How to measure customer loyalty
Loyal customers are an integral part of your business. They drive sales, give you the best feedback, and can be your biggest champions. But how can you measure brand loyalty? In this blog, we’ll explain several important metrics you can use to track customer loyalty in your business.
How can you measure customer loyalty?
As a company, you’ll encounter plenty of metrics and statistics designed to help you improve your services. These can be confusing, so we’ve outlined a selection of the most important to help you measure your customer loyalty ratings.
The clearest measure for customer loyalty is to track repeat purchases. These show whether a customer consistently buys from you over time. Repeat customers are more likely to become loyal because they’re already developing a positive opinion of your brand, as evidenced through their purchasing habits.
The best way to track this is through purchases attached to an individual account. This is called your Repeat Purchase Rate (RPR). You can calculate this with the following equation.
Number of repeat orders ÷ Total number of customers (in the same timeframe)
This isn’t a direct indicator of customer loyalty, but it does provide valuable insights into customer behaviour. Multiple purchases from the same accounts indicate that consumers like a product, and are more likely to transition into loyal customers.
Your RPR can also help you monitor your retention rate. Retention is a good indication of customer loyalty because it shows who is actively consuming your products or services.
Referrals happen when existing customers recommend your brand to their friends and families. It’s hard to track exact referral data outside of a specific scheme, but you can use the Net Promoter Score (NPS) to get a rough estimate. Your NPS tells you how likely customers are to recommend your business to others. To use it, you need to add the question ‘how likely are you to recommend us to your friends and family?’ at the end of certain interactions. This could be upon completion of a purchase, or at the bottom of an email.
Any responses are measured on a scale of 0 to 10 which correspond to the following categories.
- Detractors (0 to 6): These customers are dissatisfied with their experience, and may damage your reputation with negative feedback.
- Passive (7 to 8): Passives are usually happy with your service, but lack the enthusiasm to recommend you to others.
- Promoters (9 to 10): These are your most satisfied customers, and are your biggest chance to get referrals and recommendations.
To calculate your final NPS score, you can use the following equation: percentage of promoters – percentage of detractors.
Upselling refers to customers that buy more than one product at a time, or those who purchase a higher value item instead of a lower value one. To measure your upsell ratio, use this calculation.
Number of customers who bought more than one product ÷ Customers who bought one type of product (over the same time period)
Measuring your upsell ratio helps to identify potential loyal customers because people who buy more than one product tend to be more trusting of your brand. Loyal customers are also quicker to try new product lines outside of what they’d usually buy. Tracking your upsell data can show you which customers are diversifying their purchases, increasing the chances of them becoming loyal.
Non-monetary customer engagement is where consumers actively like, react, comment or respond to your content. This could be through social media, blog content, email newsletters, and product reviews. Whilst engagement isn’t a direct measure of customer loyalty, it’s an excellent indicator when viewed alongside other metrics.
For example, you should track your social media engagement because loyal customers tend to interact with your content more often. Reviews are another essential form of engagement. According to research from the Medill School at Northwestern University, consumers are 270% more likely to buy a product with five reviews than one with none. Brand champions are more likely to leave positive reviews, so these are an easy way to gauge customer loyalty.
You can also use the Customer Loyalty Index (CLI) at the end of customer emails. A CLI is a short survey that measures customer loyalty over time. This tool uses three questions scored from one (very likely) to six (not likely) to measure potential referral, repurchase and upsell rates.
You can also measure customer loyalty through the Customer Engagement Score (CES). CES assigns a value to each interaction a customer can have. Events like how long a consumer is on the website, or how often they log into their account, are ranked in importance from one to ten. Then you can use the following equation.
(Ranking of event #1 x Number of occurrences for #1) + (Ranking of event #2 x Number of occurrences for #2) + …
You can categorise customers from their CES to measure who is more likely to become loyal, and tailor your marketing strategy appropriately.
What is the customer loyalty ladder?
The customer loyalty ladder is a way to categorise customers and assign values to their relationship with your company. On the customer loyalty ladder, people are split into four categories, or ‘rungs’, that describe their place in their buying journey. These are:
- Prospects: This is someone who has knowledge of your company through seeing ads or social media posts, but has not yet completed a purchase. They can sometimes be referred to as suspects, or leads. Targeted ads are a great way to convert prospects into customers.
- Customers: Prospects become customers when they complete their first purchase. This doesn’t guarantee loyalty, but is a good place to start building a positive relationship. To move on from this step, you need to provide an excellent customer experience to encourage potential loyalty.
- Clients: As customers repeatedly buy from your company, they move up a rung to become clients. Clients have more potential to become loyal, so you need to ensure they keep having a positive experience with your brand. For example, outsourcing your call handling to an expert third party could improve your customer service by ensuring queries are always dealt with promptly and professionally.
- Advocates: Advocates have the strongest relationship with your business and are your biggest champions. While these customers are less likely to fall down the ladder, you still need to invest time into keeping them loyal. This could be with exclusive deals, early access to new products and continued excellent service.