Big Data seems to be on the lips of every marketer these days. And for good reason. Data—and the new generation of analytics behind it—represents an incredible wealth of insight into consumer behavior and perceptions.
Not so long ago, marketers relied upon small sample sets to inform their next move (think focus groups and surveys). Today, thanks to the advancement of data analytics, we can now keep a constant pulse on large swaths of our consumer base (and we can do so in real-time).
We’re virtually able to tap into the perceptions of our customers. We’re able to gauge just how loyal our customers are, and how well our actions are working to keep them close. As analytics tools become more powerful, the companies that adopt these technologies who will enjoy the greatest windfall of loyalty.
But just what metrics should you be using to measure that loyalty? We’ve included our essential three below.
3 Essential Customer Loyalty Metrics
While there are other metrics out there, for this series, we’ll take a look at three of the most crucial metrics to begin combining into your program. If you’re just getting your feet wet, we suggest tracking just one per behavior category you’re driving to begin with and slowly ramping all three into your analytics process.
Repeat Purchase Rate (RPR)
RPR measures the percentage of customers who return to make another purchase from you. Your actions to bring your customers back influences this KPI (Key Performance Indicator), which gives a useful measurement of continued purchase behavior.
How To Calculate Your RPR
RPR measures the purchases made from your repeat customers divided by all purchases within a given timeframe.
Your RPR will always sit within a range of 0% to 100% (higher is better). For example, say you have ten customers, and five have purchased from you more than once. Your RPR would then be 50%.
Low scores indicate a low rate of return customers, whereas a high score indicates many customers are returning to you. Calculating your RPR on a weekly or monthly basis can be useful to show you if your customer loyalty efforts to draw customers back to your shop are genuinely working.
Customer Lifetime Value (CLV)
CLV is essentially the projected revenue from a customer during their relationship with you. This KPI is excellent for measuring the impact of marketing on improved purchase behavior.
For companies just starting to measure CLV, it’s difficult to estimate how long a customer relationship will last. We typically see them set a defined period for the calculation. For example, “a customer’s 24-month CLV is expected to be X.”
How To Calculate Your CLV
There are various ways to approach this calculation, and it’s important to find the one that best matches your business. We find the following to be the easiest.
Using your actual or planned figures, multiply the average revenue earned from each transaction by the average number of transactions a customer will make within a set period.
Say, for example, you want to calculate the 2-year CLV of a customer who provides $30 of revenue through your iPhone app every month for two years. Your calculation would be 30 dollars x 12 months x 2 years for a CLV of $720.
Net Promoter Score (NPS)
NPS measures customer satisfaction and the likelihood that your customers will recommend your products or services to other people via a survey. It is the standard for measuring efforts to drive earned promotion behavior.
A customer’s NPS will be a number that ranges from -100 to 100 (the higher the number, the greater the customer satisfaction). Each industry has a benchmark, but a top-performing score is usually considered to be above 60.
How To Calculate NPS
NPS is calculated by surveying customers on one question that asks them to rate the likelihood they’ll recommend you to others using an eleven-point scale (0 to 10).
The customer is then categorized into one of three categories based on their response:
- Detractors: scores equal to or less than six
- Passives: scores of seven or eight
- Promoters: scores of nine or ten
Once you’ve categorized each of your customers, you can then calculate your NPS by subtracting the percentage of your detractor customers from the promoters.
You’ll then arrive at a score between -100 and 100.
You may also want to explore tools that can help you automate survey collection and scoring. From powerful, comprehensive options like the Qualtrics Customer Experience platform to specialized, easy-to-launch applications like AskNicely, there are plenty from which to choose.