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How to measure Customer Loyalty?

How to measure Customer Loyalty?

Loyalty is an emotion that comes from emotional attachment and fulfillment. While it’s almost impossible to typically measure the loyalty of your friends, partners, and other people close to you, you can still measure the loyalty of your customers towards you and your brand.

Customer Loyalty is an essential factor that contributes to business success. All successful businesses have a bunch of loyal customers who play a significant role in increasing the organization's sales. According to Pareto Principle, 80% of an organization's profits are derived from 20% of customers. These customers are none other than your loyal customers who make repurchases from your business and attract more customers with positive reviews and word of mouth

In this article, we will explore some brilliant ways to measure Customer Loyalty. But before we move ahead to this discussion, let’s define Customer Loyalty.

What is Customer Loyalty?

Customer Loyalty is a tendency of customers to make repurchases from the same brand or company, again and again, preferring that brand over others. Customer Loyalty is an outcome of the Customer Experience you provide and your ability to build customers’ trust and make relations with the customers.

Building Customer Loyalty is important for improving business revenue and increasing sales. To build Customer Loyalty and ensure that you are moving in the right direction, you need to measure it regularly. If you get to know how many loyal customers you have and how loyal they are to your brand, you can work on it better to improve it. Let’s learn how you can measure Customer Loyalty.

How to measure Customer Loyalty?

You can follow different ways to measure Customer Loyalty. Some of them measure it subjectively, whereas some of them measure it in numeric terms. Some of these methods can track loyalty periodically, whereas some of them are complementary to each other and work better with each other. Let’s explore these ways to Measure Customer Loyalty:

Ways to measure Customer Loyalty

  1. Net Promoter Score (NPS)
  2. Repeat Purchases
  3. Multiple Product Purchases
  4. Customer Feedback
  5. Customer Engagement
  6. Customer Churn
  7. Customer Lifetime Value (CLV)

Let’s understand these ways to measure Customer Loyalty:

1. Net Promoter Score (NPS)

NPS or Net promoter Score is the most popular metric used to measure Customer Loyalty. In this method, an NPS Survey is sent to the customers asking a simple question:

On a scale of 0 to 10, how likely are you to recommend us to your friends and colleagues?

Rating scale from 0 to 10 is provided with this ‘Ultimate Question’ where 10 means ‘Most Likely to Recommend' and 0 implies ‘Not at all Likely to Recommend’.

When you get the customers’ responses in ratings from 0 to 10, you divide the respondents into three categories viz. Promoters, Passives, and Detractors.

Promoters are those who give you a rating of 9 or 10. These customers are considered the most satisfied and loyal customers who are most likely to make repurchases and recommend your brand to their friends and family.

Passives are those who give you a rating of 7 or 8. These are generally satisfied customers, but you can’t consider them as truly loyal customers. They tend to switch to other brands if they get an offer for a better deal.

Passives are those customers who are the most dissatisfied. They are most likely to switch to your competitors and can also spread lousy word of mouth about your products and services.

Calculating Customer Loyalty via NPS

The Net Promoter Score Calculation is pretty simple. You just need to find out the percentage of detractors and the percentage of promoters and then subtract the percentage of detractors from that of promoters.

So if the percentage of your promoters is 70% and of detractors is 25%, your NPS would be 70-25 = 45.

This is the numeric NPS score you get which is known as Net Promoter Score. This number can lie anywhere between -100 to 100. A positive NPS is generally considered good, which means you have more promoters than detractors. A negative NPS implies that you have more detractors than promoters, so you need to work harder to build customers’ trust and make more loyal customers.

2. Repeat Purchases

Loyal customers make repurchases. For finding Customer Loyalty, you should look into this information regarding your business:

  • How many customers are your new customers?
  • How many are repeat customers?

When you find out these numbers, you will get to know how many customers you are able to retain and make loyal relationships with them.

3. Multiple Product Purchases

If you produce multiple products in your business, this information plays a vital role in finding out the loyalty of your customers towards your brand or organization as a whole. If your customers purchase a particular product, again and again, that means they trust the quality of that product.

This is a positive thing, but it would be much better to win your customers’ trust in your brand as a whole. For this, you need to see how many of your existing customers who usually buy a particular product from you are interested in trying your other products or a new range of products.

For this, should keep an eye on the information that how many existing customers are buying the products which they usually don’t. If you have a good number of such customers, pat your back as you are able to win customers’ trust as a brand.

4. Customer Feedback

Customer Feedback is the information about how customers perceive and feel about your products and services and their overall experience with your brand. Look for customers’ reviews, comments on social media, and the ratings they give in Customer Satisfaction surveys like NPS, CSAT, and CES.

This will help you to gauge Customer Satisfaction and loyalty towards your organization. Loyal customers will provide positive feedback and ratings. In contrast, the customers who are not happy with your brand and loyal to it tend to write negative reviews and share negative feedback.

Work on the negative feedback by enquiring about the issues your customers have and resolve them by taking corrective actions.

5. Customer Engagement

Monitoring Customer Engagement is an excellent way to gauge Customer Loyalty. Developing an emotional relationship with the customers results in more Customer Engagement. Keep a watch on how much customers visit your website, how many reviews they share, how many comments they share on social media. All this indicates that customers trust that you listen to them.

Customers may keep on making repurchases products or renewing their membership of your services for years but never provide any review or comment. Still, with Customer Engagement, you can get a good idea of how much your customers feel connected to your brand.

5. Customer Churn

Customer Churn is the opposite of Customer Loyalty, and Customer Loyalty is the result of Customer Satisfaction. The more satisfied your customers are, the more they become loyal to your brand. If you don’t provide them the satisfaction they seek, they lose loyalty, resulting in Customer Churn.

Keep a watch on customer churn and retention. An increase in Customer Churn means a decrease in Customer Loyalty. Whereas, if you are able to satisfy your customers and retain them by changing their negative experience into positive, they can become one of your most loyal customers.

7.Customer Lifetime Value (CLV)

Customer Lifetime Value is another metric that helps ascertain Customer Loyalty. CLV estimates how much revenue and profit a customer will bring to your organization or how much value a customer brings for your business throughout the time he stays with you as a paying customer.

It is calculated with the following Formula:

Customer Lifetime Value = Average Purchase Value x Number of Customer Purchases Per year x Average Customer Lifetime

For instance, you have a retail grocery store from which a customer makes purchases worth Rs 2000 every month on an average. This customer continues his relationship with you for ten years before relocating to another location in some other state. Now, his Customer Lifetime Value will be:

CLV = 2000 x 12 x 10 = Rs 240000

So this customer can bring Rs 240000 to your business.

So this customer can bring Rs 240000 to your business.
Finding Customer Lifetime value can be fruitful in terms of measuring loyalty. Although CLV is just an idea about the customer's intent for the future, and as you know, the future is uncertain, so it cannot be a sure-shot way of finding loyalty. However, it gives a good idea of how valuable your customers are for you, and you can carry out different ways to improve your Customer Lifetime Value.

Published on Jul 28, 2021. Updated on Jul 28, 2021.



Nikhil Dawer

Written by Nikhil Dawer

Jul 28, 2021

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