Buying products – from groceries to process-shifting SaaS products – has made us a customer at some point. As customers, we all have certain views about certain brands. For instance, you may have a not-so-positive impression on a brand for the delay in their service. At the same time, you may be impressed with the experience that you have had with a certain brand and have now become a regular customer.
From a business perspective, it is important to keep the current customers to mark sustainable growth. In our previous article, we highlighted that ‘turning existing customers into returning ones‘ is very important for SaaS companies. And to turn a customer into a returning one, the company should focus on building strong emotional relationships with the customers. This concept is termed ‘Customer Loyalty,’ and it comes from continuous efforts. Loyal customers are not only repeated customers; they are also the ones actively spreading a positive word about your company.
Statistics state that ‘loyal customers spend 33% more than new prospects.
Here are a few statistics on customer loyalty –
- 67% of consumers are more likely to stay longer or spend more money if they have a positive customer experience.
- Even if a brand’s app isn’t installed on their phone, 77% of UK consumers are loyal to it.
- Four out of five businesses feel that keeping existing clients is less expensive than finding new ones.
- Consumers are 74% loyal to a brand because of the quality of its products.
Considering these factors, companies need to enhance their customers’ loyalty and work on all aspects impacting it. But what makes a loyal customer? And, how to measure customer loyalty?
We discuss the metrics in this write-up.
When does a customer become a loyal one?
A customer returns to a business/ brand when he or she likes the overall purchase experience. Here, the most important point is that customer loyalty is not a destination but a journey. And by investing in it, you will gain customers who are –
- More likely to give you positive feedback.
- Ready to be the agents of word-of-mouth.
- More forgiving during delays or other issues.
- Explore other products/services you offer.
An existing customer becomes loyal when you recognize them, reward them and have regular engagement with them.
Recognizing and rewarding repeat customers are the two important steps in customer loyalty. Recognizing regular customers and rewarding them for coming back to you is a great way to retain them. Loyalty programs are a major hit for recognizing and rewarding regular customers.
Now, let us discuss the metrics.
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Top 10 metrics to measure customer loyalty
This is the most popular KPI for measuring customer loyalty. It is essentially a scale where the customer is asked to rank their experience from 1 to 10.
Based on their scores, the customers are categorized into three buckets.
DETRACTORS: These are the customers who rank their experience between 0-6. They might have had a bad experience, or they might be dissatisfied with your services. Further, they could damage your brand reputation.
PASSIVES: These are the customers who rank their experience from 7 to 8. These customers may or may not be happy with their experience. However, they refrain from talking about it or promoting the product/brand.
PROMOTERS: These are the customers who rank their experience between 9 and 10. You might call them your fans. They love your products/experience/brand so much that they readily promote it in their circle.
NPS = Promoters – Detractors
2. Customer Engagement Number
The customer engagement number is an effective KPI to measure customer loyalty. This is an easy measure and provides insights that can easily be addressed. Customer engagement number can be calculated based on two factors –
- Frequency of website visits: By tracking the frequency with which a user visits the website/platform, you can estimate their interest and inclination towards the product/service.
- Activity time: The activity time is the time that a user stays active on your website/platform. It can be tracked by monitoring monthly, weekly, or daily activity.
3. Customer Retention Rate (CRR)
Customer retention rate is all about your brand’s ability to retain customers. It shows the number of customers who have stayed loyal to your brand over some time. Therefore, it is extremely important KPI measures customer loyalty. There are several factors impacting customer retention. Some of the factors include prices of the product/service, the time taken to deliver the product/service/value, pre and post-purchase customer service, and loyalty programs.
First, subtract CA from CE, divide the answer with CS, and multiply the answer by 100.
- CS = Number of customers at the start of a period
- CE = Number of customers at the end of a period
- CA = Amount of customers acquired during that period
4. Repeat Purchase Rate
Calculating the repeat purchase rate helps you understand customers’ relationships with your brand/product. Based on the RPR, you can measure your customer loyalty and understand if the customer will return.
Calculating repeat purchase rate
RPR = Number of returning customers / Number of one-time customers
5. Customer Lifetime Value
Client Lifetime Value (CLV) is a metric that shows how much money a company can expect to make from a typical customer over the length of their relationship. CLV and customer loyalty are directly proportional to each other. Your CLV is high if you have a higher percentage of loyal consumers.
To calculate CLV, multiply the average sale value, an average number of transactions, and average client retention term by the lifetime value. The next step is to multiply the lifetime value with the profit margin. Calculating CLV
CLV = Lifetime value * profit margin
Lifetime value = average sale value * average number of transactions * average client retention term
6. Customer Churn Rate
Just like tracking customer retention, it is also important to keep track of customer churn. Customer churn highlights the number of customers leaving your business over some time. High CCR indicates that your business is losing a huge percentage of customers. And based on this, you can take effective measures to control and eventually undo the damage.
Calculating customer churn rate
CRR – 100 = CCR%
7. Customer Loyalty Index
This KPI is your go-to option when looking for the most reliable ways to measure your loyalty score. CLI is calculated using NPS. Additionally, you also ask your customers –
- What is the likeliness that they would return to purchase from your business in the future?
- What is the likeliness that they would recommend the product/service in their circle?
- What is the likeliness that they would try more products from your brand?
You’ll be given a score of 0 to 6 for each question, with the average score determining your customer loyalty.
8. Upselling Ratio
If you own a brand selling multiple products/services, you wouldn’t want to limit your focus to selling just one product. Rather, you would want your audience to explore your entire catalog. And the upselling ratio is the metric that compares the number of customers purchasing multiple products/services with the ones buying one product. Loyal customers tend to explore and purchase more than one product offered by a brand.
9. Participation Rate
Loyalty programs are a strategy used by businesses to enhance their customer loyalty. Through these programs, brands recognize and reward their customers for being loyal and repeating their purchases. The participation rate grows whenever a customer takes part in the program. This way, you will be able to calculate the number of customers interested in participating in the loyalty program.
Calculating the participation rate
Participation rate = Number of loyalty program members / Total number of customers.
By calculating this, you will be able to understand the reception towards your loyalty programs and come up with ways to improve them.
10. Active Engagement Rate
Now, just like the participation rate, an active engagement rate is also a good measure of customer loyalty. Active engagement refers to the number of customers who are active participants in your loyalty program. AER is a reliable way to calculate the number of loyal customers and the customer retention rates. At the same time, it also helps identify the success scenario of your loyalty program.
Calculating Active Engagement Rate
Active Engagement Rate = Number of active participants in the loyalty program / Total number of customers.44
By calculating customer loyalty, you will be able to measure and understand if you are progressing. Further, using a combination of the customer loyalty metrics will provide deeper insights into your efforts to gain the loyalty of the customers. This way, you will be able to come up with better strategies to engage, retain and attract more customers.
Shivani is a talented CS manager with the skillsets to elicit, scope and manage end-to-end B2B SaaS project delivery. She has a keen interest in depicting her learnings in customer success by writing resourceful blogs and articles.
Published April 19, 2022, Updated August 04, 2022