How To Measure Customer Loyalty
All marketers want to maximise customer loyalty. But how do you know if you have loyal customers and what you should be seeking to improve?
Share of wallet
customer spend / customer category spend
Customer Lifetime Value
(average transaction value X the average number of times a customer transacts before lapsing) - your cost per acquisition (CPA)
Sales per customer
A little more rudimentary than CLV but nonetheless a useful metric.
Sales per customer is calculated as:
Revenue / Number of customers
Trends in sales per customer can help you understand the value of customer segments and removes the effect of changes in the absolute number of customers.
Active Customer Volume
Another seemingly basis but important measure of customer loyalty.
Knowing the number of active customers (and 'active' could be defined as transacting or engaging with your content) and how this trends will give you an indication of engagement.
A key measure of customer behaviour and a proxy for Share Of Wallet.
Measure how frequently your customers visit you and you will have an effective measure of customer loyalty.
Yes, they could also be visiting your competitors but visit frequency is a powerful measure that will hlp you to triangulate customer loyalty.
Allied with visit frequency, Recency is a powerful loyalty measure.
So spend per customer or visit frequency are increasing but if recency - how recently a customer transacted with you - is falling then you may have a significant problem.
In high velocity categories, like online gaming and retail, changes in customer recency can be highly sensitive and indicate low levels of 'true' loyalty.
Spend per Transaction
Sometimes referred to as Weight of Purchase, this measure indicates the depth of investment that a customer is making in your business.
While important measures such as visit frequency and active customer volumes are trending positively, changes in spend per transaction could suggest subtly but fundamental changes in customer behaviour.
Spend per Transaction could change as a result of pricing changes but also as a result of customers starting to split purchases, potentially also spending at competitors.
A critcial measure of customer loyalty.
Calculated as the number of customers active in the latest period who were active in the prior period, Retention Rate (also referred to as Churn, Attrition or Lapsed Rate) is one of the best measures of customer loyalty.
- ￼A deep emotional connection with the brand ￼
- High levels of active participation ￼
- A long-term relationship