How to measure customer loyalty.

A loyalty program is an essential tool for keeping your best customers feeling appreciated, satisfied and coming back for more of what your brand offers.

And customer retention, as you know, is the name of the game.

It’s up to 25 times more expensive to acquire a new customer than it is to retain an existing one. That’s a good reason to focus on keeping customers happy. And what’s more, just a 5% increase in customer retention can increase company revenue by 25% – 95%.  Enough said? 

Your best customers stick around for a reason; they know and trust your brand. So they’re more likely to try new products, shop more often and spend 31% more  than newer customers. Plus, they’re your best source for positive word-of-mouth marketing and quality referrals. 

When you get your formula right, a customer loyalty program can help you forge life-long relationships with people who keep your business thriving. 

But how will you measure success? 

How to measure customer loyalty.

There are various ways to measure customer loyalty. Each offers a different perspective on the customer behaviour that qualifies as ‘loyalty’.

Regular measurement allows you to adjust your strategic approach in response to what’s working and what isn’t working to drive the behaviour you want.

Here are six of the most effective ways to measure customer loyalty:

1: Net Promoter Score (NPS)

Net Promoter Score is a common, and simple metric used in customer experience programs. It measures customer perception based on one simple question:

“How likely is it that you would recommend [Organisation X/Product Y/Service Z] to a friend or colleague?”

Respondents give a rating between 0 (not at all likely) and 10 (extremely likely). Depending on their response, they then fall into one of three categories to establish an NPS score:

  • Promoters (responding with a score of 9 or 10)
  • Passives (responding with a score of 7 or 8)
  • Detractors (responding with a score of 0 to 6

You can calculate your NPS by subtracting your “Detractors” percentage from your “Promoters” percentage.

2: Customer Loyalty Index (CLI)

Like NPS, this is a standardised metric that uses customer surveys. The difference is that it includes more questions than the NPS, it also covers repeat purchases and multiple purchases.

Three common questions asked:

  • How likely are you to recommend us to your friends and family?
  • How likely are you to buy from us again in the future?
  • How likely are you to try our other products?

This method allows for a more comprehensive understanding of your customer loyalty than a singular metric approach. It can also help predict future retention rates.

3: Customer churn

Your customer churn rate refers to the rate at which customers stop doing business with you. It’s important to understand that a decrease in your customer base is natural to a certain degree. But, if your annual churn rate is greater than 5% – 7%, you’ve got a problem.

There’s a difference between customer churn rate and retention rate:

“Retention rate is the ratio of customers that return to do business at your company. This differs from churn rate because churn rate refers to the number of customers you’ve lost over a period of time. A company with a high churn rate would by default, have a lower retention rate.”

4: Upsell ratio

When customers buy new products, it shows their trust in your business. This is why businesses track their upsell ratio. Upselling refers explicitly to customers who purchase a new product of a higher value than the initially intended product.

5: Customer Engagement Score

“By measuring engagement, brands will gain insight into how consumers think about loyalty to the brand, what they care about and, more importantly, what drives loyalty in the consumer base,” according to a study by Capgemini.

The Customer Engagement Score is used to assign every customer a score based on their activity with your services. The below metrics are often used to track engagement (particularly on online stores as nearly all interactions are recorded digitally):

  • Activity time: The total time the user has spent interacting with the offered services.
  • Visit frequency: How often a user returns to your business.
  • Core user actions: If a customer is consistently and repeatedly taking core actions as they relate to your business, this is a good indication of adoption.

Customers who are actively engaging with your brand are more likely to be loyal customers.

6: Would You Miss Us? (WYMU)

This metric asks your customers how much they’d miss you if you closed your doors. It uses a scoring system like the NPS, asking customers to rank you from 1 (won’t miss you at all) to 10 (would miss you very much).

It is designed to measure the strength of your customer connections. The WYMU is also an indication about your competitors – is there another business your customers could easily switch to using without feeling a loss of satisfaction?

Crafting a customer loyalty program for your brand.

Customer retention is critical at a time when customers have so many options available to them. Building a loyalty program that works for your brand is essential for building a loyal customer base. Achievement Awards Group crafts effective loyalty programs that create an emotional attachment to your brand, making your customers feel valued. And keeps them coming back for more of what you offer. 

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