Would you agree that paying a ridiculous amount for a product when you can get it 25x cheaper is pure insanity?

Believe it or not, this scenario happens daily in the eComm and Retail Arena. Even though it’s 25x more expensive to acquire a new customer than to retain an existing one, organizations still fight over acquisition instead of focusing on customer retention. 

These organizations hope to increase their total revenue with new customers instead of looking at those who have already converted.

What does this mean for the precocious marketer? An opportunity, of course.

As consumers become more frugal with their purchasing and pickier about irrelevant offers, it’s your chance to swoop in and better cultivate customer loyalty with the right program at the right time. 

Of course, you can’t improve what you don’t measure. 

So, in this blog post, we’ll delve deeply into the most crucial KPIs and metrics for customer loyalty, dissecting them one by one. Get ready for formulas, examples, and a highlight reel of each metric, so your 2023 will be crystal-clear in terms of priorities. 

What Is Customer Loyalty?

Customer loyalty represents a customer’s decision to repeatedly purchase products from your brand, which is detrimental to your competition’s products and (sometimes better) prices. 

For example, suppose a customer buys food for his pet from the same supplier. In that case, even if he has a variety of other options, he is a loyal customer.

Perhaps he decides to make repeat purchases from the same store because he shares the same value as the brand, has excellent interactions with customer support, or respects the brand’s rewards program. 

Loyal customers will bring in significant brand revenue, which is why companies invest in retention strategies to create loyal customers.

Why Is Customer Loyalty Important?

Maybe before the tectonic shift in eCommerce, only innovative and giant companies such as Amazon believed in a customer-centric approach.

Instead of spending exorbitant amounts of money on acquisition campaigns, these brands focused on enhancing the value they offer their existing clients

For these brands, customer satisfaction, customer experience, and customer lifetime value were at the center of attention. The approach was scarce, and brands outside this mindset would even smirk at it.

Starting in 2021, though, the situation unexpectedly changed.

Besides the obvious arguments for customer loyalty, such as the rise in acquisition costs and the vanishing of third-party data, think of the current shift in customer behavior.

Customers now spend less on non-essential expenses as the COVID boom slowed and an era of inflation began.

Only eCommerce businesses with excellent client relationships and customer loyalty will weather the storm and emerge even stronger from this challenging zeitgeist.

Growing revenue in 2023 is all about improving customer loyalty and increasing customer spending from your current consumers. 

How to Measure Customer Loyalty

Besides tracking customer loyalty metrics, which we’ll get to in a minute, an excellent method of measuring customer loyalty is through customer surveys. You can send out a satisfaction survey, an NPS survey, and a customer experience survey.

Here’s an example of how to measure customer loyalty with a Net Promoter Score (NPS) survey:

  • Send out pre- and post-delivery surveys asking your customers to rate their likelihood of recommending you to a friend on a scale of 0-10.
  • Respondents who rated 9 or 10 are called “promoters,” and they’re probably loyal customers.
  • Those who responded 7 or 8 are considered “passives” – they’re neither disappointed nor excited for your brand and will probably switch to a competitor if given the opportunity.
  • A customer rating between 0 and 6 is called a “detractor” and unlikely to become a loyal customer.
  • Calculate your score by subtracting the % of detractors from the % of promoters.

An average score below 0 signals your customer base isn’t as loyal as you hoped for – so you need to double down on loyalty programs and provide more value. 

On the other hand, a positive ​​average score (high NPS score, above 30) would suggest that customers are very loyal and you’re headed in the right direction.

The advantage of customer surveys is that you get the “why” behind customers’ feelings towards your brand. Surveys typically come with open-ended questions where customers get the opportunity to voice their concerns, issues, and praises.

All these answers become qualitative data that can be used to orchestrate a customer retention strategy that increases loyalty and long-term revenue. 

Customer Loyalty Metrics

Moving on to specific loyalty program metrics, let’s look at the most common KPIs to measure and improve customer loyalty.

Customer Engagement Score

The customer engagement score measures the customer’s level of engagement with your brand. You can use the engagement score to assess how well your organization’s marketing and customer support initiatives are working.

To calculate the engagement score, you need to consider metrics such as customer interaction frequency, the number of purchases he made, time spent on your company’s website, and the customer’s openness to respond to a customer survey. 

A high engagement score signals excellent customer loyalty. 

