Curious to learn what NPS, RPR or CLV mean? What loyalty rate is and how to know if your loyalty program is doing well? Then this article is for you!
The research shows that acquiring a new customer is 7 times more expensive than convincing a client to re-purchase. In the world of omnipresent competition, having a circle of brand enthusiasts and advocates is essential. In this post, we’d like to show you how to measure the strength of the relationships with your customers.
Measuring loyalty: loyalty program metrics explained.
Running a loyalty program is beyond doubt one of the best ways to increase sales and boost customer advocacy. However, a loyalty program is not a must to measure customer loyalty. In fact, you are going to use different metrics and tools to calculate customer loyalty and to measure the success of your rewards program.
Measuring customer loyalty by asking the right questions
Before we jump into calculations and equations, it is worth mentioning that you may start measuring your customer loyalty by doing an email survey to track the progress of your business.
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.
Customer loyalty metrics - a glossary
Note: We highly recommend investing in or creating own CRM platform to keep track of your customers’ activities to easily calculate the metrics below.
What will you find in this section?
Top metrics for measuring loyalty:
- CLV - Customer Lifetime Value
- RPR - Repeat Purchase Rate
- NPS - Net Promoter Score
- 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 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 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 instil 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.
You need to know your churn rates if you want to know how many customers resigned from using your services. The easiest way to calculate 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 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
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 loyalty program
Redemption rate is an easy way to see how many points in your loyalty 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?
Instilling loyalty in your customers starts from the very first interaction with the brand. The outcome reflects the delivered experience. Keeping the modern customer happy and satisfied comes down to showing your care and creativity. None of them require an enormous budget. Moreover, loyalty can be easily measured as a credible reflection of your marketing efforts. Because there is no silver bullet rule that grants endless loyalty, keeping an eye on decent stats is the only way to avoid letting it slip away.
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 with Voucherify?