6 Metrics for Measuring and Rewarding Customer Loyalty
What if you could measure the loyalty of the people around you? That’s impossible for friends, family, and partners – and probably for the best. The loyalty of your customers, however, can be measured.
The difficulty comes from loyalty being an intention. And one that people aren’t always honest about. The benefits of loyalty are great, however.
A loyal customer is...
- Likely to refer you to their friends and contacts.
- Likely to continue buying from you as long as the need is there.
- Open to other products and services that you offer.
- Easy going toward emerging issues and gives you time and trust to fix them.
- Likely to give feedback about how you could improve.
Measurement is the first step in customer loyalty management. Once you’ve determined your most loyal customers, I’ll share ways you can give back to show your appreciation. But first, here are the five most effective measurement metrics.
- Net Promoter Score (NPS)
- Repurchase Ratio
- Upselling Ratio
- Customer Loyalty Index (CLI)
- How much would you miss us?
- Customer Engagement Numbers
- 5 ways to reward customer loyalty
Net Promoter Score (NPS)
This metric indicates the likeliness of your customer referring you to their friends. Your customer answers this simple question with a value between 1 – 10.
NPS is a powerful metric. It’s simple, but it’s also a great indication of a customer’s true feelings about your company. After all, you are putting your own credibility on the line when you recommend a product, which people typically don’t do unless they really love what you’re selling.
NPS divides your customers into three categories:
Detractors. Customers answering with a score of 6 or lower are considered “detractors.” These are people who won’t recommend you to anyone, will probably not buy from you again, and might even hurt your reputation through negative word-of-mouth.
Passives. Those with a 7 or 8 are segmented as “passives.” They are quite satisfied, but not satisfied enough to recommend you. These customers won’t hurt you, aren’t looking for alternatives, and would likely stick around as long as they don’t find a supplier with a better value proposition.
Promoters. Customers with a 9 or 10 fall into the “promoters” segment. These people are your “super fans,” your equivalent of the people who camp in front of the Apple store. They’re likely to recommend you and buy from you again.
Your total Net Promoter Score is calculated by subtracting your “detractors” percentage from your “promoters” percentage.
Most NPS tools work by importing a list of your customer contact data and sending the questionnaire per email. Trustfuel NPS (free), and Promoter.io (paid) are two popular tools. I personally like in-app tools like Wootric (freemium). Instead of targeting your customer’s inbox, it politely asks for feedback while they’re on your website or app.
Your promoter - detractor ratio not only depends on your service and product quality. Some customers simply fit your company better than others. Tying your NPS scores to certain customer information, like demographics and industry, can also help you identify your ideal customer type.
To put your results into perspective, have a look at the Net Promoter Network. They offer a report on NPS benchmark scores per industry.
This measures the ratio of repeat purchasers over one-time purchasers. A purchase is at the core of a commercial relationship, which makes this metric a valid representation of customer loyalty.
This metric can be easily distorted, however. If it takes a large effort to switch between providers, for example, you might have a significant portion of repurchasers who would nevertheless switch if this effort would be simplified.
At Userlike, for example, we learned that customers wanted to offer AI and automation alongside their live chat support but lacked the resources. It takes time to write scripts and integrating third party sources costs extra. We built AI into our product so customers just have to upload their existing knowledge base and it automatically works with all of our modules: an AI chatbot and responsive FAQ page and contact form.
The way to calculate this repurchase ratio differs per business model. If you have a subscription based model, you simply divide the number of customers that extend after their first contract period by the ones that cancel after their first contact period.
It’s a bit trickier for transaction based business models because the intervals between purchases aren't fixed. To know your number of repeat buyers, you need to first calculate the average time between the first and second buys of repeat customers, as well as its standard variation.
By adding two times the standard variation to the average time, you will have captured 95% of your repeat customers. Divide this by the number of non-repeat buyers, and you have your estimated repurchase ratio.
I know - confusing. To help clear things up, here is a tool to calculate your standard deviation.
Another way would be to measure the repurchase intention, which we cover in method 4.
This tracks the ratio of customers who’ve bought more than one type of product divided by the customers who’ve bought only one. This sounds similar to the Repurchase Ratio, but it’s different because it concerns another product.
Buying new products is a clear indication of customer loyalty. The trust you gained through your customer’s previous experiences has reflected on your other product offerings.
Product variety, or feature variety if you’re a software company, is the key to keeping loyal customers. If you establish that you maintain the same level of quality for all your products, then customers will stay hooked.
For example, I first tried Tchibo’s coffee when it was on sale at the grocery store. I liked it a lot, so I browsed the home products they sell in store and bought a couple kitchen items. They work great and are sturdy for the price, so I now always check out the Tchibo section for new products when I go grocery shopping.
Over time, Tchibo earned my trust and interest because of the variety of well-made products they regularly offer.
Ready to calculate your upsell ratio and earn devoted customers? Divide the number of customers with multiple products by the number of customers with a single product.
Upselling is not only an indication of a loyal customer - but great for your business. Find out how to do it right with Optin Monster’s guide to upselling tips.
Customer Loyalty Index (CLI)
This is a standardized tool to track customer loyalty over time. CLI incorporates the values of NPS, repurchasing, and upselling.
