How To Measure Customer Loyalty With These 12 Important Metrics
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How To Measure Customer Loyalty With These 12 Important Metrics

Understanding how to measure customer loyalty is key to strong customer relationships. Explore different metrics and watch your customer loyalty soar.

Tim Kuo

Tim Kuo

Jul 14th 202412 min read

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Customer appreciation is vital for any business. Whether you are a small startup or a well-established corporation, cultivating customer loyalty is the foundation of any successful business strategy. But how do you measure customer loyalty in a meaningful way? Understanding customers’ needs and preferences can enhance experience and drive brand loyalty. In this blog, let’s explore strategies to measure customer loyalty, ensuring the success of your loyalty programs and customer appreciation efforts.

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What Exactly Is Customer Loyalty?

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

Strong customer loyalty to a brand leads to more word-of-mouth referrals and trust between the brand and the consumer. Since existing customers are likely your greatest source of revenue, it’s an 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, Senior Director of Loyalty at Michaels, these factors can help you successfully establish a loyal customer base.

Reward

Rewarding your loyal customers is always a good idea. 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 part of a positive community can increase customer happiness and loyalty.

Relevance

The more insight you have into behavioral analytics, the better. With personalization and regular engagement, you can create a customer-centric campaign.

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Why Measure Customer Loyalty?

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Loyal customers spend more and are likely to buy new products, which helps you reduce the cost of your overall customer acquisition. Recent stats have found that boosting retention by a mere 5% can increase profits by 25% or more. But why do you want to measure your customer loyalty?

1. Helping Customer Loyalty Support Business Goals

Well, there are many good reasons why measurement is crucial. You’ll put customer loyalty at the service of your business goals. By measuring customer loyalty, you can use the data as a benchmark for growth. Without it, you won’t understand the progress you’ve made.

2. Leveraging Customer Insights for Better Retention

Use the customer's voice to improve your loyalty. By linking retention rates with deeper insights (into the drivers behind customer loyalty, for example), you can make better-informed decisions to improve customer experience and retention.

3. Understanding Customer Value for Financial Growth

Better understand the value of each customer. Similarly, sophisticated loyalty measurements let you cross-reference retention metrics with financial data. That means you’ll have visibility of the cost of churned customers and the financial impact of retention.

4. Proving the ROI of Your CX Program

Prove the value of your CX program. Solid metrics give you the power to prove your worth. Knowing the return on your investment will be crucial if there’s any internal resistance to your loyalty program.

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How To Measure Customer Loyalty With These 12 Metrics

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1. Net Promoter Score

The Net Promoter Score (NPS) is a standard business tool for understanding customer satisfaction and suggesting marketing strategies. By asking customers to rate their likelihood of recommending a brand to friends or family on a scale of 1 to 10, customers are divided into:

• Promoters (9-10)

• Passives (7-8)

• Detractors (0-6)

Subtracting the percentage of Detractors from the Promoters gives the NPS. Follow-up with Detractors can convert them into Promoters.

Combining Scores with Customer Demographics for Deeper Insights

Complement the score with other metrics, like the demographics of your customers, to better understand who your ideal customers are. You can compare your Net Promoter Score with the industry benchmark by visiting this Net Promoter Network report. The drawback of NPS is that it indicates customers’ intent, which isn’t always reliable. Customers might imagine they would recommend a brand to a friend but not actually do it. Therefore, it’s not the most actionable. Your NPS can still be useful to gauge current user sentiment.

2. Customer Lifetime Value (CLV)

Customer Lifetime Value (CLV) estimates the revenue a business can earn during a customer's relationship with the brand. Personalized marketing efforts can enhance CLV by calculating the Customer Value multiplied by the Average Customer Lifespan.

For example, personalized in-app messaging, emails, and upsells can increase CLV.

3. Repeat Purchase Rate (RPR)

The Repeat Purchase Rate measures the percentage of customers who make multiple purchases. While this rate doesn't guarantee loyalty, building loyalty with repeat customers is simpler. Returning customers are more likely to convert, and it costs less to retain existing customers. Calculating the RPR involves dividing the number of repeat customers by the total number of customers.

4. Customer Loyalty Index (CLI)

The CLI, derived from customer surveys, measures a customer's loyalty toward a brand. Unlike the NPS, the CLI includes questions about repeat and multiple purchases. Although not a replacement for other measures, the CLI records intent rather than behavior, allowing comparisons between intention and reality.

5. Upsell Ratio

The Upsell Ratio measures customers who purchase multiple products compared to a single product. A high upsell ratio is essential for high-value items to maximize cart value. Calculating the upsell ratio involves dividing the number of customers buying additional offerings by the total number of customers.

6. Customer Loyalty Index (CLI)

The CLI tracks changes in customer loyalty over time and gathers them through customer surveys. You can calculate the average CLI score by asking customers about their likelihood to recommend, try new products, and make repeat orders on a scale of one to six.

7. Customer Engagement Score

Another indication of customer loyalty is how heavily they utilize your services and how engaged they are with your brand. PeopleMetrics conducted a study based on nearly 10,000 online interviews, which revealed that high-performing companies focus more on customer engagement levels (62%) than those that perform poorly (46%).

Tailoring Strategies with Customer Engagement Scores

Customer Engagement Score assigns every customer a score based on their individual activity and usage of your services. It allows you to:

• Group customers into segments (by demographics, product, account owner, etc.)

• See how each segment performs compared to other segments and identify churn-risk customers within those segments.

