How to Measure Customer Loyalty and Skyrocket the Retention

Marketing 16 minute read 13th October 2023

Do you want to know how to measure customer loyalty? Then, take the time to read this article to the end for the top metrics you should monitor. There’s more than one way to measure customer loyalty, and we’ll share the popular ones.

Also, we’ll provide some of the better options for improving your customer loyalty by providing a loyalty program. It’s an excellent strategy that can take your customer retention metrics to new heights and avoid customer attrition.

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How To Measure Customer Loyalty

There are different strategies and metrics you can use to measure your customer loyalty. Understanding your options will help you choose the right one for your objectives. In this section, we’ll share the different metrics and how to calculate them.

Customer Lifetime Value

The customer lifetime value (CLV) allows you to determine how much revenue and profit you can generate from each customer. This metric is average, and the CLV can vary greatly from one customer to the next.

This is a good metric to measure customer behavior since you can determine how much to spend on customer acquisition. Therefore, it’s one of the more important metrics for a marketing team when allocating a budget.

Here’s a formula to help you calculate the CLV:

Customer Lifetime Value = Average annual revenue per user / Average lifetime of customers (years)

Customer Retention Rate

The customer retention rate is the percentage of customers who have stayed with your business over time. This metric is greatly influenced by customer satisfaction and the ability of products to provide value long-term.

Here are a few reasons why you should pay attention to the customer retention rate:

  • Exit point: You can look at how long most of your customers stay to identify weak posts in your business. For example, if most customers leave after three months, you need to consider why. Perhaps your products offer no value after this period?
  • Segment customer retention: You can segment your audience based on different variables. This allows you to find out what type of customers lead to the best retention rates. For example, maybe customers you acquire through email marketing stay longer than ones from PPC.
  • Product development: You may want to alter product development to match customer retention rates. For example, maybe most customers want to stay for just a few months. You may consider developing products that match this period.

Net Promoter Score

Do you want a more sophisticated method for how to measure customer loyalty and retention? Then, consider the net promoter score, which is an indication of how likely customers are to recommend your products. In fact, most Fortune 500 companies use the net promoter score to measure basic customer sentiment.

To record the metric, you’ll need to ask your audience a question graded on a 0-10 scale. The question is something along the lines of:

What are the chances that you would recommend our brand/services/products to a friend or family member?

Ideally, you’d get a score of 9 or 10, and these are your most loyal customers. However, the detractors of your audience are those who score 0-6.

The net promoter score is a handy metric for determining how your word-of-mouth marketing is going. You can also give referral links and codes to the customers who rank highest on this test.

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Customer Satisfaction Surveys

As the rise of data analytics improves, the need for customer surveys decreases. That’s because you can find out a lot of important information without bothering your customers.

However, customer satisfaction surveys can also provide information the data cannot. It depends on the quality of the questions that you’re asking. It’s especially handy to give surveys to customers who leave your brand sooner than you’d like. Perhaps you can uncover the top reasons why they leave after having a bad customer experience.

Referrals and Repeat Purchases

Measuring referrals and repeat purchases helps you understand the value you can extract from customers. It’s one thing having customers stick around for the long haul, but ideally, they should be spending money.

Here’s an overview of the things to consider with this metric group:

  • Purchase rate: Customers making repeat purchases is what good business is about. You may need to develop products to increase the purchase rate if it’s currently low. Think about the use cases of products, and ask yourself if repeat purchases make sense.
  • Upsells: Provide as many positive customer experiences as possible, and your upsells will go through the roof. That’s because customers seek a brand they can rely on for positive experiences.
  • Referrals: Another one of the key metrics to keep an eye on is referrals. This ties into the net promoter score we mentioned earlier. However, referrals are not the notion of sharing products but actually doing it. However, if you have a high net prompts score but low referrals, then your system needs updating. You’ll need to make it much easier for customers to share your products with their social circles.

