In this post, I’ll guide you step-by-step on exactly what to look out for in measuring customer loyalty for your e-commerce business.
Measuring customer loyalty can be tricky. This is because loyalty is an emotion, and trying to measure it is much like trying to measure love or hate. But with the help of customer retention metrics and behavioral metrics, as well as simple surveys, you can gauge how loyal your customers are to your store.
We discuss six customer loyalty metrics in this post, they include:
- Net Promoter Score (NPS)
- Customer Lifetime Value (CLV)
- Repeat Purchase Rate (RPR)
- Upsell Ratio
- Share of Wallet
- Customer Engagement Rate
For the sake of those who may be learning about customer loyalty for the first time, it will be fair to define customer loyalty, how it is different from (and relates to) customer retention and why you should bother about measuring it. At any point, feel free to jump to where interests you.
While the customer loyalty metrics discussed in this guide will be focused on e-commerce businesses, you can learn a thing or two even if you’re not an e-commerce operator.
This is a detailed guide, so I’ll advise you bookmark it for easy reference and retrieval later.
Let’s dive in.
What is customer loyalty? Customer loyalty definition.
Customer loyalty is the devotion of your customers to your brand. It shows the possibility of a customer to continue buying from you. It is a predictor of the success of your business in the long run and is always a product of positive customer experience with your product.
A loyal customer is likely to do one of the following:
- Recommend you to a friend or family
- Come back to buy from you after the first purchase
- Wouldn’t leave you for a competitor. Not even for a cheaper price
- They’re not on the lookout for your replacement any time soon
- They can stick with you even when you’re having issues with your products or services
- They have only positive reviews and feedback for your product or service.
- They’ll check out your other products when the need arises
Measuring customer loyalty is very important. Apple is a very good example of a brand with loyal customers.
How is customer loyalty different from customer retention?
Customer retention is your ability to get your previous customers to keep buying from you. It shows your ability to turn your customers to repeat customers. A high level of customer loyalty leads to high retention and acts as a source of new business and leads for your business.
Remember all the abandoned carts you have in your store? They’re as a result of low customer retention. Measuring customer loyalty uses similar metrics for customer retention.
Why you need loyal customers
Consumers now have thousands of options (your competitors) to go with at the tip of their fingers. According to Inc., a loyal customer spends 67% more than a new one, and it will cost you 5 to 10 times more to acquire a new customer than to keep an existing one.
E-commerce businesses survive as long as customers are buying. That is customers who are filling their carts and checking out. To enjoy this in the long run without spending a fortune on marketing, you need a loyal customer base. This makes measuring customer loyalty a must for your business.
A loyal customer trusts you and is satisfied with your products or services. Measuring customer loyalty and knowing exactly how satisfied your customers are (or are not) provides you with the following
- The insight you need to improve the quality of your products and services to build a happy customer base.
- It helps you understand how many of your customers are leaving, staying or bringing in new customers.
- The insight on how to channel your marketing budget and strategy.
How often should you measure customer loyalty
Customer loyalty is a continuous and long term affair. The frequency of measurement depends a lot on what you sell and the nature of your market. Measuring customer loyalty can be done monthly, quarterly or yearly. A monthly measurement is recommended to help you stay in front of what is happening in your business.
6 Effective methods of measuring customer loyalty
Net Promoter Score (NPS):
The NPS score is one of the strongest measures of customer loyalty because it tells you how willing your customers are to stamp their name and reputation on your product. People care about how their friends feel or think about them, if a customer is willing to vouch for you to a friend, then your product is doing an exceedingly great job.
How likely will a customer who bought a phone from your store tell a friend to also buy from you? This is one of the most used and easiest customer loyalty metrics to measure. Take the following steps to measure your NPS.
Step 1: Get your customers to respond to a one-question survey, ‘How likely is it that you would recommend our product to a friend or colleague?’ On a scale of 1-10.
Step 2: Collect the survey data as follows; the percentage of customers that score between 9-10 are promoters, below 6 are detractors and between 7-8 are passives.
Step 3: Subtract your detractors from your promoters. There you have it, your NPS
NPS= % promoters – % detractors
NPS range from -100 to +100. A positive score is considered good, +50 is considered excellent and NPS above 70 is super excellent. It shows a large percentage of your customers trust you.
You can improve your NPS score by selling high-quality products and offering great customer care service, fast and easy return of damaged goods and refund of cash, a customer support system that helps your customers to use your products satisfactorily.
Customer Lifetime Value (CLV)
How much is a customer who buys a product from your store today, worth to your business in years to come?
