Measuring customer loyalty gauges the strength of your client relationships, helping you predict and manage performance. Loyal customers are likely to buy from you again and refer you to others, increasing your revenue. Customers who don’t feel committed to your brand are more likely to churn and spread negative word-of-mouth. Being able to quantify how loyal your customers are can help you evaluate where you stand with your clients, predict where your customer relations are going and take steps to strengthen their engagement and satisfaction. In this blog, we’ll cover what customer loyalty is, why measuring it is important and what KPIs you can use to track it. We’ll also discuss how leveraging customer success technology can help you automate customer loyalty tracking and management.
What Is Customer Loyalty?
Customer loyalty is your clients’ commitment to your brand. This can be broken down into a couple of key components:
- How much customers purchase from you
- How often customers promote you to others
These components, which correlate closely with customer engagement and satisfaction, can be quantified by assigning key performance indicators to them. This makes customer loyalty a metric as well as a concept.
Why Is Measuring Customer Loyalty Important?
Measuring customer loyalty confers a number of advantages:
- It lets you quantify the success of your customer loyalty strategy so that you can objectively evaluate your performance
- It helps you predict your future performance if current customer loyalty trends hold
- It empowers you to manage customer loyalty by tweaking your loyalty strategy, testing your results and iterating continued improvements
These benefits make customer loyalty measurement an important tool for customer retention, brand ambassadorship and revenue growth.
How Do You Measure Customer Loyalty?
You can use various methods to measure customer loyalty. Here we’ll consider five of the best ways to track it:
- Customer lifetime value (CLV)
- Current customer referrals
- Net Promoter Score
- Customer loyalty index
- Voice of the Customer SuccessBLOC
These methods may be used individually or combined for multi-faceted insight into customer loyalty.
1. Customer Lifetime Value (CLV)
Customer lifetime value (CLV) measures how much your average customer spends over the course of their relationship with you. The best way to track this is by setting up a dashboard and reporting system which allows you to automatically pull up and view this data.
2. Current Customer Referrals
Referring your products to others is a strong sign of customer loyalty. Referral sales can be tracked if you have a referral program that allows participating brand advocates to share a link with a tracking code in it.
To quantify customer referrals, a simple metric you can use is referral rate. This is calculated by taking your number of purchases that come from referrals, dividing by your total number of purchases, and converting the result to a percentage. You can also track other referral metrics, such as the number of participants in your referral program, the number of referral leads generated by your program, and the conversion rate of referral traffic, for example.
3. Net Promoter Score (NPS)
Another important loyalty KPI is Net Promoter Score (NPS). NPS uses a scale of 0 to 10 to identify what percentage of your customers are “promoters” who are likely to recommend your brand or product to family and friends. NPS data can be collected through surveys conducted after purchase or at other strategic moments in your customer life cycle. In which they will have the opportunity to add comments which can provide your team with additional context.
4. Customer Loyalty Index (CLI)
Like NPS, the customer loyalty index (CLI) tracks how likely a customer is to recommend a brand, but it also asks customers how likely they are to buy again and to try other products. Unlike NPS, CLI doesn’t have a standard scale. It may use 0 to 10, or it may use a different numerical range. No matter what scoring scale is used, a CLI survey invites customers to answer three questions:
- How likely are you to recommend us to family or friends?
- How likely are you to buy from us again?
- How likely are you to try our other products?
CLI is calculated by taking the average of customer answers to these three questions. For example, if your average answers on a scale of 0 to 10 for the three questions were 6, 7 and 8 respectively, your CLI would be 7.
5. Voice of the Customer SuccessBLOC
Totango’s Voice of the Customer SuccessBLOC takes customer loyalty measurement to the next level by automating loyalty KPI tracking as well as harnessing digital technology to manage and optimize factors that impact loyalty scores. Voice of the Customer includes built-in dashboards and reporting tools for tracking NPS as well as other vital KPIs such as customer satisfaction score, including detailed breakdowns segmenting overall NPS into specific categories. The Voice of the Customer SuccessBLOC further includes workflows called SuccessPlays which put your loyalty data to practical use by automatically or manually triggering best practices that promote loyalty. For example, you can set up a workflow that automatically invites promoters with high NPS scores to join your referral program or another workflow for intervening with dissatisfied customers to win their loyalty back. When you close the loop, customers will know that they’ve been heard.
Measure Customer Loyalty to Manage Customer Growth
Measuring customer loyalty gauges your customers’ inclination to continue buying from your brand and to referring your brand to others. Tracking it helps you evaluate the effectiveness of your customer loyalty strategy, predict loyalty trends and take steps to optimize performance. Methods of measuring customer loyalty include customer lifetime value, referrals, Net Promoter Score, customer loyalty index and the Voice of the Customer SuccessBLOC.
The Voice of the Customer SuccessBLOC functions within the Totango Spark environment, which is designed to help you promote customer loyalty by automating customer success. Key performance tracking combines with automatically triggered workflows that implement best practices that promote customer engagement, satisfaction, loyalty and referrals. Try it free to experience for yourself how best-in-class automation can help you drive customer loyalty.
