Key Metrics for Measuring Customer Loyalty

Regardless of the type of business you’re running, or even the industry you’re operating in, one of your most valuable assets will always be customer loyalty.

Have you ever been so loyal to a brand that you wouldn’t even consider going anywhere else to make a purchase? In today’s increasingly competitive marketplace, that loyalty is incredibly valuable. But unless you’re measuring loyalty, you can’t take meaningful steps to improve it. Thankfully, there are ways that you can create accurate measurements — you just need to keep a few key things in mind.

What is customer loyalty?

The term “customer loyalty” is inherently tricky because it cannot be measured by a standard, quantifiable algorithm. What really motivates someone to stick with one brand over another?

However, alternative algorithms and methods can be used to make actionable conclusions. This data actually becomes more beneficial over time, as it can be used to monitor trends and patterns that would likely have gone undiscovered otherwise. Organizational leaders can make quick adjustments if customer loyalty is trending downward and emphasize certain efforts that positively impact it. 

Why it’s important to measure customer loyalty

Measuring customer loyalty may seem like a lot of effort, but it’s an important step for several reasons. For starters, it helps to improve the overall profitability of a company. More than 50% of a business’s annual revenue is reported to come from repeat customers. And people who are so satisfied with a brand that they are willing to return also tend to spend about 67% more than brand-new customers.

Customer loyalty directly impacts a business’s potential to scale: any successful organization should be constantly growing over time. You can’t get to that point without ever-increasing revenue, and you can’t achieve that without loyalty. 

Finally, there’s the idea of brand reputation. Even if someone has no intention today of becoming one of your customers, you still don’t want them to have a negative impression at the very mention of your brand. The more loyal your customers are, the more likely they will say positive things to friends and family members, which creates a positive brand reputation overall.

How do you measure customer loyalty?

There are a few different ways to measure customer loyalty, depending on your organization’s key goals. In all likelihood, you’ll want to use a combination of these measurements to better understand how well your organization is doing and what it could be doing better.

Net Promoter Score (NPS)

This is a metric often used in customer loyalty programs to gauge overall satisfaction. The beauty of NPS is in its simplicity: It relies on the classic question, “How likely is it that you would recommend this particular business to a friend or colleague?”

Users give a rating on a scale of 0 to 10, and the responses are categorized accordingly:

• A score of 0 to 6 would classify someone as a Detractor. They’re fairly unhappy with your brand and might actually discourage other people from interacting with it.
• A score of 7 to 8 means that someone is a Passive. They’re satisfied… but not as much as they would need to be to promote your products and services to others.
• A score of 9 to 10 means someone is a Promoter. They’re advocates for your brand and are likely to spread the word far and wide.

New NPS companion metric, Earned Growth Rate (EGR)

The creator of NPS has recently introduced earned growth rate as a complementary metric to NPS, measuring loyalty-based growth. The idea is for organizations to put more effort into creating promoters, who come back consistently and bring along the people they know. EGR is a new metric that tracks sales coming in from that loyalty.

Brand engagement

Another important metric is brand engagement, meaning how often people are interacting with your business in the first place. This includes the frequency at which they’re interacting with your social media accounts, how often they’re visiting and returning to your website, how often they’re leaving reviews, and more.

Repurchasing levels

One of the most critical ways to measure customer loyalty, this metric most directly impacts your bottom line. By tracking new versus repeat customers, you can better understand your retention rate fluctuation. Are people making a single purchase and then never returning, or are they making multiple purchases over time? The latter is always preferred, especially for a growing business.

Upsell ratio

Your business’s upsell ratio tracks existing customers that buy a new product — something that is also very important in terms of scalability. When someone buys a higher-value item than they had originally intended, or if they take a leap of faith on a new item that has little-to-no customer reviews, it shows that they inherently trust your brand.

Customer Lifetime Value (CLV)

This metric helps define the total revenue that someone brings in over the entire relationship they have with your business. That includes all past purchases, as well as potential future ones.

Calculating CLV requires you to take the average purchase value and multiply that by the average purchasing frequency. That tells you how much each customer is “worth” over time. Then, you take that number and multiply it by the average customer lifespan to arrive at the customer lifetime value.

Customer Loyalty Score

Similar to the Net Promoter Score, this uses a questionnaire-style survey to seek out information about experiences people have already had. Participants are asked to respond using a scale of 1 to 6, ranging from “Very Unsatisfied” to “Very Satisfied.”

In the end, it’s key to remember that most of your business’s success will come not from new customers, but from repeat buyers. This is why measuring customer loyalty is always of paramount importance, and the aforementioned metrics will go a long way toward helping you accomplish precisely that.

Want to learn more about driving customer loyalty? Watch our webinar with NPS creator Fred Reichheld, Capturing Signals to Drive Customer Satisfaction and Loyalty