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Customer Engagement Score

The customer engagement score is a good predictor of what loyalty you can expect. For example, let’s say a new customer shows very high engagement during the first week. This is a positive sign that they are enthusiastic about your brand. It makes sense to push more marketing resources toward these leads.

In comparison, if a customer is showing low engagement, then customer loyalty might be low. You can measure how the customer engagement score impacts your business. Here are a few ideas to get started:

  • Usage and activity: Customer churn rates are lower when they show high activity. You can measure this in various ways. For example, how often do they visit your website or log into their account?
  • Survey responses: You can measure the percentage of customers answering surveys. It’s one of the customer loyalty metrics that’s easy to measure with the software you use for the surveys.
  • Support requests: Dig into your data and look at the number of support requests you’re receiving. More requests mean more engagement. However, it’s also important to understand the customer satisfaction metrics. These provide insight into the overall satisfaction of your customer base.

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Create a Loyalty Program To Skyrocket Retention

One of the best ways to increase the customer lifetime is by creating a loyalty program. By rewarding customer loyalty over time, you give them more reasons to stick around. However, you need to create a program that increases the customer retention rate. Here are a few ideas when designing your loyalty program:

  • Amazing name: To create marketing buzz around your loyalty program, make sure to give it a great name. Something that will increase the signup rate and make users feel special to be a part of it.
  • Worthwhile rewards: Make sure to provide rewards that get customers excited to work toward. Also, it provides rewards at different stages and levels of purchasing power. This ensures that small and big spenders can get involved.
  • Variety: It’s a good idea to provide a variety of rewards to ensure that there’s something for everyone. Ideally, there will be something for every customer to avoid leaving some customers out.
  • Call to action: To increase the signup rate, you must place many CTA buttons and links on your digital properties. This ensures that every customer is aware of your loyalty program.
  • New Rewards: Take the time to develop new items in your loyalty store. This increases the customer engagement rate. Hence, customers may be more willing to save loyalty points and stick around.

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How To Improve Your Customer Loyalty

Now, let’s consider a few strategies for improving your customer loyalty metrics. These will allow you to provide your business with stability and consistent revenue. Use a combination of these strategies to increase your chances of success. This ensures that you don’t leave money on the table.

Create a Subscription Service With Updates

Subscription-based services are one of the best ways to receive regular payments from customers. Services such as Netflix, cloud storage, and VPNs are just a few examples of successful models.

However, implement updates to ensure that you continue to provide value. This includes more features and benefits. After all, customers are consistently paying money, so part of the funds should go back into product development.

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Ask For Feedback

Make an effort to ask customers for feedback on how you can improve your products and services. Then, implement any changes you can to increase the quality of your customer experience. Your customers will notice if the changes they want are implemented.

Furthermore, it gives you a natural way of learning what the customer wants. It’s market research that helps align products to customer needs. There are many ways you can ask for feedback, including CRM software, surveys, and look at reviews.

Provide Regular Promotions

Some customers only buy from brands that offer discounts and promotions. Therefore, you’ll need to provide promotions to ensure that customers keep coming back periodically. They will check to see if there are hot new deals.

Also, it’s a good idea to build up hype for your promotion ahead of time. For example, if you have a promotion planned in a month, share this information early. It will allow people to know the best time to come back to your store.

Also, you can randomly drop promotions to customers who haven’t logged into their accounts for a while. For example, when the system detects no log-ins for the last month, it automatically sends a 10% discount. This gives them a genuine reason to come back and shop with your brand.

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How To Measure Customer Loyalty—Is It Worthwhile?

In conclusion, measuring customer loyalty is important for any business. It’s important to increase customer loyalty to ensure the business has a constant sales flow. However, to understand if customer loyalty is improving, you’ll need the right measurement metrics.

In this article, there are plenty of ways for figuring out how to measure customer loyalty. Choose a few metrics and the right software for capturing the data. Then, you’ll need to use the data to make the right marketing decisions.

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