Tipping the Scales: The Metrics Behind Measuring Customer Loyalty

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For many years, people have been extolling the many virtues of customer loyalty. From a general standpoint, we can all agree that customer loyalty is vital to every business. By focusing on building customer loyalty, companies increase the possibility of customers coming back. This has the effect of boosting the business’s income stream.

The question is, how do we go about measuring customer loyalty? What are the metrics that we can use to quantify the concept? And which customer loyalty metrics should you be using? Because, while a general understanding may be good for the man on the street, it is worthless to the business owner seeking to build lasting customer engagement. To do this effectively, the owner needs to understand how to measure customer loyalty and which tools to use to determine its level of efficiency. 

We get it, and we’re here to help. We’ve compiled a short list of metrics that are generally used to measure customer loyalty. Keep reading, and you’re most likely to find one or two options that work for your business.

Customer Lifetime Value

Customer Lifetime Value (or CLV) is one of the most widely used customer loyalty metrics. CLV is used to measure the value that any customer will bring to a company over a lifetime. A business CLV can be calculated by multiplying the customer value by the company’s average lifespan.

Many businesses prefer using CLV as a metric because it can reveal if customers are becoming more, or less, loyal over time.

Repeat Customer Rate

This customer engagement metric focuses specifically on the percentage of customers that are making more than one purchase from a specific business. The Repeat Customer Rate (RCR) is calculated by dividing the number of customers who make multiple purchases over a specific period by the total number of customers over that same period. Multiply by 100 to get a percentage.

It must be noted that multiple purchases do not necessarily result in customer loyalty. However, it does indicate that the customer may have an increased inclination for becoming a loyal customer.

This data can help businesses effectively nurture those customers so that they may become part of its loyal customer base.

Net Promoter Score (NPS)

Net Promoter Score (NPS) is one of the simplest customer loyalty metrics to implement. The data that a company needs to calculate its NPS is gathered through a survey. The survey requests customers to rate how likely they will be to refer the business to their friends and family, on a scale of 1 – 10.

Customers responding with a score of 9 or 10 are considered to be ‘promoters’, customers responding with a score of 7 or 8 are regarded as ‘passives’.

In contrast, those responding with a six and lower are regarded as ‘detractors’. The Net Promoter Score is then calculated by subtracting the number of detractors from the number of promoters. Since promoters are more likely to refer the company, an NPS provides a business with a good understanding of where its customer’s loyalties lie.

Redemption Rate

The Redemption Rate gives organisations a good understanding of how effective their customer loyalty programs are. The rate is calculated by dividing the number of reward points redeemed by the total number of reward points issued. Essentially, the redemption rate seeks to find out what percentage of reward points issued are used.

This method is a great way to measure the level of customer engagement with a loyalty program. A high redemption rate means that consumers are regularly engaging with the program, increasing the likelihood of them becoming loyal. This provides a signal to the company that what they are doing is working.

By contrast, a low redemption rate indicates that customers are not engaging with the loyalty program. This sends a clear message that something is not quite right and that the company may need to rethink or rework their strategy. Either way, the redemption rate can provide businesses with valuable data, data that can help move a company in the right direction.

Participation Rate

Another metric to measure customer engagement is the Participation Rate in a loyalty program. The Participation Rate measures the number of loyalty program members against the total number of customers. As with the redemption, a low participation rate may point to a customer base that is not all that loyal, while a high participation rate generally reveals the opposite.

Studies show that customers prefer working with companies that offer loyalty programs, so if your participation rate is low, it may point to a bigger underlying problem.

Email Clicks and Opens

Email continues to be a highly popular form of marketing. It is therefore critical that a business understands how its customers interact with its email content.

To accurately gauge the level of client interaction with email content and the efficacy of your email marketing efforts, many firms make use of client relationship management (CRM) software. This type of software enables companies to determine the ratio of emails that are opened and read.

Understanding the level of email content engagement provides companies with valuable insights into how customers might engage with them on other channels including social media platforms. 

Customer loyalty metrics don’t need to be complex, or difficult

Each of these metrics is important in determining various aspects of customer loyalty. Depending on the type of business, not every option will find an application. What is important, however, is businesses are measuring their customer loyalty levels regularly, and using the data and analytics gleaned from these customer loyalty metrics in order to improve.

UBU offers a customer loyalty solution, combined with a mobile wallet and access to a vast marketplace of engaged customers and a host of data insights around who your best customers are, what your best selling products are, and more! Visit our UBU for Business page to find out more.

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