How to Measure Customer Loyalty: The Complete Guide

Top tips for measuring customer loyalty

How to Measure Customer Loyalty The Complete Guide - CX Today News
Loyalty ManagementInsights

Published: September 27, 2023

Rebekah Carter

Learning how to measure customer loyalty is one of the best ways businesses can protect and improve their profitability. Not only do loyal customers make more repeat purchases, but 57% also say they spend more every time they shop with their preferred companies.

Unfortunately, around 47% of B2B brands still aren’t measuring customer loyalty metrics. Another 86% even say they don’t monitor the ROI of their customer experience strategy.

Failure to measure customer loyalty means you miss opportunities to retain buyers and improve your CX initiatives. Fortunately, we’re here to help. Here’s everything you need to know about measuring customer loyalty in 2023.

Why Learn How to Measure Customer Loyalty?

Repeat customers are often essential to a company’s success. They deliver consistent revenue, keep profit margins high, and are much easier to leverage than new customers. Around 82% of companies say client retention is cheaper and simpler than client acquisition.

High levels of customer loyalty can also deliver other benefits to brands. Loyal customers are more likely to act as advocates, driving new business to your organization and reducing marketing spend. Plus, they have a direct impact on your brand reputation.

Learning how to measure customer loyalty means you can effectively determine what influences retention and churn rates in your business. Rather than guessing which strategies you should add to your CX initiatives, you can take a data-driven approach to growth.

Measuring customer loyalty can even help you better understand each customer’s value, create more effective sales and marketing campaigns, and prove the ROI of each CX strategy.

How to Measure Customer Loyalty: 9 Crucial Metrics

The good news for brands is learning how to measure customer loyalty doesn’t have to be as complex as it seems. Many vendors in the CX world, including CCaaS companies and CRM providers, provide access to valuable analytical tools to help business leaders.

These solutions are even becoming more advanced in the age of AI, ensuring companies can rapidly pinpoint trends and patterns that influence loyalty levels.

However, before leveraging these toolkits, you’ll need to understand which metrics and KPIs to look at. Here are some of the most valuable customer loyalty measurements to monitor today.

1. Customer Retention Rate (CRR)

Learning how to measure customer loyalty starts with tracking how many consumers choose to continue purchasing from your brand. Customer Retention Rate, or “CRR,” examines the percentage of customers you retain within a specific period.

The easiest way to calculate CRR is with the following formula:

Total number of customers at the end of a period – new customers added/existing customers at the start of a period x 100. For instance, at the end of a year, you might have 200 customers, 50 of which were collected throughout the year. If you had 300 customers at the beginning of the year, the formula would look like this: (200-50)/300=0.5. This means your retention rate is 50%.

2. Customer Lifetime Value

Customer Retention Rate shows how many customers are loyal to your brand, but it doesn’t offer an insight into how valuable those consumers are. That’s where Customer Lifetime Value (CLV) comes in. A good “CLV” should be around three times the cost of acquiring a customer.

Determining CLV can be a little complicated. You’ll need to get an average idea of your customer’s lifecycle with your business in years and their spend over that time. You can then multiply a customer’s spend in a single year by the number of years they stay with your business.

3. Customer Satisfaction

One of the most valuable metrics in the contact center, CSAT, or customer satisfaction scores, is how happy consumers are with your business. Usually, this score is calculated using direct customer feedback, where you ask customers to rate satisfaction on a scale of 1 to 5.

The higher your CSAT score, the more likely you are to have loyal, happy consumers. Unfortunately, collecting feedback for CSAT scores can be difficult. Many consumers don’t respond to surveys.

This is why some organizations invest in intelligent solutions that provide insight into your CSAT scores using sentiment analysis and other technologies.

4. Net Promoter Score

When learning how to measure customer loyalty, it’s also worth looking at the other forms of value loyal customers deliver. As mentioned above, your top fans don’t just increase revenue directly; they can also help drive new business to your organization.

