How to Measure Customer Loyalty – Top 5 Metrics to Track

Customer Loyalty

Last Updated: February 2024

Word of mouth marketing is one of the best forms of marketing. Do you know how likely are your customers to recommend you to others? It’s time to find out.

If your latest NPS score is 30 or more, you are doing a great job on the customer loyalty front. Anything lower means you have work to do. Metrics like NPS can help you unearth the biggest reasons for customer dissatisfaction. For example, poor first-contact resolution, multiple transfers from one agent to another, customers being made to repeat information, complex terms and conditions (returns, warranty), etc.

While the top 20% of your customers are your biggest asset, it is the ‘detractors’ or the bottom quartile you need to focus on. Research shows that existing customers are the best options brands, e-commerce stores included, have to reduce marketing costs and drive revenues consistently.

The pandemic has put the focus back on retention versus customer acquisition. Studies show that repeat customers spend up to 3 times more than first-time buyers. To keep customers coming back for more is what loyalty is all about. It is the natural result of creating compelling value for customers. If you are already tracking data like click-through rate, live chat transcripts, and survey data for identifying gaps, you are on the right track. If you have a loyalty program, you probably have data coming in for promotions and conversions too.

However, it is important for brands to consistently measure the right customer loyalty metrics to know whether their efforts are having a real impact on the bottom line. Tracking the wrong metrics is simply a waste of precious time and resources. Getting clear about what to track and what to ignore can also reduce the effort you put into collecting the data.

Finally, the right metrics linked to your business KPIs can keep your team focused on the right priorities. The result: better utilization of resources.

5 Customer Loyalty Metrics to Track Regularly

Here is a list of the top 5 customer loyalty metrics that e-commerce businesses must keep a close eye on:

1. Customer retention rate:

As the name suggests, the customer retention rate is the number of customers who have continued to buy from you over time. If you have a reasonably high customer retention rate, it is a sign that your customers are loyal to you.

Conversely, if you have a low retention rate, it indicates that you are losing customers faster than you are attracting new ones.

By tracking your customer retention rate monthly, you can develop targeted marketing strategies to enhance your relationship with existing customers.

Here’s how to calculate customer retention rate:

(No. of active customers/ total customers) X 100 = Customer Retention Rate.

Alternatively, you can also use another formula to get your customer retention rate:

Customer Retention = (No. of customers at the end of the period – No. of customers acquired during the period)/ No. of customers at the start of period X 100

customer loyalty metrics

2. Customer lifetime value:

This metric gives you the monetary value of the business you have been getting across the customer lifecycle. It is the net profit earned from a customer over a given period. Unsurprisingly, it is one of the top business KPIs for a wide variety of companies across industries.

Loyal customers have a high lifetime value since they contribute considerably more to your sales than new customers. To calculate CLV, you first need to know the lifetime value of a customer.

The difference between the two is that CLV provides value in an individual customer relationship, while LTV is a collective or aggregate figure.

Step 1: To calculate LTV, the formula to use is:

Lifetime Value (LTV) = Average Value of Sale x Number of Transactions x Period of Retention

Step 2: LTV should then be multiplied by profit margin to calculate CLV as follows:

Customer Lifetime Value (CLV) = Lifetime Value (LTV) X Profit Margin

customer loyalty metrics

3. Average order value:

This is the average spend per customer on your e-commerce site over a given period. A higher AOV translates to higher profits, while a lower AOV indicates declining profitability. It provides vital clues into buyer behavior. Recommending products of the same (cross-selling) or higher value (up-selling) is an excellent way to make a better profit per sale.

If your average order value is increasing or is stable, you can rest assured that you attract enough repeat customers. Remember: loyal customers tend to buy more over time.

To calculate the average order value, the formula is:

Average Order Value= Total Revenue / Number of Orders Taken

customer loyalty metrics

4. Churn rate:

It is possible that in the drive to attract new customers, you ignore existing ones. Churn rate tells you how many customers stopped using your store. This metric is a clear indicator of customer loyalty. Churn rate and customer loyalty are inversely related.

For example, if you have a high churn rate, your customer loyalty is proportionately low, while a low churn rate means you have good customer loyalty. If your churn rate is consistently high, you need to ramp up your retention efforts.

To calculate the churn rate, you need the following formula:

Churn rate = No. of customers lost in a period/ No. of customers at the beginning.

5. Repeat purchase rate:

If you managed to make a good first impression on the customers, they are likely to return. The repeat purchase rate is the percentage of customers that have made more than one purchase. It can be calculated using the following formula:

Repeat Purchase Rate = No. of Customers who made a transaction more than once / Number of customers

Last Words

Customer loyalty is created when customers feel satisfied with your customer service across multiple interactions. Therefore, CSAT and NPS should also be considered as key customer loyalty metrics. The execution of your customer loyalty strategy depends on having a strong customer support team. Helplama’s expertise can help you deliver measurable CSAT and NPS improvements in a flexible, cost-effective manner.

Alternatively, you can also consider Saufter for improving the efficiency of your customer service team. It is equipped with automated workflows, a knowledge base builder, and much more robust features to make both your customers and agents happy. To provide swift responses, you can also go for the AI-powered live chat solution of Saufter. What’s more, they also offer customized pricing plans.

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