7 ways to measure customer loyalty
If you're like most business owners, you want to know how loyal your customers are. After all, customer loyalty is key to a successful business. But how do you measure customer loyalty? And what exactly does it mean?
In this blog post, we'll discuss six ways to measure customer loyalty and what each one means for your business.
First, let's discuss why customer loyalty is important!
The importance of customer loyalty
Customer loyalty is one of the most important factors in a successful business. It means that customers are more likely to return and do business with you again in the future. It also means they're more likely to recommend you to their friends and family. Customer loyalty is key to a successful business.
So how do you measure customer loyalty? Let's take a look at six ways to do just that!
Metrics to measure customer loyalty?
- Net Promoter Score
- Repurchase Ratio
- Purchase Frequency
- Customer Lifetime Value
- Customer Loyalty Index
- Customer Engagement Score
- Customer retention rate
Now let’s show you how to calculate each metric!
Net promoter score
The Net Promoter Score (NPS) is a metric that evaluates how likely your clients are to recommend you to their friends and coworkers. Customers are asked how likely they would be to suggest your company to a friend or colleague on a scale of 1 to 10.
To calculate your NPS, you will count the number of customers in each category and run this formula:
NPS = Number of Promoters - Number of Detractors / Total Number of Responses
A positive NPS indicates a large number of satisfied clients who will enthusiastically promote your business to their friends and family. A low score might indicate that there are problems with client satisfaction in your company.
Repurchase Ratio
The repurchase ratio is the customer's tendency to repurchase your product. The repurchase ratio is calculated by dividing the number of customers who repurchased or bought back a product after their first purchase, by all purchasers.
In order to calculate the repurchase ratio, first you will need to establish the time period you want to calculate for (month, quarterly, year).
The repurchase ratio is
# of customers with more than one purchase / Total customers who made a purchase
Purchase Frequency
Purchase frequency or customer recency measures how often a customer buys from you. This metric is calculated by dividing your total number of orders by your total number of unique customers.
Customer Lifetime Value (CLV)
Customer lifetime value or customer equity is a metric that calculates how much money your customers spend on average over the course of their relationship with you.
Before you get started though, you will have to set two parameters:
- Which set of customers will you use for your calculation: Will you calculate CLV for all customers or a specific subset?
- Which timeframe will you use to calculate CLV: Will you calculate CLV on a monthly, quarterly or yearly basis? This depends mostly on your own business cycles and what works best for your business.
The numbers you will need for your calculation:
- First, you will need your Average Purchase Value. You can calculate this by taking the total revenue generated by all customers in your set and divide it by their numbers of purchases or transactions.
- Second, you will need your Average Purchase Rate. Calculate this by taking the number of purchases or transactions in your timeframe and divide it by the total number of unique customers in your set.
- Next, calculate the Average Customer Lifespan. Calculate this by taking the average number of months/quarters/years that your customers stay active and purchasing from your business.
- Lastly, you will need the Customer Value. Calculate this by multiplying the Average Purchase Value by the Average Purchase Rate (both of which you calculated earlier).
To do this, multiply the Customer Value by the Average Customer Lifespan. Yup, it’s that easy!
Customer Loyalty Index (CLI)
The customer loyalty index measures customer satisfaction and how likely they are to return in the future. This metric assigns a number between 0-100 that reflects how loyal your customer base is.
Customer Engagement Score
A customer engagement score is a metric used to measure customer interaction with your customer service department. This score is calculated by counting the number of customer support interactions, divided by the total number of customers.
Customer retention rate
The customer retention rate or customer attrition measures how many existing clients are lost over a specific time period. The customer attrition rate is typically represented as a percentage and can be estimated.
To calculate your CRR, you’ll need a few things
You’ll need to set which period you want to calculate. Will you calculate your CRR for the month, quarterly or annually?
- Number of customers you have at the end of the given period
- Number of new customers you’ve acquired in the period
- Number of new customers you had at the beginning of that period
Now that we have all the numbers and period you’ll be calculating, here’s how to calculate your CRR step by step:
- Find out how many customers you have at the end of the period you are calculating.
- Subtract the number of new customers in that period
- Divide by the number of customers you had at the beginning of the period
- Multiply by 100
How to increase your customer loyalty
If your customer loyalty is lower than you would like, there are several tactics you can do to increase it like:
- Create a rewards program
- Ask for feedback and implement it
- Build a Community of Customers
- Adopt a clear and inspiring Company Vision
- Embrace Transparency and Responsibility
- Nail your corporate branding
You can continue reading on how to increase your customer loyalty here