While many of us focus our attention on customer acquisition through costly paid advertising, there’s often something being forgotten – customer retention and brand loyalty.
The benefits of having a loyalty program are obvious, but what’s your actual loyalty marketing plan? What are you trying to achieve with the loyalty program? Are you trying to get customers to purchase more frequently, or for each transaction to be a larger amount? Are you trying to boost engagement, extend the customer lifetime value, improve the customer experience, or all of the above?
It might not seem like it, but these are all very different goals, with very different strategies required to achieve them. And the only way to know whether you are succeeding is to use the right metrics.
So without further ado, here are six different ways to measure your customer loyalty, depending on your brand’s motives.
1. Customer Retention Rate (CRR)
X = number of customers you currently have
Y = number of new customers you’ve acquired in the last six months
Z = the amount of customers you had six months ago
(X - Y) ÷ Z = Customer Retention Rate
You might be acquiring lots of new customers, but how many are you managing to hold onto? Is your loyalty program keeping people engaged, or are customers simply shopping with your business for a few transactions and then moving on? Your CRR will provide you with an answer.
Take the number of customers you currently have, and subtract the number of new customers you’ve acquired in the last six months. Then, divide this number by the amount of customers you had six months ago.
2. Redemption Rate (RR)
X = number of points redeemed
Y = number of points issued
X ÷ Y = Redemption Rate
How often are people actually redeeming the loyalty points that they’ve earned from shopping with you? Are a lot of customers accruing loyalty points but not redeeming them for rewards? If so, then perhaps your rewards aren’t enticing enough, and these customers simply would’ve been shopping with you anyway. This is a direct reflection of your rewards offering and, on some level, your brand communications as well (are you keeping customers informed of their loyalty status?).
The equation for figuring out this metric is quite simple – divide the number of points redeemed by the number of points issued, and this is your redemption rate. FYI, the typical loyalty program’s redemption rate is less than 14%, so don’t be too hard on yourself if yours is in the “teens”.
Divide your total number of loyalty program members by your total number of customers overall, and see if maybe you need to invest in initiatives to encourage engagement – social media posts, fun competitions, email communications, gamification, surprise and delight, and so on.
4. Repeat Purchase Rate (RPR)
X = number of customers who made more than one purchase in 12 months
Y = total number of customers you had over that same 12-month period
X ÷ Y = Repeat Purchase Rate
How many repeat purchases is your business getting every year? If it’s less than 20%, guess what – your loyalty program isn’t doing its job. You may need to revise your loyalty marketing strategy to build more hype around your rewards offering and find new ways to strengthen the emotional connection between brand and customer.
5. Loyal Customer Rate (LCR)
X = number of customers who purchased more than four times in the last 12 months
Y = number of unique customers your business had during that same 12-month period
X ÷ Y = Loyal Customer Rate
How loyal are your customers? This metric aims to measure actual loyalty, which is typically defined as customers who make more than four purchases from the same business in a year. Your LCR will reveal whether your loyalty program is actually managing to foster loyalty among your customers, by showing you how many truly loyal customers your business has.
6. Active Engagement Rate
X = number of customers who engage your loyalty program
Y = total number of customers overall
X ÷ Y = Active Engagement Rate
Your AER sheds some light on how many of the customers who have registered for your loyalty program are actually engaging with it on a regular basis. If your AER is low, it could be that your rewards are being perceived to be too unobtainable, or your rewards are unattractive, or that you’re not communicating with your loyalty program members enough to let them know where they stand, what rewards are on offer, and so on.
Try brainstorming some new and innovative ways to promote your loyalty program and boost engagement.
Measure your customer loyalty, and keep your finger on the pulse
Measuring your customer loyalty from a variety of perspectives gives your brand an edge over competitors. Not only will you swiftly identify any areas of your loyalty marketing campaigns that need improvement, but you’ll manage to stay on top of emerging loyalty trends much more easily.
Remember, the key to customer loyalty is giving your customers exactly what they want, and these metrics are a very precise navigational tool for knowing whether you’re hitting the mark or not.