You can use the engagement score to identify high-value customers and include them in your loyalty program to ensure they keep returning to your business.

Regarding engagement, you can also look at the customer effort metric and determine how accessible your communication channels are. How difficult is it for a customer to get his problems fixed with your help?

Customer Retention Rate

The customer retention rate (CRR) measures the % of customers who return to your shop for repeat purchases over a set period.

High CRR indicates high customer satisfaction and loyalty, which can be an essential metric for measuring your organization’s health and sustainability. 

When the CRR is high, you have a solid foundation to grow your customer base and invest more in customer acquisition or brand loyalty initiatives. 

On the other side, if your customer retention rate is low, it can signal disorder inside your organization or a wake-up call for you to focus on improving customer service, product quality, or price points. 

Customer Retention Rate formula: the number of customers at the end of the period, divided by those you’re left with at the end.

The result is then multiplied by 100 to produce a percentage. The resulting number is the percentage of customers who are loyal to your brand and return time and time again, no matter the economic landscape.

For example, suppose you start a quarter with 200 customers and end the same quarter with 80 customers. Then, your customer retention rate for that quarter would be 40%.

Repeat Purchase Rate

Repeat purchase rate (RPR) measures the % of customers who make repeat purchases from your store over a set period of time.

If your repeat purchase rate is high, you can relax knowing you’re sitting on a stable and predictable revenue stream. A repeat customer will likely buy more frequently and generate more revenue than new customers. 

The opposite (low RPR) follows the same pattern as the Customer Retention Rate. If you’re not happy with this metric, put your efforts and money towards enhancing the quality of your products and customer service.

At the same time, you should invest in loyalty programs and incentives that encourage repeat purchases. 

To identify your repeat purchase rate, divide the # of repeat customers / by the total number of customers. Multiply the results by 100 to get a percentage.

Repeat Customer Rate

The repeat customer rate (RCR) measures the % of customers who make repeat purchases from your brand over a specific time.

Be careful to distinguish the repeat customer rate from the repeat purchase rate. The repeat customer rate focuses on the number of customers who make repeat purchases, not on the number of repeat purchases made by all customers. 

It’s a subtle yet significant difference, so be mindful of it.

The repeat customer rate is identified by dividing the number of customers who have made repeat purchases by the total number of unique customers. Multiplying by 100 to get a percentage.

Customer Churn Rate

As opposed to all the previous metrics, the churn rate isn’t as optimistic. 

The customer churn rate (sometimes called “customer attrition rate”) measures the % of customers who stop doing business with your company over a specific period.

While a natural churn is normal and not a cause for alarm, high churn rates are worrying and signal issues inside your organization. 

When this percentage is high, it indicates that a sizable portion of your consumers is regularly quitting the company. This situation is known as the leaky bucket syndrome and can significantly negatively impact your company.

On the plus side, a low churn rate means you’re doing a great job keeping your clients and are headed in the right direction regarding their loyalty and satisfaction.

To calculate your customer churn rate, you have to divide the number of customers who left your business by the total number of customers you had at the beginning of the period. Then multiply the result by 100, and you’ll get a percentage.

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How to Improve Loyalty

While there’s no silver bullet to improve loyalty, there are several measures you can take to make your customers happier. These are evergreen and will positively impact your returning customer rate, no matter how customer behavior changes or how many new technologies emerge. 

  • Customer Service, but make it exceptional.

Customers who feel appreciated and well cared for are more likely to remain loyal. 

Train your customer service teams and ensure they’re qualified to respond to and solve customer questions and complaints.

  • Personalization.

No one likes to feel like another brick in the wall, a number in your database, or an income provider for your teams. 

Instead, people need to feel important. This is where personalized marketing and communication initiatives come in handy. 

Building trust is essential for retaining customers. Be open and honest about your products, and guarantee that your clients can rely on you.

  • Adding value.

When customers believe they are receiving good value for their money, they are more likely to remain loyal customers.

To improve the perceived value of your products, meet the customers halfway with info about using your product, flexible payment options, and seamless delivery.

Ultimately, if you’re taking a customer-centric approach and genuinely care about your customers, you’re already on the right track.

Excellent and unique customer experiences are vital in fostering long-term customer loyalty. This entails being open and truthful with clients, providing high-quality goods and services, and being receptive to their demands and complaints.