It calculates all three values with an NPS-like questionnaire on a 6-point scale. 1 stands for “Definitely Yes,” 6 stands for “Definitely No.”
Here are three common questions you might see:
- How likely are you to recommend us to your friends or contacts?
- How likely are you to buy from us again in the future?
- How likely are you to try out other of our products/services?
Your total CLI is the average score of the 3 responses.
1 = 100
2 = 80
3 = 60
4 = 40
5 = 20
6 = 0
The downside of this approach is that you ask directly for the customer’s intention, which is less reliable than measuring actual behavior. The advantage is that this score incorporates all of the loyalty values. Also, by consistently sending this questionnaire over time, you can systematically track changes.
Here’s an example of a CLI Questionnaire that you can easily copy using Google Forms.
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How much would you miss us?
This is an alternative to the NPS score. You ask your customers how much they’d miss you if your company disappeared tomorrow.
Like the NPS, customers choose a value between 1 (would not miss at all) and 10 (I couldn’t do without you). This measures the strength of your customer connections and the perceived value of your offering.
If you’re one of the many competitors that do more or less the same, like the now bankrupt Toys R Us, your customers will likely not lose sleep about you disappearing. They’ve already moved on to a company that’s constantly adapting.
Here are a few ways you might increase your average score to this question:
- Give a more personalized experience. You can’t control how many competitors you have. You can control the type of unique relationship you have with customers. Reach them with live chat and messaging and keep the line of communication open.
- Become essential. Easier said than done, but the more entrenched your product becomes in your client’s day-to-day, the more indisposable you become. This starts with thorough onboarding, great customer service and plenty of easy-to-follow tutorials and demo videos.
- Innovate, adapt and stay educated. Stay knowledgeable about how your industry is changing and constantly reimagine your business. Customer feedback from ratings and reviews will also reveal what’s missing and what they love most.
Customer Engagement Numbers
According to Curtis N. Bingham, customer engagement is the most effective predictor of customer loyalty. He argues that compared to NPS and CLI, not only are customer engagement metrics easier to measure and influence, but they’re also more strongly correlated with revenue and profits.
Bingham explains that customer loyalty is the natural result of positive interactions and experiences with your brand. These nurture emotional attachments that shield your customers from competitor influence.
Through this, says Bingham, customer engagement:
- Stimulates repurchasing
- Lowers price sensitivity
- Promotes referrals
Customer engagement is indeed an interesting area, especially for online businesses – for whom its metrics are relatively easy to track. For offline products and services, though, the tracking is much harder.
When users explore new features and start to use them, the service is growing on them, and they are happy to use it more.Guy Nirpaz
Guy Nirpaz suggests a few metrics to measure customer engagement for online apps:
- Activity Time. This is the average time your customers spend with your service; per day, week, month, or year – whichever is most relevant for your offering.
- Visit Frequency. This tracks how often a user returns to your service. Keep an eye on patterns in returning user visits. If you have a brain training app, probably your users should return a few times per week. While for website analytics tools, for example, a few times per month should be fine.
- Core User Actions. Track whether the user gets to experience your main features. For us: customize the color of the chat widget, add an operator picture, set up chat macros, etc.
By keeping track of these metrics over time, you see whether the fit with your user base is improving.
5 ways to reward customer loyalty
Once you’ve determined who your loyal customers are…it’s time to reward them for it!
While keeping a customer loyal can be difficult (they have plenty of options, after all) one of the best ways to do it is through rewards. What these are will vary depending on your business, but here are six options for you to consider.
- Vouchers: A voucher is a document you offer your clients that equals a value transaction that can be redeemed in the future. Offering vouchers is a great way to create awareness among current customers who have previously bought from you and see it as an opportunity to get your products at a discount price.
- Personal rewards: If there is one thing that makes someone truly loyal it is a personal reward, a unique valuable gesture. These can range from birthday coupons to discounted upgrade options according to their product usage. Of course, when your customer base grows this becomes more difficult to keep up. Still, if possible, it’s worth the effort.
- Freebies: Free stuff is hard to turn down. A freebie could be a free product (like ebooks and online courses) or extensions of your service like customization help. Free stuff not only keeps your customers satisfied with your service, but attracts people to your website.
- Free shipping: These days, free shipping is a normal thing that usually comes when visitors reach a certain value in their cart or buy during a specific period. But what about offering free shipping as a random act of kindness to existing customers? This is an incentive to maintain their account and/or stay subscribed to your newsletter.
- Early access: There is a wide number of things you can offer early access to: new products, special features or even different things like sales and promotions. For example, we offered existing customers early access to our new AI features so they could test the platform for two weeks before deciding to move forward with an upgrade.
Through early access you give your customers a special status, making them feel like the "the chosen ones." This builds further brand loyalty and can build “buzz” around your product.
A new level of customer loyalty with live chat
If you are trying to encourage customer loyalty, it all starts with building connections with your audience. One-on-one conversation is the best way to earn and retain new customer relationships.
At Userlike, we offer a sophisticated combination of live chat and messaging for personalized, instant service. We’re also one of the few live chat companies that offer self-learning AI built into our product. You can offer a chatbot, knowledge base and responsive FAQ pages the same day you sign up.
Want to reach a new level of customer loyalty?