Measuring Customer Loyalty: 5 KPIs to Keep an Eye On

Measuring Customer Loyalty

Recommendations and reviews from loyal customers transform friends and loved ones into paying customers, resulting in increased revenue for the businesses they are loyal to.

Getting new customers is expensive, so brands work tooth and nail to retain their existing customers and provide special offers that can make them happy enough to tell others about the brand.

Through word of mouth marketing, many people can be reached and converted to customers by loyal customers. Even better, 

When it comes to driving sales, word of mouth marketing by loyal customers can not be compared to online or offline marketing campaigns. Most people are convinced to buy a product only when they have been convinced by a trusted person that the product is good.

As a result, achieving customer loyalty becomes the goal of businesses that are serious about driving sales. To achieve customer loyalty, an ever-increasing number of companies have begun implementing loyalty programs. 

Some businesses offer ridiculous rewards to their customers in an attempt to run a customer loyalty program. It’s important to offer your customers real value for you to see any results.

Imagine running a loyalty program that only rewards their customers with 1000 at the end of the year, if they make a purchase of up to 100,00? Now that’s ridiculous.

You must go the extra mile to ensure that your customers are pleased with whatever bonus you are offering them. Running a customer loyalty program is meaningless if you can not measure how loyal your customers are. 

Here are 5 KPIs to Keep An Eye On When Measuring Customer Loyalty

Customer Lifetime Value

Customer Lifetime Value refers to a measure of how much money (revenue) a business generates over the course of its relationship with a customer, whether future or present.

In very simple terms, it is measuring how much a customer is worth, judging from how much has been made from that customer in the course of their relationship.

If you know your Customer Lifetime Value, you make more accurate judgements concerning preserving profit margins while getting new customers and retaining existing customers.

Customer Lifetime Value varies from one firm to the other and it depends on the length of the customer’s relationship with the business.

Recommended Post: Why Customer Loyalty Rewards is Important 

Customer Loyalty Index

The customer Loyalty Index is a methodology used to keep tabs on the loyalty of customers over a period. Customers may be your primary concern when running a business, however, they can not be quantified.

In order to help you track loyal customers, the Customer Loyalty Index considers numerous criteria such as Net Promoter Score and repurchases. According to Capillary, in order to do this, a questionnaire is used that addresses these three important points: 

  • How likely are you to recommend us to your friends and family?
  • Are you going to buy from us again in the future?
  • How likely are you to try our other products?

In order to stay on track with your loyalty game, you need to measure your customer loyalty consistently, however, you should watch how often you perform this exercise so you don’t wear your customers off.

This method allows for a more comprehensive understanding of your customer loyalty than a singular metric approach. Apart from this, it can also predict future retention rates, and help build loyalty profiles for your customers.

But bear in mind that not all customers are going to be sincerely answering every question, so it is less reliable than measuring real behaviour.

Net Promoter Score

Quit relying on the old-fashioned customer feedback surveys. A customer’s Net Promoter Score (NPS) is a simple way. This approach may be used to determine a client’s degree of happiness, as well as their chance of making another purchase, without bothering them with a large list of questions.

As a result of their answers, the customers might be classified as either promoters, passives, or detractors categories.

  • Customers with scores of 9 or 10 are grouped as Promoters. These customers are most likely satisfied customers and your biggest admirers, who are willing to repeat purchases and refer you to others.  
  • Customers with scores of 7 to 8 are called Passives. These customers are considered to be just happy with your services and may patronize you again.
  • Customers with scores below 7 are considered Detractors. They are dissatisfied customers who may hurt your brand by alerting others about their negative experiences, limiting your expansion. It’s critical to follow up with reviewers to see why they had such a negative experience. This might lead to useful conclusions and possibly aid in the conversion of opponents to proponents.

Simply divide the percentage of critics by the percentage of boosters to get your Net Promoter Score (NPS). Rather than focusing just on the quality of your products and services, as many people assume, the NPS score represents your customers’ overall impression of your business.

Good Read: How Customer Loyalty Programs Can Help You Make More Sales

Repurchase Ratio

The repurchase ratio is the number of customers who come back to your business repeatedly, divided by one-time purchasers. Data on repeat customers can help you target and reward customers that come back with a loyalty program. ThankUCash is a customer reward platform that allows businesses to give cash rewards to their customers. Click here to view some of their services. 

For transaction-based business models, you will first need to calculate how many customers fall into the category of repeat customers. You can do this by calculating the average time between the first and second buys of all returning customers, as well as the standard deviation in the values. Repeat customers are those whose interval time between purchases fall within the limits of twice the standard deviation from the average time. The final repurchase ratio will be the number of repeat customers divided by the number of non-repeat customers.

Different consumers have different shopping patterns–they may be seasonal shoppers, or only be interested in specific products, or specific brands. To target every repeat customer individually–to know their purchases, their tastes, preferences and likes–is a complex and tedious effort, even for businesses with a small customer base.

Customer Engagement Score

When it comes to measuring client loyalty, you may look at how much they use your services and how involved they are with Customer involvement is more important to high-performing firms (62 per cent) than low-performing ones, according to research by PeopleMetrics based on almost 10,000 online interviews (46 per cent).

According to their specific activity and usage of your services, the Customer Engagement Score provides a score to each of your customers, In addition, it allows you to group customers into categories (based on demographics, product type, account owner, etc.) to evaluate how each category performs in contrast to the others and to identify churn-risk consumers When it comes to numbers,

Customer engagement is relatively easier to measure for online businesses compared to brick-and-mortar establishments since virtually all interactions can be recorded.

Use variables such as frequency of use, degree of use, number of actions done by the customer and total time spent on activities to compute the customer engagement score, which represents your customer’s success as well as their level of involvement. As a way to measure engagement, we propose these metrics: 

Engagement Metrics to Measure

Activity Time

This is the entire amount of time a user spends engaging with the service delivered, excluding idle time.

Visit Frequency

This metric tracks how frequently a user returns to your service and is a critical indicator of how much value they derive from it.

Core User Actions

It’s a positive sign of engagement when a user performs essential tasks on a regular basis. For a Project Management software, for example, essential user actions might include creating and finishing tasks and inviting colleagues to projects.

A lack of essential user activities, on the other hand, may suggest consumer usability issues with your service.

Better functional experiences (such as improved convenience, variety, and efficiency) and emotional experiences (such as the customer feel appreciated, the customer’s relationship with their representative, and the customer’s faith in the service) generate higher customer engagement.

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