Customer Lifetime Value as a North-Star metric

Saving the best for last, it’s time to shine a light on the cherry on top, the bee’s knees, the crème de la crème: Customer Lifetime Value (CLV).

The Customer Lifetime Value (CLV) predicts the net profit brought in by a customer in the entire customer lifespan: since he becomes a new customer until the moment he churns.

In other words, with CLV, you predict (and increase) the average purchase value from your existing customers. To achieve long-term profitability, you must maximize your profits at every transaction.

While the majority of eCommerce business owners strive to turn a profit from the very first order, they frequently overlook subsequent orders.

The same people make unnecessary cuts to their marketing budgets, and ignore the long-term gains that can be generated from the same customers as long as you can get them to develop a positive buying habit.

Customer Lifetime Value gives you a diametrically opposite approach: 

  • You acquire fewer but better customers in the acquisition stage.
  • You provide unique onboarding experiences.
  • You segment them according to customer value.
  • You invest in retention and prevention campaigns for each customer segment.
  • Profit!

Evidently, Customer Lifetime Value is more complex – but you get the gist. 

CLV can help you identify your most valuable customers, prioritize resource allocation, and orchestrate better and more efficient marketing and customer retention strategies. A positive outcome of these processes is increasing customer loyalty without having to guess what customers need.

At the same time, Customer Lifetime Value is highly useful in customer acquisition. It empowers you to acquire high-value customers instead of wasting resources on low-value ones. 

There are two formulas for calculating Customer Lifetime Value.

Customer Lifetime Value is a vital component of a thriving eCommerce company. Improving it boils down to delivering undeniable value to the right customers.

The catch? You first need to understand what undeniable, value, and suitable mean.

Value optimization is a methodology, so you should check out the CVO Academy to learn more about it. Check out our light & free introductory course on CLV and discover how much it can benefit your organization.

Wrap-up

Customer-centric organizations get a distinct edge during periods of economic recession like the one we are currently experiencing. 

These companies are aware of where the market is going. 

They divide up their customer base accordingly. 

And they adapt more quickly to any changes in the industry.

However, earning and improving customer loyalty is only possible when you genuinely care about customers. When you want to change their lives for the better. When their well-being is your primary concern. 

We understand that it might seem like an approach for a utopian time, but that’s the ugly truth: when you put profits before people, people will leave. 

When you focus more on providing a great shopping experience and helping people buy instead of pushing and forcing your products on them to meet your sales quota, wonders will happen. 

Good luck! 

Frequently Asked Questions about Customer Loyalty Metrics

What are the 3 R’s of customer loyalty?

The “3 R’s” of customer loyalty are Retention, Referral, and Repeat business. Retention refers to your ability to keep your customers over time. Referral means persuading customers to recommend you to their peers. Repeat business is your ability to get customers to return and make additional purchases.

What are the 6 stages of customer loyalty?

The usual 6 stages of customer loyalty are: Awareness, Interest, Evaluation, Trial, Adoption, Loyalty. Awareness is the initial stage, where the customer becomes aware of the brand. Interest means the customer expressed interest in your brand. In the Evaluation stage, the customers analyses your brand against his needs and preferences. Trial refers to the period where customers try your products. In the Adoption stage the customer becomes a regular user. Loyalty is where the customer becomes a long-term customer.

How do you measure success with customer loyalty?

In any business, success means increased revenue and a solid customer base. Customer loyalty plays a crucial role as it helps with cost cuts (it’s cheaper to sell to an existing customer than a new one), increased revenue (loyal customers tend to spend more), and an increased customer base (loyal customers will recommend you to their peers). Keep loyalty on track using customer loyalty metrics and you’ll enjoy all these benefits and more.

Which KPI measures customer retention and loyalty?

The most impactful KPI is Customer Lifetime Value. Other common and useful KPIs for customer loyalty are the Customer Engagement Score, the Customer Retention Rate, the Repeat Purchase Rate, the Repeat Customer Rate, and the Customer Churn Rate.

What are the five factors of customer loyalty?

Quality. If you meet or exceed customers’ expectations, they will stay loyal. Value. Keep a fair balance between the value you offer and the proce you’re asking for it. Customer Service. Provide excellent customer service, so customers don’t get frustrated and churn. Brand Trust. Prove you’re responsible and demonstrate honesty and integrity to earn customers’ trust. Personalisation. Orchestrate personalised and convenient experiences, tailored to customers’ needs and preferences.