How To Measure Customer Loyalty: 9 Important Metrics

How To Measure Customer Loyalty: 9 Important Metrics

Customer loyalty is defined as a positive emotional relationship between a repeat customer and your brand. It stems from continuous good experiences with your company. Loyal customers may repeatedly buy from you, interact with you on multiple channels, and enthusiastically spread the word about your brand.

Keeping tabs on customer loyalty can help you pin down customer retention strategies, nurture existing customers, and build strong brand advocates. 

So, let’s dive into what makes a loyal customer and how to measure customer loyalty to improve your customer retention.

What Is Customer Loyalty?

Customer loyalty refers to having happy customers who continue to buy from you over your competitors. A customer may be loyal once they’ve developed an emotional tie with your brand through repeated positive interactions.

Why is customer loyalty important? A loyal customer is not only likely to continue buying. They are also:

  • Open to other products or services from you
  • More likely to refer you to friends and family
  • More likely to give you feedback
  • Less open to marketing and sales pitches from competitors
  • More forgiving of issues that arise
  • Less likely to look at other brands

Strong customer loyalty to a brand leads to more word-of-mouth referrals and a heightened sense of trust between the brand and consumer. Since existing customers are likely your greatest source of revenue, it’s a pretty important factor. 

The Three R’s of Customer Loyalty

To help get a better picture of customer loyalty and how to build it, look at the three R’s of customer loyalty. Coined by marketing executive Paulo Claussen, Sr. Director of Loyalty at Michaels, these factors can help you successfully establish a loyal customer base.*

  • Reward: It’s always a good idea to reward your loyal customers. Think of old-fashioned punch cards: You get a free sandwich for every 10th meal purchased. You build loyalty by making customers feel good about redeeming their rewards. 
  • Recognition: Incentivize repeat customers to stick around by recognizing them with personalized offers or by supporting common causes. Making them feel like part of a positive community can increase customer happiness and loyalty. 
  • Relevance: The more insight you have into behavioral analytics, the better. You can create a customer-centric campaign with personalization and regular engagement. 

Customer Loyalty Metrics

While having a loyalty program makes measuring customer loyalty easier, you don’t necessarily have to have one to start the measuring process. After all, you may need to assess if you should implement a loyalty program first. Here are a few metrics to keep tabs on.

Did you know that increasing customer retention rates by 5% can increase profits by 25% to 95%?* Customer loyalty pays off. But how do you measure that?

Unfortunately, customer loyalty can be tricky to pin down. Loyalty is an emotion, and it can be difficult to take qualitative measurements like emotions and translate them into quantitative analytics.

Thankfully, there are several metrics you can use to get a better overall picture of how loyal your customers are. Below, we’ll go through nine customer loyalty metrics and how to use them.

1. Net Promoter Score (NPS)

The Net Promoter Score is a tool that helps gauge customer satisfaction. It asks people how likely they are to recommend your company to someone they know. 

In an NPS survey, the customer chooses a score between 0 and 10. Detractors are people who select 0-6. Promoters choose 9-10. You can calculate the NPS by subtracting the percentage of detractors from the percentage of promoters.

A higher number indicates a good NPS. A score above 50 is great, and one above 70 is excellent.

Net Promoter Score- how to get it

The drawback of NPS is that it gives you an indication of customers’ intent, which isn’t always reliable. A customer might imagine they would recommend a brand to a friend but not actually do it. Therefore, it’s not the most actionable. However, your NPS can still be useful to gauge current user sentiment. 

You can use your NPS to figure out how best to improve the customer experience to increase your number of promoters*who are also some of your most enthusiastic repeat customers and strongest brand advocates.

2. Repeat Purchase Rate (RPR)

Your repeat purchase rate is the percentage of customers who have returned to you for multiple purchases. While a repeat purchase doesn’t necessarily indicate loyalty, it’s easier to build loyalty in a repeat customer. 

Returning visitors are 74% more likely to convert than new ones.*  Plus, it costs much more to obtain a new customer than to retain an existing one. 

To calculate your RPR, divide the number of customers who made a repeat purchase in a given timeframe by your total number of customers in that same timeframe.

Repeat Purchase Rate - formula

3. Upsell Ratio

Upsell ratio is similar to repeat purchase rate, but involves different products or offerings. To measure it, divide your customers who bought more than one type of product by those who only bought one in a given time.

Because loyal customers can be more open to additional purchases from you, upsell ratio can help gauge customer loyalty.

Keep in mind that the more different the additional product is from the first, the greater the indication of customer loyalty. For example, if a customer buys a phone from the same company they bought their laptop from, that’s a stronger indication of loyalty than buying the same or similar products twice.