The numbers can also predict whether your customers will likely renew, upgrade, or purchase additional products.

Metrics Behind the Score

Compared to brick-and-mortar stores, customer engagement is easier to track for online businesses, where nearly all interactions can be recorded. To calculate the customer engagement score, you can measure inputs to represent your customer’s success and engagement; these are:

• Frequency of usage

• Level of usage

• Number of actions taken by the customer

• Total time spent on activities

• Performance indicators, etc.,

We recommend the following metrics to track engagement:

• Activity time

• Frequency of usage

• Level of usage

• Number of actions taken

• Key performance indicators

Higher customer engagement is driven by better functional experiences (such as increased convenience, choice, and efficiency) and emotional experiences (such as the customer feeling valued, the customer’s relationship with their representative, and trust in the service).

8. Customer Effort Score (CES)

Yet another score you can collect is the customer effort score (CES). It gauges how much effort a customer spends to:

• Buy products

• Resolve issues

• Answer questions

• Have requests fulfilled

Like NPS or CLI, you would calculate this score based on answers in a survey. This particular survey would ask people "How easy was it to interact with [your company] on a scale of 'very easy' to 'very difficult?'. If customers answer "very easy," they're far more likely to be loyal to you and continue engaging with your brand and offerings. While CES is a great way to measure ease of interaction with your brand, it's not always helpful in measuring customer loyalty. Instead, combine it with NPS and CLI to get a complete picture of the customer experience.

9. Active Engagement Rate

The engagement rate, or active engagement rate, considers all people actively engaging with a loyalty program. Based on this calculation, you can determine how successful your loyalty program is and figure out ways to encourage more people to sign up. For instance, you might find that you need to advertise the rewards in your program, personalize rewards when possible, or make it easier for customers to earn them before losing interest.

You can calculate the engagement rate using this formula

Number of engaged customers / Total number of customers

Formula of the active engagement rate

Number of engaged customers divided by the number of total customers.

10. Participation Rate

The participation rate will help you gauge the success of your loyalty program. While the engagement rate is ideal for tracking people already signed up for your loyalty program, the participation rate will help determine how many people are enrolling. As such, this metric is a good indicator of how well your loyalty program attracts customers.

If this metric is low, you might discover that you must promote your loyalty program to more customers or find ways to revamp your rewards. People might also simply not know how to enroll. In this case, you can direct people toward a signup page to get them started.

Calculating the participation rate is easy and entails the following formula: Number of members in your loyalty program / Total number of customers

11. Redemption Rate

The redemption rate can give you an idea of how loyal your customer loyalty program members are. To find the redemption rate, divide the total number of points or coupons redeemed by the total number of 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.

12. Customer Satisfaction

These days, customer satisfaction (CSAT) surveys are used a little less often than NPS. 41% of B2B brands use NPS, compared to 26% that use CSAT. While NPS has substantial benefits, CSAT can still be extremely useful for understanding customer retention.

Typically, in a CSAT survey, you’ll ask customers how satisfied they are with a particular interaction. This isn’t the most reliable indicator of loyalty in the long term, but it shows you that you’re satisfying your customers’ needs — an important gauge.

Simply ask “How satisfied are you with [x]?”, where [x] is a part of your customer journey.

Then, receive responses on a 10-point scale. Use it alongside NPS for the best results!

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Why Loyalty Programs Fail

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Lack of Relevant Rewards

Customer loyalty programs are designed to retain customers and encourage repeat business by offering rewards to customers based on their loyalty to the brand. One of the key reasons customer loyalty programs fail is the lack of relevant rewards for the customer. Imagine earning 1000 points over a year, which can only be exchanged for a box of tissues.

It doesn't entice anyone to stay loyal to a brand. Customers want to feel valued and appreciated for their loyalty. If the rewards offered are not relevant or valuable to them, they are unlikely to engage with the loyalty program or continue to do business with the brand.

Customer Service Issues

Another common reason customer loyalty programs fail is customer service issues. No matter how attractive the rewards or incentives offered through a loyalty program may be, customers are unlikely to be loyal if they have a poor experience with the brand's customer service. Customer service is essential to the customer experience and is significant in determining whether customers continue doing business with a brand.

If customers have difficulties reaching customer service representatives, experience long wait times, or receive unhelpful or unfriendly responses, they are less likely to engage with the brand's loyalty program or remain loyal customers.

Lack of Seamless Multi-Channel Experience

Customers are constantly connected through their phones and other smart devices. Another reason why customer loyalty programs fail is the lack of a seamless multi-channel experience. Customers expect to be able to engage with a brand and its loyalty program across various channels, including:

• Online

• Mobile

• Social media

• In-store

By offering a smooth experience across multiple channels, brands can enhance customer engagement and create a more personalized and convenient experience for their customers. An omnichannel approach to loyalty programs allows brands to reach customers where they are most active and engaged, increasing loyalty and repeat business.

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Tim Kuo

Tim Kuo

Jul 14th 202412 min read

About Giftpack

Giftpack's AI-powered solution simplifies the corporate gifting process and amplifies the impact of personalized gifts. We're crafting memorable touchpoints by sending personalized gifts selected out of a curated pool of 3 million options with just one click. Our AI technology efficiently analyzes each recipient's social media, cultural background, and digital footprint to customize gift options at scale. We take care of generating, ordering, and shipping gifts worldwide. We're transforming the way people build authentic business relationships by sending smarter gifts faster with gifting CRM.

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