In a previous article, we discussed how to build and improve customer loyalty. Once this has been done, how to measure customer loyalty comes next.
In other words, how do you know if all the measures you have implemented to achieve customer loyalty are effective?
Now more than ever before, the need to have loyal customers is pressing.
This is because the market is getting saturated with more and more evolving businesses/companies daily.
Chances are, most of these businesses are direct competitors in your industry.
Because no one wants to be the last, you can be sure that these are working hard to offer better products and services than yours.
Hence, the burden is on you to ensure that you do all you can to achieve and track customer loyalty in your business.
Read on to discover how.
How To Measure Customer Loyalty
In this blog post, we’ll cover the following areas:
- Who is a customer?
- What customer loyalty means?
- The benefits of having loyal customers
- Characteristics of a loyal customer
- What factors make it difficult to achieve customer loyalty
- And then, what are the various ways to measure customer loyalty
This is to help you understand all that you have to do to measure customer loyalty in your business and decide on the right steps to take.
First, Who is a Customer?
For someone researching how to measure customer loyalty, it is safe to say that the concept of who is a customer is not new to you.
However, for the context of the point under consideration and to build a foundation for the main subject, it is imperative that we define who a customer is.
Put simply; a customer is someone, a male or a female, who patronizes your business or company.
That means if you sell products or render services, anyone who walks into your store to get an item or does so online is a customer.
Since you would need to make sales to make a profit and stay in business, you would agree that customers are significant.
In fact, it is due to the importance of customers to an establishment that the phrase: “Customers are always right” was birthed.
This phrase captures how highly valued your customers are and why they should be treated like fine gold.
Therefore, whatever you can do to get and keep them should be of utmost importance to you.
Moving forward, let’s consider customer loyalty.
What Is Customer Loyalty?
Loyalty has often been defined as an attachment to someone or something.
When someone is loyal to you, it means the person believes in you, trusts you, and will do anything to maintain his/her relationship with you.
In light of this, let’s now define customer loyalty.
Customer loyalty can be defined as an indication of how likely it is for a customer to continually patronize your business over a long time, despite alternatives and/or difficulties.
The last part of that definition is where loyalty really lies.
It is easy sometimes to confuse repeat sales with customer loyalty.
While it is true that they are closely related and both essential for business growth, they are not the same.
You can make repeat sales to a customer, which shows a good customer retention rate.
However, customer loyalty goes way more than that.
When a customer is loyal, the customer deliberately chooses your brand above every other brand and will always do business with you come what may.
While issues like change in price or location might affect a repeat customer’s patronage, it doesn’t affect a loyal customer.
As long as the relationship exists and you do not compromise in the quality and value of your products and services, a loyal customer stays with you.
In fact, customer loyalty also drives customers to become loyal brand ambassadors.
Indeed, it is clear why every business needs to know how to build, measure, and maintain customer loyalty.
Now let’s discover some of the benefits of customer loyalty before considering how to measure customer loyalty.
The Benefits/Advantages Of Building Customer Loyalty
Are you new in business or have been running a business for many years?
Do you run a multi-million naira enterprise or a small-scale enterprise?
It doesn’t matter how long you’ve been in business or how big your business estate is; customer loyalty is essential.
Whatever you spend on building this, either monetary, time or energy, is well worth it.
Take a look at some of the benefits or advantages that comes from building customer loyalty:
Reduction In Marketing Costs
Whenever businesses close their account books for the year, it is all too common to find marketing take a large part of the business expenses.
The reason for this is not far-fetched.
A lot is spent on creating awareness and acquiring new customers with the eventual goal of maximizing profits.
However, what if we were to tell you that there is a cheaper alternative to that?
That is building customer loyalty.
When you have loyal customers, you spend less on keeping existing customers than getting new ones.
Easy Integration Of New Products, Services, And Features
With loyalty comes trust, satisfaction, and commitment.
As you go on in your business endeavors, there are times when you might need to introduce new products or services to the market.
In a similar vein, you might also have to tweak some features of your existing products.
Who better to accept such changes with minimal fuss than loyal customers?
With loyal customers, you do not need to do so much to convince them to give it a try.
Likewise, you are more likely to meet with fewer rejections and resistance.
Increased Sales And Profit
Statistics have shown that a company’s sales and profits increase exponentially when efforts are geared toward retaining customers.
It has been proven that old customers tend to spend more with a brand than new customers.
Therefore, if you can build customer loyalty, you are giving your business a better chance of making more sales and increasing profit.
It’s Easier To Forecast Revenue And Growth Rate
For any business interested in staying relevant in the market for long, effective planning is essential.
If your organization only has one-time customers, it would be pretty difficult to forecast revenue and growth.
However, when you have made efforts to build customer loyalty, you can effectively forecast what revenue to expect at the end of a year.