Upsell Ratio - formula

4. Customer Lifetime Value (CLV)

Customer Lifetime Value (CLV) is the profit margin you can expect to earn during your entire relationship with an average customer. CLV can help you get a picture of how much more your customers are buying from you during your business relationship.

Customer loyalty and CLV go hand in hand. If you have loyal customers, you’re more likely to report a high CLV.

To calculate CLV, first find the lifetime value by multiplying the average value of a sale, average number of transactions, and average customer retention period. Then, multiply the lifetime value by profit margin.

To save time, you can also use our very own CLV calculator.

Customer Lifetime Value formula

5. Customer Loyalty Index (CLI)

Customer loyalty index is a tool that can help you track customer loyalty over time. It involves a survey with three questions aimed at gauging NPS, repurchases, and upselling:

  1. How likely are you to recommend [company] to a friend?
  2. How likely are you to buy from [company] again?
  3. How likely are you to try [company]’s other products or services?

Customers answer on a scale of 1 through 6, where 1 means “very likely” and 6 means “not likely.”

To calculate CLI, find the average of all three scores. Remember that while measuring intent isn’t the most reliable and actionable, you can still paint a useful picture of customer loyalty if you send out the survey regularly over time.

Customer Loyalty Index (CLI)

6. Customer Engagement Score (CES)

A customer engagement score can help determine how engaged your customers are with your brand. Each customer gets a score based on their usage of your product and/or services. 

This can be especially useful for online businesses and SaaS-based brands with clever customer engagement tactics. To calculate CES, you’ll need inputs like:

  • Activity time
  • Frequency of usage
  • Level of usage
  • Number of actions taken
  • Key performance indicators

Exactly which inputs depend on what you want to factor in. Combining those inputs can help you distill lots of info into a single number (usually between one and 100) that’s easy to monitor, while looking individually at all inputs separately can be time consuming and confusing. 

Prioritize and assign a weight to each event that you want to use to track engagement. This can be assigned on a scale from 1 to 10. A higher weight indicates a higher importance. Then, use the formula below:

Customer Engagement Score (CES)

You can use the customer engagement score to segment customers by different demographics to estimate churn risk and assess who is likely to repeat a purchase or make a new one. You can also use it to estimate who may be most likely to upgrade from a free trial to a full product. 

As an example, you can segment customers with a high CES who renew at a high rate from those with lower scores and lower renewal rates. You can then spend more time, targeted ads, email journeys, and messaging to nurture those with lower scores.

Customer Loyalty Metrics When You Have a Customer Loyalty Program

Customer loyalty programs reward repeat customers with redeemable points or coupons. Having a loyalty program can improve your customer retention strategy by offering customers early access to sales, exclusive products, and tailored offers. 

Think Starbucks Rewards, where customers earn stars with each order that can be cashed in for food and drinks on the app. It’s one powerful example of great retention marketing

Did you know that customers who signed up for great loyalty programs are 80% more likely to choose that brand over competitors? Plus, they’re twice as likely to recommend that brand to friends and colleagues.*

If you have a loyalty program in place, the following metrics are great ways to measure customer loyalty.

7. Redemption Rate

Redemption rate can give you an idea of how loyal your customer loyalty program members actually are.

To find redemption rate, divide the total number of points or coupons that have been redeemed by the total points or coupons issued.

A good loyalty program generates customer loyalty by making customers feel good about earning points and cashing in on rewards. The redemption rate can help quantify the success of your customer loyalty strategies.

Redemption Rate

8. Active Engagement Rate

Active engagement rate can also help determine how successful your loyalty program is. To calculate it, divide the number of customers who are actively engaged in your loyalty program by your total number of customers.

This helps you visualize how many customers are earning and redeeming points in your loyalty program, and can provide insight on how to up that percentage.

Active Engagement Rate

9. Participation Rate

Similar to active engagement rate, your program’s participation rate will show how many customers are enrolled in your loyalty program. The participation rate can show you if your program is appealing to your customer base. 

To find it, simply divide the number of loyalty program members by the total number of customers. This rate can give you a good sense of customer behavior, quantify your loyalty program’s performance, and help inform win-back strategies.

Participation Rate

With the metrics above, you can get a better picture of customer loyalty surrounding your brand and take away actionable insights to create brand advocates and more loyal customers. 

CleverTap’s lifecycle optimizer provides you with guided frameworks to understand your user base and move them from one lifecycle stage to the next. Schedule a demo today to learn how you can turn casual users into loyal customers.

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Posted on December 28, 2021