If you measure customer loyalty, you need to calculate your customer lifetime value (CLV). Customer lifetime value (CLV) tells you exactly how much a customer is worth to your business. CLV is a great customer loyalty metric since 70 percent of your business revenue comes from existing customers. Calculating the CLV for your product is not as easy as the NPS. Some guesstimates are usually done about how long a customer will continue buying from you.
CLV= Average customer value X Average customer lifespan
One way of increasing your CLV as an e-commerce business is to provide excellent product/service satisfaction so that your customers will become repeat buyers. This will increase the average purchase value as well as the lifespan before churning.
Repeat Purchase Rate
The repeat purchase rate is a customer loyalty metric that tells you the ratio of customers who buy from you after the first purchase to the total customers that you have.
Calculating the repeat purchase rate is quite straightforward.
The number of customers who buy more than once/ total number of customers.
Usually in a particular period of time.
RPR and CLV are closely related and the value you finally come up with depends on your industry. The RPR shows how connected your customers are to your brand and their readiness to continue doing business with you. As an e-commerce owner, a low RPR is a clear indication that your products are not satisfactory and not something your customers will want to buy again.
Share of Wallet
Calculating this customer loyalty metric tells you how much of the market share comes to you.
Share of wallet tells you exactly how much of the cash your customers are spending in your category comes to you.
Calculating this is quite straightforward.
Share of wallet = customer spend on you / customer category spend
How can you increase your share of wallet? You can build a customer loyalty program to make your customers buy more from you.
This tells you how likely a customer is to buy a different type of product from your store than they first bought. How likely will a customer who bought a chair from you order for table when you make the offer? Measuring this customer loyalty metric is very easy. Divide the number of customers who have bought multiple products by the number of customers who have bought only one type of product.
Upselling ratio = customer who bought multiple products/ customers who bought only one type of product
A high upselling ratio is a huge indicator of customer loyalty. It signifies that the satisfaction your customers gain from using one product has been passed to other product offerings.
As an e-commerce owner, you’ll want to increase your upselling ratio to as high as you can. This is because you want to be able to sell more products from the sales of one. Providing excellent customer satisfaction for every product purchased from you builds trust. This can get your customers to want to come back when you have something new since they now trust you.
Customer engagement index
Customer engagement is the best predictor of repurchase, price insensitivity, and brand promotion. How engaged are your customers with your emails, your loyalty programs and how often do they refer your product to their friends. This customer loyalty metric is easy to measure from your online engagement numbers, and it reflects the level of satisfaction your customers get from your products.
For an e-commerce store, customer engagement can be measured with the help of the following metrics
Active customer volume
How much of your customers are buying from you or engaging with your content? While this sounds like a vanity metric, it goes a long way to determine how your overall marketing is performing and how close your customers are to your brand.
Visit frequency and recency
How often do your customers interact with you, and how recent are their interactions. This goes a long way in measuring their feeling towards your brands. It predicts upsell ratios, repeat purchases and the possibility of promotion to a great extent. A content marketing strategy and loyalty program can help keep your brand top of mind with your customers.
It is advised to take only a few metrics at a time to work with.
Measuring Customer Loyalty in a loyalty program
The metrics discuss above works whether you have a loyalty program or not. If you have a loyalty program, here are some metrics to add flesh to measuring your customer loyalty.
If your customers are only participating but not redeeming their coupons or rewards, then something is off. A redemption rate below 20% is a red flag. Loyalty programs are aimed to build a strong relationship between you and your customers. If they’re not redeeming their rewards, there’s something wrote with your loyalty program.
Calculating the redemption rate is quite easy.
Number of coupons redeemed/ number of coupons issued.
A high redemption rate shows that your customers are interacting with you, and have a strong positive emotion towards your brand and find you very useful.
What ratio of your customers is participating in your loyalty program? Calculating this is simply dividing program members with the number of customers you have.
Program members/ number of customers
The program participation ratio goes a long way to decide how willing your customers are to partake in an exercise that will help them buy more from you. A low value indicates a low interest in doing business with you. Not even for free.
Customer engagement rate
This comes between participation and redemption rates. It tells you how much your customers are engaging with your program on a regular basis, and how they’re using their rewards in doing business with you.
Number of customers who engaged/ number of customers.
This shows how your customers are earning and redeeming their rewards. It shows how effective your program is performing and the direction you can push it to get better results.
Up your customer loyalty with a loyalty program
At the end of measuring customer loyalty for your business, you’ll want to increase how much you make by building on the trust and loyalty of your customers. A loyalty program can help you do this.