How to Measure Customer Loyalty?
How to measure the efficiency of your customer loyalty platform? Which metrics are important for customer loyalty? How to measure customer retention rate? How to calculate loyalty metrics? You will find answers to these and other questions related to customer loyalty metrics in this article.
Table of contents:
1) How to measure customer loyalty?
2) How to get the customer loyalty data?
3) Loyalty metrics and how to calculate them?
- CLV – Customer Lifetime Value
- RPR – Repeat Purchase Rate
- NPS – Net Promoter Score
- Churn Rate
- Customer Retention Rate
- CAC – Customer Acquisition Cost
- CES – Customer Effort Score
5) Loyalty Program Metrics and how to calculate them?
- Redemption Rate
- Participation Level
- Engagement Rate
6) Measuring loyalty with Voucherify calculator.
7) What loyalty metrics can Voucherify calculator compute for you?
8) What should I do after calculating my loyalty score?
How to get the customer loyalty data?
Before you measure customer loyalty and customer retention, you need to get the data. How to get it? There are two types of data you should be looking at when measuring customer loyalty: quantitative and qualitative.
Quantitative data like numbers of purchases a customer made, average order value, purchase frequency should be all available in your CRM system. Qualitative data, like brand awareness, affiliation, and advocacy, are best measured by customer surveys.
You may start qualitatively measuring your customer affiliation by doing an email survey. The questions that are going to tell you the most about your customer loyalty rates are: “Would you recommend our company to a friend?” and “How did you find out about our business?”
The first question is truly one of the best dipsticks into the measurement of customer loyalty if your customers are willing to endorse your product and put their name on it if it was theirs. The second question gives you an insight into how many customers found you thanks to a friend or a family member which says a lot about levels of endorsement and advocacy of your audience.
If you already run a survey or you don’t think that this is what your business needs, you may go straight to the metrics and hard data.
Loyalty metrics and how to calculate them?
In this section, we will cover the following top loyalty metrics:
- CLV - Customer Lifetime Value
- RPR - Repeat Purchase Rate
- NPS - Net Promoter Score
- Customer Churn Rate
- Customer Retention Rate
- CAC - Customer Acquisition Cost
- CES - Customer Effort Score
Customer Lifetime Value (CLV)
CLV estimates customer profitability. The aim is to predict how beneficial the relationship with a customer will be. These metrics require defining an approximate duration of the relationship with a customer (lifetime) which may cause some difficulty at the beginning of measuring CLV. Many algorithms are available for determining the CLV, but we recommend starting with one of these easy methods:
Alternatively, you can use an even more straightforward algorithm:
Repeat Purchase Rate (RPR)
It is one of the best retention metrics for reflecting the loyalty of your customers. Repeat Purchase Rate shows you how often your buyers come back to repeat a purchase. Because RPR relates directly to the retention rate, it is a reliable reflection of relationships with your customers.
RPR is very easy to estimate; its value ranges from 0% to 100% (the higher the better).
For example, RPR equal to 25% means that from 100 orders, 25 will be repeat purchases.
Net Promoter Score (NPS)
NPS is an index ranging from -100 to 100 which measures how willing your customers are to recommend your products and services to others. This metric can show you customers’ overall satisfaction with a delivered experience and also their loyalty to the brand.
How to measure NPS:
1. Send your customers an email asking them “How likely is it that you would recommend our company/product/service to a friend or colleague?”
2. Divide your audience according to their responses:
- Promoters (score 9-10) are your loyal customers and advocates of your brand.
- Passives (score 7-8) are satisfied with the purchase but the experience was not good enough to instill loyalty.
- Detractors (score 0-6) are unsatisfied clients who can harm your brand by spreading negative word-of-mouth.
3. Calculate your NPS:
4. Learn your lesson. To be sure your customers are satisfied with the delivered experience, your NPS should be above 60.
Customer Churn Rate
You need to know your customer churn rates if you want to know how many customers resigned from using your services. The customer churn rate is the opposite of the retention rate. It expresses how many customers you are failing to retain. The easiest way to calculate customer churn rate is to detract the number of customers at the end of the month from the size of your audience at the beginning and divide the result by the initial number of customers.
