What Works, What Doesn’t: Measure Customer Loyalty

We have quantifiable proof that can help you discover how deep your customers’ loyalties really are; “success markers” that capture what works and what doesn’t!

Whatever form your loyalty program took up, it must be viewed in relation to your whole marketing strategy, and like any good marketing strategy, it needs a sound rationale for existing. Not only does it work as an additional marketing device for your brand but also as a tool with which to measure customer’s allegiance and loyalty. Measuring loyalty will allow you to see what’s working and what needs improvement and gives you room to make necessary adjustments to your strategy.

Fortunately, you don’t have to look further. Here are some metrics you have to look out for when measuring your customers’ loyalty!

BUT FIRST, BEAR THESE IN MIND

Before you get your hands on quantifiable metrics, there are some things to keep in mind.

Keep eyes open for shifts on market’s behaviour

Rely on market data and ensure that you have enough market intelligence to explain changes within your buying sector. This intelligence allows you to make sense of and rationalise your review and spot possible changes within your customer’s overall satisfaction. This way, you get to have a referential data on buyer behaviour for when you finalise your measurement.

Automate measurement before, during, and after the campaign’s release

And by “campaign” we mean your loyalty program. It goes without saying but automated data easily updates you about the returns your program is generating from your audience. The results of the automated measurement keeps you on track and shows exactly if you’re hitting aspects related to your goal.

QUANTIFIABLE METRICS

There are many ways of tracking and measuring customer loyalty, and all these would rely upon what you actually want to track. Let’s call these “success markers”. Here we give you five of the biggest success markers of customer loyalty. To start, imagine you own a coffee shop. As we go along with the metrics, we’ll throw in the hypothetical coffee shop data to help you understand the technicalities and formula better.

Repeat Purchase Rate (RPR)

If you’re looking for a real-time picture of loyalty, you might want to look into the Repeat Customer Rate (RPR). This metric tells you the percentage of your customer base who has made repeat purchases from you and leads you to repeat customers who may be profitable for your brand. In order to get the RPR, just divide the number of repeat customers to the total number of customers you have. RPR’s usual value ranges between 0% to 100%, although a higher rate would be better success indicator. For example, 24 customers bought something from your coffee shop more than once in a year, and your data would suggest you had a total of 128 customers for that same year. Divide the repeat customers by the total number of customers and multiply the answer to 100 and you’ll get your repeat purchase rate:

24 / 128 = 0.1875

0.1875 x 100 = 18.75%

Net Promoter Score (NPS)

This one comes in a survey form, mainly a slider scale, that is sent out to customers’ emails. It basically asks rankers whether they do or would ever recommend the brand in question to their friends and networks. Those who answer either 9 or 10 are considered “active promoters” (will actively recommend your brand and buy from you again); 7 or 8 are “passive” (satisfied but won’t recommend you); and finally those who answer 6 and under are labelled as “detractors” (will not buy from you again, won’t recommend you, and worse, even talk badly about your brand). Doing a final NPS calculation is simple: subtract the number of detractors from that of the promoters, and you have your NPS! This’ll give you the final percentage of customers (NPS) who are more likely and willing to refer your brand to their networks. Let’s say your coffee shop sent out the survey to 128 customers; 64 responded with either 9 or 10 while 29 rated you with 6 or below. Following the formula, it would look like this:

64 - 29 = 35%

You can then say that 35% of your customers are likely to promote your coffee shop to their networks.

Redemption Rate

This one gives you an idea about what, among the rewards you offer, are spent the most by your customers—almost like a “reward attractiveness” rating. It’s one thing for your customers to earn the points—it’s something they could get from a lot of trigger actions you’ve set—but it’s another thing to actually spend the rewards they’ve accumulated. You don’t expect customers to spend every point they’ve collected, but a good rate should be equal to or greater than 20%. To calculate this, you simply have to get these variables:

1. total number of customers who spent their points; and

2. the number of customers who earned points.

To calculate, divide the total number of those who spent their points to the number of those who earned it (say, everyone with points enrolled on your customer loyalty program) and finally, multiply it by 100 to get the percentage. To illustrate, let’s say your coffee shop has a loyalty program and it has given rewards to about 95 customers and only 32 of those customers have redeemed the rewards at some point. Calculation like this would follow:

32 / 95 = 0.3368

0.3368 x 100 = 33.68%

Your redemption rate then is at 33.68% or 34%.

Retention Rate

The retention rate measures a customer’s proclivity and willingness to remain with a brand and/or continue using their products and services. Of course, this is all predictive, but is usually calculated by looking into the already existing proof of customer satisfaction. To complete the calculation though make sure you know these variables:

1. the total number of customers at the end of a period;

2. the number of customers gained during that same time period; and finally

3. the total number of customers you have at the beginning.

Recalling the coffee shop example, let’s say you have 128 customers at the beginning and that you gained an additional 23 customers (customer gain). Suppose finally that the total number of customers left at the end of a time period is 145. To get the number of remaining customers (which will eventually lead us to the final retention rate), just subtract the number of new customers gained from the total number of customers you have at the end: 145 - 23 = 122. Then, divide the remaining customers to the total number of customers you had at the beginning: 122 / 128 = 0.9531. To finally get your retention rate, just divide that to 100: 0.9531 x 100 = 95.31 or 95%.

Customer Lifetime Value (CLV)

To compute the CLV, you need to observe how often customers shop with your store and how long they remain as your customers. After all, frequent customer purchases are direct indicators of loyalty! CLV shows how profitable a customer will be. For a short computation method, just divide the average revenue of an order to the average number of orders made by the same customer in a given time period. Of course, other variables still need to be updated to get to the CLV, but since the traditional computation is too confusing, Smile.io made their own clearer version which you could check right here. This will get you the additional insight that tells you exactly how beneficial your relationship will be with a specific customer!

Userlike has also included other success markers you could refer back to if you need other ways of determining how loyal your customers are. For them, loyal customers are:

1. Likely to refer you to their networks (friends and contacts)
2. Likely to keep buying from you
3. Open to using or patronising other products or services you offer
4. Not looking for other suppliers
5. Honest and give you appropriate feedback so you could improve

Smaller businesses should deliver a consistent and positive experience to their customers. This fosters a more beneficial relationship with your market, which could be profitable in the future. Understanding proof of customer loyalty gives one a clearer picture about them and especially a broader perspective on your whole marketing plan. So, be sure to check back every once in a while to see how loyal your customers really are and learn to adjust or shed the stuff that doesn’t work anymore!