5 ways to measure customer loyalty New customers are exciting, aren’t they? They bring the opportunity for new sales, new case studies, new user-generated content, new reviews and ratings. But what about existing customers? Loyal customers are the backbone of many brands. They cost less to sell to, they are more likely to refer business, and if treated well they will support your brand over your competitors. So, how do you know if your customers are loyal? Read on to learn 5 ways to measure customer loyalty. And identify whether you have a happy community of repeat purchasers. Or if it’s time to give your customers a little TLC. 1. NPS score One of the most popular and tried and tested ways of measuring customer loyalty is via an NPS (Net Promotor Score). Chances are you have seen these simple but effective email marketing campaigns before in your own inbox. An NPS communication is usually sent via automated email after a specific action has been made. Such as a customer has purchased a product or service from you. Alternatively, it may be sent to customers after a specific time period, such as one month after their purchase. And for those who haven’t quite got to grips with automation, an NPS communication can be sent manually to a segment of recipients. For instance, a business could send out an NPS to all of their customers every 6 months. These emails simply ask the customer how likely they are to refer your business or service. This question is important, as it tells a lot about the customer’s experience. How satisfied they are, and how likely they are to purchase from you again. All of this can be answered with one simple question, as opposed to an exhausting long survey. The customer simply responds with a value between 1 and 10. 1 being not at all, and 10 being definitely. Respondents can then be divided into segments based on their scores. Promoters will have scored the highest, such as 9 or 10. These are your most loyal customers and biggest advocates. Passives will have scored around 7 or 8. These are a segment of users that would benefit from further engagement to encourage them to recommend you and purchase again. Detractors score 6 or lower. These are customers who are not satisfied and should be treated as ‘at risk’ and engaged with accordingly. Calculating your Net Promotor Score is simple, all you have to do is subtract the percentage of your detractors from the percentage of your promoters. 2. Repeat purchasers Repeat purchasers are simply the customers that come back to your brand to buy, time and time again. These customers are particularly important as repeat purchasers are profitable for businesses; costing 5 times less than new customers to sell to. Brands can identify a repeat purchase ratio by taking the number of customers who come back to buy from them repeatedly, divided by one-time purchasers. This may differ slightly from business to business, industry to industry. For instance, subscription businesses will identify repeat purchasers by the number of customers who continue their subscriptions. This can then be divided by the number who cancel once their subscription period is over. Whereas businesses who sell products and items will need to establish what they consider repeat purchasers to be. This is based on the average time between first and second purchases of returning customers. They should then consider the customers who fall outside of this time period as one-time purchasers. 3. Upsell and cross-sell ratio Upsell refers to when customers purchase a higher value product than the one they originally intended to buy. Such as choosing a more expensive model camera than the basic version they were considering. Whereas cross-selling refers to when customers purchase more than the originally intended product. Such as purchasing additional camera lenses as well as a new camera. Both of these metrics are taken into consideration for this ratio. As they both suggest that the customer is engaged enough with the brand to spend more than originally planned. This metric is important as it displays the success of a brand’s marketing, account management, and overall engagement. All of which influences how loyal a customer will be. Image Source – Amazon 4. Customer Loyalty Index Customer Loyalty Index (CLI) takes into account the values of NPS, repeat purchasers, and upselling/cross-selling. It calculates all of the above values using a questionnaire similar to the NPS. But with more questions. These will usually include: How likely are you to recommend our business? How likely are you to buy from us again? How likely are you to try our other products and services? Recipients will be asked to respond based on a 6-point scale, where 1 stands for definitely yes, and 6 stands for definitely no. These scores are then given points: 1 = 100 2 = 80 3 = 60 4 = 40 5 = 20 6 = 0 And the total CLI rating is the average score from the three responses. This type of questionnaire is great for identifying specific responses to specific questions. However, it does lack behavioural insight, which can be identified from metrics on repeat purchase and upsell/cross-selling. 5. Customer Lifetime Value Last but not least, Customer Lifetime Value (CLTV) is one of the most insightful metrics when measuring customer loyalty. It identifies the total revenue that is attributed to the entire relationship with a customer, including purchases that are likely to be made in the future. These metrics can help to identify the most valuable customers and customer segments. As well as encouraging businesses to view their customer engagement in the long term. Marketing teams can also use this metric to help establish the limits of their budget for acquiring new customers before they are likely to make a loss. CLTV is calculated based on a customer’s average purchase value multiplied by their average purchase frequency. This value is then multiplied by the average lifespan of a customer. Whilst some businesses calculate CLTV manually, by using automation tools such Pure360 you can identify CLTV segments automatically to save time and ensure the most accurate results. Do you want to dive into customer loyalty? With the help of Pure360, you have access to the tools, analytics, and knowledge to identify your loyal customers. And keep them happy. Get in touch with our team of experts to find out more.