Editor’s Note: This post was originally published in June 18, 2015 and was updated for accuracy and comprehensiveness on September 29, 2017.
With the birth of easy-to-use platforms like Shopify and Bigcommerce, competition between ecommerce businesses continues to increase. As a result, customer loyalty is more important than ever for staying relevant in your industry.
A common question in the world of retention marketing is “how do I measure customer loyalty?” From customer engagement to rewards program redemption rates, there are a number of different solutions. However, even though there are a ton of ways you can track customer loyalty, your ability to measure it is dependent on what you track.
Many people think measuring loyalty is only useful or possible if you have a loyalty program. While having a rewards program does make it easier to measure, what if you want to assess if you need a loyalty program before implementing one?
How to Measure Customer Loyalty
Whether you’re currently running a rewards program or not, there are a couple retention metrics that will give you the perfect starting point for measuring customer loyalty.
Customer Lifetime Value (CLV)
It’s not hard to see why customer lifetime value (CLV) is quickly becoming the king of metrics in ecommerce. Rather than looking at individual purchases, CLV measures the value each customer will bring to your store over their entire life. Therefore, CLV is a great way to assess your store’s overall health and project future success.
As you can see from the equation above, customer lifetime value is impacted heavily by how often a customer shops with your store and how long they remain a customer. This makes it a great measure of customer loyalty because it can show you if your customers are becoming more loyal over time. With this metric in hand, you’ll have a benchmark to measure if your rewards program will ultimately increase customer loyalty and engagement. Remember: if a customer is purchasing often and for a long time, they can be classified as loyal!
Calculate your CLV the easy way today so that you can measure improvements in customer retention and loyalty. The sooner you can get your hands on your CLV, the sooner you can find ways to increase customer loyalty!
Repeat Purchase Rate
While CLV is a great way to measure customer loyalty improvement over time, your repeat customer rate is a fantastic way to see a current snapshot. Your repeat customer rate is the percentage of your customer base that has made a repeat purchase from you.
I know what you’re thinking - just because someone makes repeat purchases doesn’t mean they’re a loyal customer. While that may be true, you need to remember that if you can get a shopper to purchase three times, they are 54% more likely to make another purchase. After all, it is much easier to create loyalty in a repeat customer!
Knowing your repeat purchase rate is extremely valuable because repeat customers are extremely profitable. Having an idea of your RPR allows you to understand what turns certain customers into repeat purchasers and apply that knowledge to future campaigns for new customers.
Net Promoter Score
A simple way to measure customer loyalty is with an NPS (net promoter score) survey.
An NPS survey will ask your customers how likely they are to recommend your brand to their friends on a scale from 1-10. Anyone answering with a 9 or 10 are considered promoters, while those responding with 7 or 8 are passive. Customers who indicate 6 and under are known as detractors.
You can calculate your final NPS score by subtracting the number of detractors from the number of promoters, giving you an idea of how many customers would be willing to positively recommend your store. Since a loyal customer is more likely to refer you to their friends, this type of survey is a really good indicator of how loyal your customer base is.
How to Measure Customer Loyalty When you Have a Loyalty Program
The three metrics we’ve already talked about will work regardless of whether you have a loyalty program or not. However, if you do have a loyalty program, you can have even more fun with measuring customer loyalty!
Redemption rate is my personal favorite metric. When you have a loyalty program like those run by Smile.io, you can use your redemption rate to measure customer loyalty.
Your redemption rate is the percentage of points that you issue that are actually redeemed for rewards.
An effective rewards program drives customer loyalty by establishing a strong relationship between the positive emotions customers feels when receiving a reward and the points they used to get that reward. Therefore, a high redemption rate can reveal just how loyal your program members are.
If members are earning points but never spending them, they may not actually be classified as a loyal customer. A redemption rate under 20% is usually an indicator that your loyalty program isn’t performing how you would like, so keeping an eye on it is key to your program’s long-term success.
Active Engagement Rate
This one goes hand-in-hand with your redemption rate, as it gives you a better idea of which percentage of your customers are engaging with your program on a regular basis. In this case, engagement is measured by any customer who earns or spends points in a determined time period.
Active engagement rate is an effective way to get a more granular look at how well your program is performing. By looking at how many customers are actually engaging with your program (through points earned and redeemed) you can more critically assess what you can do to increase those numbers. I would recommend calculating this metric on either a monthly or annual basis.
Like your store’s active engagement rate, this metric helps you get a better idea of your customer behavior and overall engagement. You can calculate this metric by dividing your total number of customers by the number of program members you currently have.
Like redemption rate, it gives you a better sense of how willing your customers are to buy in and participate in what your program is offering, giving you more actionable numbers to track your program’s growth and inform its direction in the future.
A Customer Loyalty Program
After reading this post, you probably want some tools to help you increase your customer loyalty, right? While there are many retention strategies available to help improve it, a customer loyalty program is definitely the most effective way to increase loyalty among your customers!
With these amazing metrics and a fantastic loyalty program in your arsenal, you are more than ready to begin converting your best customers into loyal ones.