Customer Retention Rate
Customer retention rate is one of the most important retention metrics. It is the first customer loyalty index you should look at. It tells you how many customers you retained, how many stayed loyal to your business, over a period of time. Customer retention rate is a percentage of customers that stayed loyal as compared to all customers in that period. To calculate it, you need to divide the loyal customers over all customers in that period of time and multiply it by 100%.
Customer Acquisition Cost (CAC)
CAC is one of the most popular metrics used to measure customer loyalty and engagement. In short, it says how much resources you need to invest to acquire a new customer.
Customer Effort Score (CES)
CES shows how much effort customers had to put in to have their problems solved. Why is it important? CES is a very strong predictor of future customer loyalty - customer with high effort scores are less likely to return.
The easiest way to measure your CES is to ask your customers how easy it was for you to solve their problem with three answers:
After getting some substantial feedback, move on to calculate your CES metric:
The CES is measured by subtracting the percentage of customers who replied “easy” from the percentage of customers who replied “difficult”. The resulting customer effort score is between -100 and 100 and the higher your score is, the better.
Remember that you don't have to implement all of these metrics at once, start from one of the listed ones and slowly extend your tracking. For example, send your customers emails to measure NPS and supply each message with a personalized coupon code. Thanks to incentives like coupons, your customers will be more willing to deliver credible feedback.
Loyalty program metrics and how to calculate them?
After measuring your loyalty rates you may arrive at a conclusion that the current stats fall short of your expectations. One solution would be to launch a loyalty program and later on measure it to keep your finger on the pulse and react instantaneously to any undesired activities or outcomes.
In this section we will cover:
- Measuring redemption rates.
- Calculating participation levels.
- Measuring customer engagement in your rewards program.
Redemption rate is an easy way to see how many points in your rewards program are actually redeemed for rewards. High redemption rate indicates growing customer loyalty and the satisfaction of your customers with adequate rewards that offer true value.
Redemption rate under 20% is an indicator of a faulty loyalty program so keep an eye on that one.
The name is pretty self-explanatory – by measuring your participation rates you can see how many of your customers enrolled in your loyalty program. If the number is lower than expected, perhaps you haven’t marketed your program enough or it does not offer a true value to your customers?
Engagement rate is like a sibling to Redemption Rate as it gives you an overview on how many points were collected and spent by how many customers in a given timeframe to measure the overall customer engagement in your loyalty program.
With all this jargon under your belt you are more than ready to transform your ordinary customers into dedicated brand advocates. Why not get started now?
Measuring loyalty with Voucherify calculator
Voucherify loyalty calculator is fully equipped to measure the top loyalty and retention metrics of your audience and the performance of the loyalty rewards programs that have already been released.
Loyal customers and brand advocates constitute a small group of your target audience, yet they make a huge difference for your business. Loyal customers are far more likely to spend more on your products and come back to repeat a purchase. Launching a loyalty program can be a great way to first identify and then reward loyal customers which in hindsight leads to customer retention, an increase in customer referrals, recommendations, positive reviews and increased brand advocacy.
What loyalty metrics can Voucherify calculator compute for you?
Regarding the performance of your loyalty program, Voucherify calculator will help you to compute the retention, redemption, participation, and engagement rates of your audience. All you need to know is how many customers officially enrolled in your rewards program, and how many out of issued loyalty points have been redeemed for rewards. Speaking of rewards, visit this article to explore the possibilities offered by stepping beyond traditional point-based loyalty models.
But Voucherify loyalty calculator can do much more – fed with proper CRM data; it can calculate the general loyalty metrics of your customer base and help you plan future loyalty ventures taking into account rates such as CLV, CAC, churn or customer retention.
What should I do after calculating my loyalty score?
After calculating your loyalty score, you may want to either improve the performance of already running rewards programs that fell short of your expectations or act on the data that you acquired. If you are willing to make changes to your loyalty scheme, visit this article to learn more about the best features of loyalty program software.
However, if you are yet to invest in customer retention, visit this piece to learn about the best ways to increase the attractiveness of your brand in the customers’ eyes. Spoiler alert: loyalty and referral programs are not the only loyalty-boosting initiative at your disposal, but they tend to be the easiest to design, launch and track, especially if you would like to use already existing loyalty infrastructure that for instance Voucherify offers.
Are you ready to launch a better loyalty program?