This is because you already know your customer’s purchase power/ pattern and can predict when they will make purchases and what value it would be.
With this wealth of information at your fingertips, it is easier for you and your team to plan well and better manage your budget.
Better Equipped To Handle Emergencies And Unforeseen Occurrences
Many times, businesses are faced with cases of emergencies and unfortunate occurrences that are not planned.
It would be unwise to think that would not happen to your business at one time along the line.
Well, interestingly, you can be better equipped to deal with these when you have loyal customers by your side.
Loyal customers are the last to leave when an online server crash or the company suffers loss and cutting down on some freebies.
With loyalty comes an unconditional attachment and commitment, which would greatly benefit you in times of uncertainty.
Increase In Customer Referrals
One other good thing about loyal customers is that they are always willing to tell others about your business.
They refer people to your business, having been firsthand beneficiaries of the values that your company offers.
These referrals will, in turn, grow your customer base and will inevitably increase patronage and income.
Characteristics of a Loyal Customer – How to Identify Customer Loyalty
You would recall that we mentioned earlier that there is a difference between having repeat sales and achieving customer loyalty.
With that in mind, how do you identify customer loyalty?
In other words, what are some pointers as to whether or not a customer can be classified as loyal?
When you know these characteristics and attributes, you would know if your efforts toward building customer loyalty yield positive results.
Consequently helping you measure customer loyalty.
Here are a few of them:
Not Swayed By Price
One key indicator of loyalty from a customer is that they are not easily swayed by the price of a product or service.
Because of the increasing cost of raw materials and/or cost of production, you might sometimes have to increase your product(s) prices.
A loyal customer does not turn away from your business simply because of that.
As long as they still get the value they desire and the product’s optimum quality and services, they continue patronage.
Their Patronage Is Not Influenced By Availability
Similar to price, another factor that is not constant in business is the availability of products.
There are times when you do not have the products that a customer demands in stock.
Such times allow you to know which customers are loyal to your brand.
Loyal customers do not also jump off the train at the slightest opportunity due to the unavailability of certain products and services.
If the need for that product is not pressing and urgent, they are usually more willing to wait.
Similarly, if there is an urgent need, they would ask you to help get an alternative supplier that can provide it at that time.
They Do Not Give In To Competitors Sales Pitches
This means that once they choose you as their supplier or business provider, they’ve made their choice.
Also, they do not go around looking for different other options, trying to see if there is a better deal elsewhere.
They know where their loyalty lies, and they stick with it.
Generous With Their Feedback
When you have loyal customers, you have individuals or companies who do not just think they are another customer but feel like a part of the business.
Because of this, they are always looking out for you and how you can improve.
Therefore, they are very generous with their feedback.
They Choose To Be your Brand Ambassadors
Do you have a customer who tells you: “Let me have your business cards so I can give them to my friends and colleagues?”
This is a good indicator of customer loyalty.
Even without offering to pay them, loyal customers are always more than willing to spread the word about your business to everyone.
They love what they get from you and want many others too to benefit as well.
What more? They want to see you grow in leaps and bounds.
They are Flexible to Changes
Even though change is the only constant thing, it is one thing humans are not generally attuned to.
Not everyone likes change, especially ones that offer some discomfort or inconvenience.
While this is not easy, loyal customers are ready to adapt to changes in your business whenever it comes.
They trust that you would not do anything to jeopardize the relationship you have with them intentionally.
Hence, they see those changes as necessary and believe that they would not affect their experience with your firm.
Distance Is Not A Barrier For them
Do you have customers who patronize you even when they move away from the state or city where you live?
If you do, hold them close, as that is a sign of loyalty.
Loyal customers do not allow distance to pose a barrier to their continued patronage of your business.
Even when they are far away, loyalty and commitment mean that they will still buy from you and choose you instead of others selling the same products close to them.
Calm And Understanding in the Face of Challenges
There is an age-long saying that we know true friends in the face of challenges and adversities.
This can also be said of the relationship that exists between businesses and their customers.
Ask yourself how your customers react when your business faces a challenging situation.
Are they understanding enough and trust you to fix it without complaining, or do they rag your staff and throw tantrums?
How they react is a big indicator of their level of loyalty.
Before discussing how to measure customer loyalty, let’s also consider the various factors hindering you from having loyal customers.
Factors That Make It Difficult To Achieve Customer Loyalty
Try as you might, certain factors might be hindering your efforts to build customer loyalty.
Once you identify these factors, you can then work on them to make your customer loyalty journey a big success.
Not Keeping Pace with Technology
Technology continues to evolve daily.
Things that were done some 10 to 20 years ago are not the same way they are now.
You have the responsibility as a business owner to adapt to technological advancement while offering services to your customers.
