Retain a customer is important but knowing how to measure customer loyalty is also an essential mission for every business in order to improve the service and ensure better profitability for the company. Measurement is initial in customer loyalty management.
So how do you measure customer loyalty? Discover in this article the difference between customer loyalty and customer retention, all the techniques to apply, and the top 7 retention metrics to measure customer loyalty, in order to reach your growth objectives!
Why is retaining customers important?
Benefits for the customer
The loyalty actions deployed by companies are oriented around:
- the quality of the offer and the service,
- personalization and targeting,
- the customer experience,
- the establishment of loyalty programs, with rewards.
Consumers, therefore, have everything to gain if customer retention is at the heart of brands' priorities.
Benefits for the company
In an economic context where the development of digital technology has given consumers more power, it is becoming urgent to focus your strategy on customer loyalty as much as on customer acquisition, and on actions aimed at reducing the attrition rate.
In addition, transforming a prospect into a customer is 7 times more expensive than retaining an existing customer.
Finally, satisfied customers are the best ambassadors for extending a brand's influence, providing it with "free publicity."
Fortunately, many companies nowadays are aware of the importance of customer loyalty. But many of them don’t know if their process is on the right way. Of course, you need to apply the right techniques and metrics to measure effectiveness. Don’t worry, we will show you how to measure customer loyalty by using the best retention metrics down below. But first, let’s find out the difference between customer retention and customer loyalty.
Customer loyalty and customer retention
Customer loyalty: When a customer has positive purchase experiences and continues to buy from a brand, company, or business for a long time.
The main implications of customer loyalty are:
- Loyal customers like to present your products and services to their relationships
- Loyal customers continue buying your product until they don’t need it anymore
- Loyal customers don’t tend to change suppliers.
- Loyal customers are less affected by competitors’ marketing.
- Loyal customers are open to your products and services.
- Loyal customers give your company trust whenever there are issues.
- Loyal customers provide positive feedback and reviews which is necessary for your retention process.
Customer retention defines the company's ability to retain customers, to ensure that they continue to use its services. Customer retention is a strategic objective, but it is also an indicator: the customer retention rate expresses the proportion of customers who remain from one period to the next.
7 retention metrics to measure customer loyalty
Net Promoter Score (NPS)
The NPS or Net Promoter Score is used to measure the propensity and likelihood of recommending a brand X, product Y, or service Z by its customers: “How likely are you to recommend Brand X/Product Y to someone close to you?”. It allows a simple calculation to assess the satisfaction and loyalty of a customer at a time T and to follow the evolution of the customer/brand relationship.
Respondents give the above question a score between 0 (not at all likely) and 10 (very likely). These notes place them in one of the following three segments:
- Detractors: the score is between 0 and 6. Unhappy customers who can harm your brand/offering through negative word-of-mouth.
- Passives: the score is between 7 and 8. Satisfied but unenthusiastic customers are likely to be seduced by the competition.
- Promoters: the score is between 9 and 10. Very satisfied and loyal customers who convey the positive word of mouth and help develop your brand.
To obtain a representative Net Promoter Score, it is necessary to collect as many responses as possible from users. The more data you collect, the more reliable your final scoring will be.
Calculate Net promoter score:
The Net Promoter Score is obtained by a very simple calculation. First, it is sufficient to convert the number of responses per category into a rate. The percentage of detractors (score between 0 and 6) must then be subtracted from the percentage of promoters (score between 9 and 10).
For example, out of 500 respondents, 125 are categorized as detractors (or 25%) and 200 gave a score ranging from 9 to 10 (or 40% of promoters). The NPS is therefore 15 (40 - 25).
Interpreting the NPS Score:
An NPS greater than 0 is considered a correct satisfaction index. Obtaining a score below 0, on the contrary, means that the customer/brand relationship is not satisfactory and that means must be taken to remedy it.
If the NPS reaches 50, the brand can count on strong loyalty and attachment from its satisfied customers who will be very inclined to recommend it.
An even higher NPS score, approaching 100, means exceptional satisfaction. Although this level of satisfaction is very rare, some brands have succeeded in forming an emotional connection with consumers and made their customers real fans and ambassadors.
Customer Churn rate (CCR)
The churn rate, also called the attrition rate, defines the ratio (in percentage) between the number of subscribers or users of a service who have unsubscribed from the service and the total number of users or subscribers to the service.
The churn rate is one of the most significant KPIs for measuring the performance of an online service whose business model is based on the growth of subscribers or users. The attrition rate measures customer loyalty and satisfaction, knowing that it costs much more to go out and find new ones than to retain existing ones.
