Building customer loyalty is critical to growing a successful business. Those who stick around tend to spend more — top-performing companies generate 50% of their revenue from repeat clientele — and are more enthusiastic about new products you offer. They’re also more likely to recommend your brand to family and friends, further growing your customer base.
However, people aren’t as loyal as they used to be. In general, consumers — especially younger ones — have become pickier about which brands they are loyal to. Even if your sales numbers are good, you may find that most of your customers aren’t particularly loyal and will swap over to a competitor if they can get a better deal.
If you can identify when customers aren’t loyal, you can work to fix this. Here are six simple techniques you can use to determine if your base is loyal to your business.
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1Customer Lifetime Value (CLV)
One of the simplest ways to measure customer loyalty is to track customers and see how much they spend. Customer lifetime value (CLV) is the total amount people have spent at your company — sometimes minus the amount paid to acquire them and on targeted discounts and loyalty programs. Customers that tend to stick around will have noticeably higher CLVs than others.
CLV is best for tracking changes in loyalty over time. If you implement a program that increases customer loyalty, you’ll see average CLV start to rise.
2Customer Return or Repeat Purchase Rate
Measuring return or repeat purchase rate will give you better information about how loyal your customers are right now. This is simply the number of customers who bought an item more than once over a period of time, divided by your total number of buyers.
Loyalty is more than just buying once or twice, but measuring the repeat purchase rate is one of the simplest ways to see how many repeat customers you have. They are the ones you want to capture, as they are the most likely to continue purchasing from your business.
3Net Promoter Score (NPS)
This is another popular customer loyalty measurement. It works by tracking how likely customers are to recommend your products. When a customer checks out, or a few days after making a purchase, you can send them a survey asking how likely they would be to recommend your products on a scale of one to 10.
Your promoters are the customers most likely to recommend your products — the ones who rate a nine or 10. These are measured against your detractors, who rate you anywhere between one and six. The percentage of promoters minus the percentage of detractors is your NPS. A higher NPS is better. A low — or negative — NPS is a sign that many customers want more from your business.
You can also use these surveys to collect feedback, as well as geographic and demographic information. Combined with mapping tech, this data can show you if you’re underserving certain groups or locations. If you want to follow up with a customer about their concerns, ask for permission and contact info in the survey.
4Loyalty Program Measurements
If you have a loyalty program — like a reward point program or prize draw — the numbers it offers can be a great snapshot of current customer loyalty. Out of your entire customer base, how many are using these programs? Better usage rates show these loyalty programs are attracting your shoppers’ attention.
5Customer Engagement Index
Your customer engagement index is a way of measuring how engaged your clients are. Unlike other measurements, you’ll need to build your formula based on engagement factors — like store visit recency, frequency and length — that are important to you. This score can help you see how engaged most of your customers are and how well-designed your e-commerce store is. Lower engagement, especially if combined with stats like a high bounce rate, may mean your site’s design can be improved.
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Share of wallet (SOW) is the dollar amount a customer regularly spends on a particular brand, rather than companies competing in the same market. Share of wallet is similar to market share, but provides you with a better idea of how loyal specific shoppers are to your business.
You can measure SOW in the same way you track your NPS. Survey your customers and ask them if you’re their first, second or third choice. The number of people who consider your business their first choice will give you a good idea of how many of them are loyal to your brand.
How to Tell if Your Customer Base Is Loyal
You can’t always count on customer loyalty, even when sales numbers look good. You’ll need to encourage people to be loyal with a combination of excellent service, good products, and the right programs and incentives.