Your customers are well familiar with these changes, and it would be difficult to keep them if you are stagnant.
Bad Customer Service and Experience
This is equally very important when it comes to achieving customer loyalty.
This department represents the face of your brand and hence must be professional and skillful when handling customer queries.
If your customer care agents constantly give below-par services to customers, the chances of making them loyal customers are slim.
Poor Products and Services
Let’s face it, regardless of how much a customer loves you and your brand, if your products are not of the best quality, it is only a matter of time before they leave.
Some businesses find it difficult to retain customers and get their loyalty because of this.
Not only do customers want to buy quality products from you, but they want they do this conveniently.
Sometimes, a customer might stop patronizing you because your methods and policies are not convenient.
These might range from your operating hours, return policies, location, and many other policies.
After careful consideration, this might be the reason you are finding customer loyalty difficult to come by.
Falling Short Of Customer Expectations
Your customers always have certain expectations of you, and it would be nice if you know these expectations.
You cannot achieve customer loyalty without customer satisfaction.
The only way to get your customer’s satisfaction is when you meet up with their expectations.
Thankfully, there is a way to even deal with a client with unrealistic expectations.
No Customer Appreciation/Rewards
It’s a no-brainer; a customer cannot be loyal to you when you do not appreciate his/her efforts.
Customers want to feel that you appreciate every single penny they spend with you.
You cannot just appreciate them by heart; you also need to show them how much you appreciate them.
Without a customer appreciation and reward project incorporated in your business plans and strategies, you cannot get customer loyalty.
How To Measure Customer Loyalty
Do you have customers numbering in their tens, hundreds, or thousands?
Are you wondering whether or not those customers qualify as loyal customers?
Would you like to know what strategies you can deploy to measure the customer loyalty rate of your business?
Here is the part where we show you the metrics to use in measuring customer loyalty.
1Customer Churn Rate (CCR)
This is one of the most important metrics to measure customer loyalty.
The churn rate is a measure of how many customers stop using your product or services.
If they usually walk into your shop to purchase a physical product, it would be how many of them stopped coming.
Whereas, if it is an online service, perhaps based on subscriptions, it would be how many failed to renew such.
This can be estimated using the duration of time that you desire.
You can calculate the churn rate by determining how many customers you had at the beginning of a chosen time period.
Then consider how many were lost at the end of the selected period of time.
After that, divide the numbers that churned(left) by the total number you had at the start.
This will give you your churn rate and gives a clear indication of your customer loyalty.
2Net Promoter Score (NPS)
Another metric you can use to measure customer loyalty is the Net Promoter Score.
This is usually an indication of how willing a customer would recommend your business to others.
Remember, we mentioned earlier that loyal customers are always willing to recommend you to others.
This is exactly what NPS will help you find out.
You can do this as a market survey, whereby the score the customers select gives you a clear insight into whether or not they are willing to recommend you.
The score is usually from 0-10, where 0-6 are those who are not pleased with your products, 7-8 are satisfied with your brand but won’t mind trying out others, while 9-10 are those who are loyal and would definitely recommend you to others.
When you run this survey, the score you get will indicate how many loyal customers you have.
3Number of Referrals
Another way you can measure customer loyalty is by keeping track of how many referrals your business gets.
By the time a customer gets to making referrals, they are most likely loyal customers.
Therefore, when you know how many new customers you are getting via referrals and who referred them, you can ascertain the level of customer loyalty you have.
4Repeat Purchase Probability (RPP)
With this metric, you can predict or ascertain how many of your customers will most likely make another purchase after the last one.
This is also a great indicator of customer loyalty.
When you find out that your RPP is low, the customers will most likely never return, which is not loyalty.
You can calculate RPP by dividing the number of customers that have purchased a particular number of times in a year by the total number of customers in that same period.
5Customer Retention Rate (CRR)
The CRR metric gives you an insight into how many of your customers in percentage remains with your business over a long time period.
When you notice that CRR is low, you are not keeping customers, indicating a lack of loyalty.
On the other hand, if it is high, you know you are on the right track.
You can estimate this by taking the total number of customers at the end of a year, subtract it from the number of customers acquired during that year, and then divide by the number of customers at the beginning of the year.
The rate will give you a good indication as to your CRR.
Conclusion on How to Measure Customer Loyalty
Customer loyalty is essential for any business whose goal is to make more sales and increase profit and revenue.
As already noted, it is cheaper and more cost-effective to retain existing loyal customers than it is to get new ones.
Therefore, do your utmost to apply all the measures that have been tested and trusted in achieving this.
Also, if you notice certain factors are affecting your success in building customer loyalty, keep them in check.
Whatever effort you make and sacrifices put into this is well worth it, and your customer loyalty will increase.