Calculate Customer churn rate:
Churn rate = Percentage of customers lost in a period/percentage of customers at the beginning
Customer Retention Rate
The retention rate measures the loyalty of customers in a business over a specific period of time. It is an index expressed as a percentage. In other words, the retention rate indicates your ability to retain your customers after they make their first purchase.
When your retention rate is high, it will mean that your customers are loyal and buy from you regularly. When the retention rate is low, that means your customers aren't sticking around after making their first purchase. New customers buy, but the majority no longer make new purchases. We must therefore do everything to retain them. If your retention rate isn't high, that doesn't mean you're not making new sales. It just means that your old customers don't come back to buy from you.
Calculate Customer retention rate:
To determine the Customer retention rate: You must subtract the number of new customers from the number of final customers divided by the number of initial customers. The result will be multiplied by 100.
CRR = [(end customers - new customers) / initial customers] x 100.
Customer loyalty index (CLI)
The customer loyalty index is a standardized tool like NPS used to track customer loyalty. It has more factors and questions than NPS and covers also repurchasing and upselling.
Calculate Customer loyalty index:
We can obtain an average score through a questionnaire with these essential questions:
- How likely are you to recommend our product to your relationships?
- How likely are you to buy our product again in the future?
- How likely are you to try other products of our brand?
It evaluates these answers with values ranging from 1 to 6, where 1 stands for “Definitely Yes”, and 6 corresponds to “Definitely No”. And it is converted to:
- 1 = 100
- 2 = 80
- 3 = 60
- 4 = 40
- 5 = 20
- 6 = 0
The customer loyalty index also helps to predict future retention rates and build customer loyalty profiles for the future.
The repurchase ratio is the number of customers who come back to your business and make a repeat purchase.
Insight into this measure can help you choose the right strategy by focusing on the customers who likely buy your products. The goal is to reduce the cost per acquisition and boost your revenue.
Calculate repurchase ratio:
To calculate the repurchase ratio, take the number of customers who bought more than one time in a period and divide it by the total number of customers in the same time period.
Customer Engagement Ratio
How often do your customers interact with you on social media, leave a review, comment on a post or visit your website? The customer engagement ratio allows you to calculate a customer's loyalty rate and, above all, to understand the level of engagement. It will make it possible to conduct a regular survey with customers on a product so that they can participate in the loyalty program.
Here are 3 metrics you can use to track engagement:
- Activity time: Average time that customers spend with your service.
- Visit frequency: How often do customers return to your service.
- Core user actions: Follow if the customer uses the core actions/ functionalities.
Upsell ratio is used to calculate the percentage of customers who have made a new purchase and products that differ from the old purchases. The idea here is to find out what percentage of customers are interested in other products in the store. To attract more customers, it is necessary to opt for the method of promoting high-end products. Customer engagement is very important.
Don’t confuse between upselling and cross-selling. Upsell ratio is the percentage of customers who purchase a comparable higher-end product and make a better purchase, while cross-selling encourages customers to buy the related or additional products.
Calculate upsell ratio
We get the upselling rate by dividing the number of customers who bought different products out of the customers who bought only one type of product.
Customer loyalty metrics in Google Analytics
Google Analytics is a good tool to measure customer loyalty on websites. Let’s find out 4 important metrics for customer loyalty in Google Analytics.
New and returning visitor rate
This metric helps you measure the effectiveness of your marketing campaigns. To calculate the new and returning visitors rate, divide the number of repeat visitors by the total number of unique visitors to your website in a specific time period.
New and returning customers rate
This metric helps you identify the number of customers who’ve purchased your product once and have returned to make a repurchase. It helps calculate the repurchase rate. To calculate the new and returning customers rate, divide the number of return customers by the total number of customers and multiply by 100.
This metric is used to measure how long it takes a customer to buy your product on the website and if that purchase behavior changes across your different segments. It helps you know how to improve your upsell strategy or your marketing techniques. The time lag is calculated automatically on Google Analytics. All you have to do is just click on the button “Time lag overview”.
This metric measures how many pages your customers visit before making a purchase. So you can know on which funnel your customers are. To view the path length, click on Conversions » Multi-Channel Funnels » Path Length.
Finally, customer acquisition is good, but having a real logic of customer loyalty, thought out from the start, is better! Indeed, focusing on customer loyalty not only improves the experience of your customers but also streamlines and structures your sales process to optimize your actions and ultimately, boost your sales performance!