Measuring Customer Loyalty: How to track it?

Analytics & Attribution 6 min read

The defining factor of a successful profitable business is happy customers who buy products or services and therefore create revenue for the business. You already know the fact that it is far easier & cheaper to generate revenue from existing customers than acquire new customers. This is a key reason for implementing a customer loyalty program.

Why Is Customer Loyalty Important?

Any good brand should aspire to attract and retain satisfied customers to drive continued revenue and conversions. A customer loyalty focus fosters trust between your brand and customers — when customers are encouraged to return to your company, they experience a higher level of value and satisfaction that is superior to the potential benefits they could get from a competitor.

Actually, shoppers spend more time and money with the companies they trust. Data shows that – when compared to new customers – loyal customers spend 67% more on products and services. These loyal customers might make up only 20% of your entire audience, but when they are properly engaged, they can provide up to 80% of your overall revenue.

It’s also 5x easier to retain an existing customer than it is to acquire a new one. By focusing on existing customers, you can encourage repeat purchases and increase the likelihood that those customers will spend more over their lifetime with your company.

Segment your clients

It’s difficult to imagine any customer loyalty program without a personalized approach. It allows every client to feel special and cared for. To be at the right time with the right message, make use of segmentation. It will enable marketers to divide their mailing list into segments according to age, gender, geographic location, occupation, preferences, interests, engagement, and so on. Then, they craft different email campaigns with relevant offers to each group. This way, every subscriber receives what they want. SendPulse offers ready-to-use segments based on user activities.

How to measure Customer Loyalty

You can measure loyalty by looking at customer behavior. Repeat customers make more purchases, stay customers for a long time, and make referrals. All of these things can be easily measured. So, here are the metrics for determining loyalty.

  • Lifetime value (LTV). Lifetime Value refers to the total amount of money shoppers spend on a brand right from their first to their latest purchase. Increasing Lifetime Value is a good indicator of loyalty. To boost lifetime value, brands need to develop relationships with customers, cross-sell, and upsell. 76% of companies see LTV as an essential concept.
  • Repeat purchase probability. Repeat purchase probability forecasts the likelihood of a customer making another purchase. If a customer is less likely to make another purchase, this means that there’s a good chance they’ll churn. This gives you the intel to find ways to keep customers from shopping elsewhere. To calculate repeat purchase probability, take the number of customers that have purchased X amount of times in a period of 365 days, and divide that by the total number of customers in that same period.
  • Churn rate. This is all about customers who cancel or disengage. We determine this metric by calculating the percentage of customers lost based on the number of customers at the start within a specific timeline. To get the user churn rate, divide the number of customers churned by the number of customers at the beginning. The percentage can help marketers understand the number of customers lost monthly or quarterly. Another more critical churn metric is revenue churn. It allows businesses determine churn in terms of lost revenue as customers cancel. Revenue churn presents a more accurate picture of how business is going.
  • Loyal customer rate (LCR). The loyal customer rate helps you to find that out so you can give your most loyal customers a VIP treatment in the form of loyalty programs, extra incentives and more. To measure your loyal customer rate, take the number of customers who’ve purchased more than four times in a year and divide it by the number of unique customers in the same period.
  • Customer retention rate (CRR). Customer retention rate measures what percentage of customers stay with you over time. It’s another quintessential customer loyalty metric telling you how well you’re keeping your customers. The higher your retention rate, the better you’re doing at keeping customers. To calculate your customer retention rate, take the total number of customers at the end of a given period, subtract it from the number of acquired customers in the given period and divide it by the number of customers (at the beginning of that given period). It can be a little tricky because the period of time could be anything you want but to make it easier, use one year as a standard time measure.
  • Repeat purchase rate. Repeat purchase rate measures how many repeat customers you have. It is the customer loyalty metric. To calculate this, take the number of customers who bought more than once (in a given time period) and divide it by the total number of customers in that same time period.
  • Referrals. A business that runs a referral program can keep tabs on the number of new customers who register based on recommendations. By measuring referrals, a brand can track not just new conversions but also customers who are satisfied enough to tell others about it.
  • Net promoter score. NSP estimates a customer’s intent to tell others about the brand. Though this metric does not tell the business if the customer recommends the product or brand, it helps the company to find out the general loyalty rate of its users.
  • Health Score. When customers are satisfied, their most important needs are met and their expectations are potentially exceeded. They become best ambassadors for your business, and the health score certainly helps you identify them, so you can make sure you to give them proper review support for them to start attracting additional prospect customers. Referrals are immensely powerful when it comes to building or destroying your hard-won customer base.

What types of loyal customers exist?

People are loyal for various reasons, but it’s relatively easy to group them into six distinct loyalty categories.

Happy Customer

These customers like your products or services, have never complained, and probably have purchased from you numerous times. But your competitors can easily steal them: all it takes is a better deal, a discount, or the formation of a new relationship.

Price-loyal

These customers are with you only because of low prices. If they can save money elsewhere, they’ll leave. If you offer the best price again, they’ll return. It’s pretty easy to keep this type of customer, but at a tremendous cost.

Loyalty program-loyal

These customers are not loyal to your company or what you sell. They are loyal only to your loyalty program, and in many cases, only because your loyalty reward offers the best deal.

Convenience-loyal

This person is loyal only because your brand is easy to communicate with, easy to find, and easy to purchase from. A convenience-loyal customer isn’t swayed by price: Convenience is what keeps them with you.

Loyal to freebies

These customers are not drawn to your brand because of what you sell but because of other things you offer. Free Wi-Fi or infant changing tables or free inspections are some examples. Customers who are loyal to your freebies may buy from you only sporadically and don’t contribute heavily to your revenue stream.

Truly loyal

These are your customer advocates. They repeatedly purchase from you, talk about their great experiences with your company, and send their friends and family to you.

Tips to Increase Customer Loyalty

  • Make the loyalty program visible on the site: the more visible and accessible it is, the more likely that customers will engage and value it.
  • Speak the customer’s language to make the brand relatable: use words and emoji that your audience can understand.
  • Offer flexible payment plans: for example, customers can pay for a product little by little through flexible monthly plans.
  • Come up with ways to frequently communicate with customers: send warm birthday and anniversary email wishes, reminders, recommendations, or monthly newsletters to keep customers engaged.
  • Build emotional relationships with customers for long-lasting loyalty: show each customer how valuable they are to the brand by creating an experience that caters to their specific needs.