In a world where competition between businesses is increasing, customer loyalty is important for staying relevant in your industry. A common question in the loyalty world is “how do I measure customer loyalty?” Answers to this might seem straightforward, however in reality there are many solutions. 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 loyalty program does make it easier to measure, what if you want to assess if you need a loyalty program before implementing one?
In order to help you at every stage in your customer loyalty journey, I’ve come up with a few ways to measure customer loyalty – regardless of whether you have a program or not!
How to Measure 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. CLV is a great way to assess your store’s overall health and project future success. Rather than looking at individual purchases, CLV measures the value each customer will bring to your store over their entire life.
Customer lifetime value is a great measure of customer loyalty because it is impacted heavily by how often a customer shops and how long they remain a customer. It will show you if your customers are becoming more loyal over time. Calculating your CLV will give you a benchmark to measure if your loyalty program will increase customer loyalty and engagement. 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! For more ways to increase customer loyalty, check out “The Complete Guide to Customer Retention Tools.”
Repeat Customer 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 realize that a repeat purchase is not the same as total customer loyalty but 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 super valuable because repeat customers are extremely profitable. Having an idea of your RPR allows you to realize what makes certain customers become 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. This survey looks at how likely your customers are to recommend your business to a friend. Since a loyal customer is more likely to refer you to their friends, this type of survey is a good indicator of how loyal your customer base is.
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 9-10 are considered promoters and 7-8 passive. Customers who indicate 6 and under are known as detractors.
Your NPS is the number of promoters minus the number of detractors. If you’re looking for more information about how to calculate your NPS, NetPromoter.com has a number of awesome resources.
How to Measure Customer Loyalty When you Have a Loyalty Program
The three metrics mentioned above 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!
My personal favorite metric is the Redemption Rate.
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 loyalty program drives customer loyalty by establishing a strong relationship between the positive emotions felt when receiving a reward and the points 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 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.
A Customer Loyalty Program
After reading this post, you probably want tools to help you increase your customer loyalty. While there are many retention strategies available to help improve it, a customer loyalty program is 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.