Customer loyalty is one of the essential ingredients of business success. Acquiring new customers is expensive. Loyal customers, on the other hand, drive more revenues, and can act as organic brand ambassadors who bring new customers on board through their social media accounts and word of mouth. In this article, we go some of the key metrics necessary to measure customer loyalty and how to improve those metrics.

An Experian Data Quality survey showed that 75% of companies with a good customer loyalty program receive positive ROI from the experience. And, in a Forrester Consulting survey, 64% of retailers stated that their consumer loyalty program is the best method of connecting with their customers.

1)   Net-Promoter Score (NPS) and Emotional Loyalty

The emotional loyalty of your customers is all about how customer feel about your brand. Unlike rational or behavioural loyalty, which is expresses how your customers act, emotional loyalty is quite important and easily overlooked. That is perhaps because measuring is tricky. But calculating the net-promoter score (NPS) can help you get a firmer grip on tracking it.

A Capgemini study found that consumers with high emotional engagement possess a stronger brand affinity when compared to ones with low emotional engagement. According to the aforementioned study, “86% of consumers with high emotional engagement say they always think of the brands they are loyal to when they need something, and 82% always buy the brand when they need something. This compares to 565 and 38% of consumers with low emotional engagement.”

The NPS is designed to help you measure the likelihood that your customers refer your brand, products or services to someone. Unlike merely purchasing again for rational reasons, spreading the word about what you’re selling to their circles is usually a decent indicator of your customers’ emotional loyalty. What follows is how you could calculate it…

First, ask your customers, how likely are you to refer our brand/product/service to someone? To make answering more convenient and allow for a spectrum of likelihood, require them to answer the question on a scale of 1-10.

Then, to help you make sense of these answers, categorize them into promoters (9 or 10), passives (7 or 8) and detractors (6 or below).

Finally, calculate your NPS, subtract the percentage of customers who are detractors from the percentage of customers who are promoters. Passives, on the other hand, count toward the total number of respondents. So, they basically decrease the percentage of promoters and detractors, and hence, they push the net score toward 0.

According to studies by Harvard Business Review, the NPS has shown a strong positive correlation with overall business growth as well.

To improve your NPS, you could take the following steps:

• Ask detractors why they found their experience of your brand/product/service unpleasant. This could help you dig up some actionable insights and improve how you do things in general.

• Offer your customers a seamless, digital customer loyalty program that are tailored to your needs according to the best of your knowledge. Customer loyalty programs can help incentivise your customers to promote your brand by presenting them with relevant rewards for their referrals.

• Your NPS score doesn’t merely reflect your customers’ perception of the quality of your products or services, it rather reflects their overall perception of the brand. Make sure you consider that when thinking about what could be making their experience unpleasant.

• Make sure you compare you calculate your score at regular intervals and to other industry benchmarks. You can get started at doing that through clicking here and checking out this NPS network.

2)     The Upselling and Cross-Selling Ratio

Another metric that could help you track customer loyalty is the upsell ratio. Upselling is when your existing customers, who already buy a certain product, buy an upgraded or more premium version of it. Cross-selling is when they buy more than just their intended product.

Calculating the ratio of customers who upsell or cross-sell to those who don’t helps you get a grasp on customer loyalty towards your company and its products and services. It’s quite safe to assume that customers who trust your brand enough to be willing to upgrade the services or products they utilize from it or buy new ones are loyal ones.

You can improve this key ratio by doing the following:

• Make sure that promotions you offer different customers to encourage upselling or cross-selling are relevant and tailored to their needs.
• Track promotions with a seamless, multi-channel loyalty program that utilizes cutting-edge technology. This will help you track your customers’ behaviour in general and their reactions to various promotions easily.

3)   Repurchase Ratio

A recent report by Monetate showed that the value of returning customers are greater. So, making sure you drive and track your repeat purchase is essential to understanding how loyal your customers are and increasing your revenues in the long run.

As a measure of behavioural or rational loyalty, repurchase ratio is a great metric. It’s simply the ratio of the customers that come back to purchase from your business repeatedly to the one-time purchasers.

Here’s some tips to improve the repurchase or repeat business ratio of your customers:

• Adopt loyalty and rewards programs that incentivise your customers to consistently purchase your products.

• Do your best to survey one-time purchasers on what they find dissatisfactory about your experience and attempt converting their feedback to actionable insights.

Maintain an active and engaging social

4)   The Customer Loyalty Index (CLI)

Since customer loyalty relies on plenty factors, the Customer Loyalty Index (CLI) is a method to standardize its measurement, and it incorporates the metrics we’ve previously discussed in this article.

It asks three main questions to your existing customers, whether they’re one-time purchasers or returning customers. These questions are:

1. How likely are you to recommend us to your colleagues, friends, or family?

2. How likely are you to purchase our products again?

3. How likely are you to try other products?

As you can see, this takes NPS, repeat purchases and multiple purchases (upselling and cross-selling) into consideration.

Improving it requires the improvement of each of the question’s implications, and you can find tips and insights that could help you do so above. It’s important to bear in mind, however, that CLI doesn’t replace the above metrics since, although it’s more comprehensive, it’s a measurement of your customers’ intention for the future and not their actual behaviour currently. Using this metric, however, and comparing it to what happens in reality over “the customer lifetime” is a useful method of tracking progress in customer loyalty towards your business over time.