Your Net Promoter Score, or “NPS,” examines how likely customers are to recommend your business to others. Usually, measuring this metric starts with asking customers to rate how likely they are to refer your company to another person on a scale of 1 to 10.

You then segment responses into “promoters” (scores of 9 or 10), “passives” (scores of 6-9), and detractors (scores of 0-6). Subtracting your detractors from your promoters should give you a score of -100 to 100, which is your NPS.

5. Customer Effort Score

Today’s consumers expect brand interactions to be as convenient and painless as possible. Measuring the “Customer Effort Score,” or CES, helps you determine how difficult it is for customers to connect with your business.

Like CSAT and NPS scores, CES is usually measured using surveys. You might automatically ask customers to rate how easy it was to solve their problem on a scale of 1 to 5. Or you could ask them to disagree or agree with a statement like “It was easy to solve my issue today.”

CES scores are more useful with context. This is why many organizations ask follow-up survey questions like, “What could we do to make the experience easier?”

6. Repeat Purchases, Referrals and Upsells

When learning how to measure customer loyalty, looking at metrics that help define who your most loyal consumers are can be helpful. Generally, the best way to find your “VIP clients” is to determine which customers make the most repeat purchases or take advantage of upsells.

You can also look at how likely consumers are to make a referral or track your promotors using referral programs. CRM solutions will help you monitor repeat purchases and the average order price of your loyal buyers.

They can also make it easier to track how many consumers take advantage of up-sell and cross-sell offers when they’re available.

7. Customer Churn Rate

Customer churn rate is another excellent tool for monitoring customer loyalty. Effectively, it looks at how often consumers stop doing business with your brand. To ensure long-term success, companies must keep their churn rates low and retention rates high.

Although all companies will experience some churn, analyzing your churn rate can help you understand why customers are abandoning your brand. For instance, you can examine how churn rate changes after implementing a new CX strategy or contact center solution.

An increasing churn rate suggests your customer service strategies aren’t meeting expectations. Alternatively, falling churn rates indicate your initiatives are paying off.

8. Engagement Levels

Loyal customers engage with businesses in a variety of ways. They don’t just make purchases; they can also leave reviews, provide survey responses, and help promote brands online. Tracking engagement levels can be a great way to examine customer loyalty.

You might look at the number of customers who respond to your surveys or request service over a specific period. You could also look at how many consumers respond to polls on social media, leave reviews online, or sign up for loyalty and referral programs.

Tracking the engagement levels of different segments of customers in your CRM software can even help you identify at-risk customers. The less customers engage with your business, the more likely they will churn long-term.

9. Customer Loyalty Index

Finally, one of the easiest ways to learn how to measure customer loyalty is to monitor your “customer loyalty index.” This standardized metric is derived from direct customer feedback, similar to NPS or CSAT scores.

However, with a customer loyalty index, you’ll generally ask many more questions than you would when determining NPS or something similar. You might ask customers why they’re loyal to your brand, how many purchases they’ve made, and how they feel about your business.

Your Customer Loyalty Index can also offer insight into how many consumers plan to stay loyal to your company in the future. For instance, you can ask questions like “How likely is it that you’ll buy from our business again?”

Measuring and Retaining Customer Loyalty

Learning how to measure customer loyalty can seem like a complex process. Loyalty can be an abstract concept to some brands, and collecting insights from your audience often isn’t as straightforward as it looks. Fortunately, measuring loyalty is becoming easier.

Analytical tools, AI solutions, and systems for monitoring customer sentiment can all help businesses keep their finger on the pulse of their customer’s loyalty quotient. What’s more, with the right insights, you’ll have the tools you need to boost the success of your business.

The more you measure customer loyalty, the more you’ll understand what it takes to transform everyday buyers into advocates. This means you can improve the results of your CX strategy, drive higher ROI from campaigns, and consistently increase your revenue.

Don’t underestimate the value of tracking and maintaining customer loyalty.

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