base and enough transaction data to assess its financial impact.

What is enrolment rate, and how can I attract new members to my loyalty programme?

Calculate it using the formula: (Number of New Programme Members / Total Number of Eligible Customers) x 100. To attract new members, offer a tiered programme structure, partner with complementary brands, use gamification techniques, and create a referral programme.

How do I measure customer loyalty using Net Promoter Score (NPS)?

Net Promoter Score (NPS) measures the likelihood of customers recommending your brand or loyalty programme to others. Collect NPS data by sending surveys asking customers to rate their likelihood of recommendation on a scale of 0-10. 

What is participation rate, and how can I improve it in my loyalty programme?

Calculate it using the formula: (Number of Active Members / Total Number of Enrolled Members) x 100. To improve participation rate, offer diverse earning and redemption options, create time-sensitive promotions, use surprise and delight rewards, and leverage location-based marketing.

How can I put loyalty programme metrics into action to optimise performance?

To optimise your loyalty programme's performance use insights from tracking and analysing key metrics to test new strategies, refine rewards and communication, and make data-driven decisions to continuously improve your programme and drive long-term success. 

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.