Most companies are aware that improving customer loyalty is one of the main levers for increasing commercial performance in a sustainable manner.
However, you can only improve what you measure . To help you build list of australia whatsapp phone numbers your customer loyalty measurement system, in this article we will present the main indicators and methods at your disposal.
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Summary
Why measure customer loyalty?
1. Customer retention rate
2. The repeat rate
3. The upsell rate
4. Customer attrition rate
5. Customer participation rate
6. CLV or Customer Lifetime Value
7. Customer satisfaction scores (NPS, CSAT, CES)
Tools for measuring customer loyalty
The Limits of Measuring Customer Loyalty
Why measure customer loyalty?
To develop its turnover, a company has two main solutions: acquire more customers or retain its existing customers. However, it is established that it is 5 to 7 times more expensive to acquire a new customer than to retain an existing one.
The implication is natural: your company has an interest in focusing its efforts on retaining existing customers .
This consequence, of course, applies especially to companies that already have a large customer base. If a young company is right to invest in acquisition, an established company has an interest in working on improving customer loyalty.
However, due to inertia, many established companies continue to allocate the largest part of their budget to acquisition. Which, as we mentioned in the introduction, leads to the leaky basket trap...or the Danaïdes barrel if you are fond of mythology.
Avoiding this trap is reason enough to focus on customer loyalty. But it is not the only one. Indeed, having loyal customers also allows:
To improve its brand image among its target audience.
To develop word of mouth, recommendation.
To build a community of ambassadors.
In a word, your loyal customers are your best salespeople. Investing in customer loyalty is therefore also a lever for acquisition.
The best way to improve customer loyalty is to start by analyzing it.
Customer loyalty analysis aims to answer a number of key questions:
How loyal are your customers?
What is the percentage of loyal customers in your customer portfolio?
What is the purchasing behavior of your loyal customers?
What are the characteristics of your loyal customers?
What are the factors that influence customer loyalty?
The answers to these questions will help you design your customer loyalty improvement strategy. To help you get the answers to these questions, we will introduce you to the main indicators and methods for analyzing customer loyalty.
Key indicators and their calculation method
There are several indicators that can be used to measure customer loyalty. Let’s review the main indicators to integrate into your dashboard.
1. Customer retention rate
Customer retention rate, also known as customer loyalty rate, measures the percentage of customers you have managed to retain over a given period of time. A high customer retention rate is generally a strong sign of customer satisfaction and loyalty. This KPI is crucial for assessing the longevity of your customer relationships and the effectiveness of your retention strategies.
To calculate the retention rate, you need to use three data:
The number of customers at the end of the period.
The total number of customers at the start of the period.
The number of new customers acquired during the period.
Here is the formula to use:
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The formula gives you a percentage that represents the proportion of customers you managed to retain during the period analyzed.
Let's take an example: you have 2000 customers at the beginning of the period, you have 2500 at the end of the period and you have acquired 800 customers in the meantime, your retention rate is: (2500 - 800) / 2000 x 100 = 85%. This is a high rate. You have only lost 300 old customers out of the 2000 at the beginning of the period.
2. The repeat rate
The repeat purchase rate, or repeat rate, measures the percentage of customers who make more than one purchase in a given period. This metric allows you to understand the recurrence of your customers' purchases. A high repeat purchase rate suggests that customers are satisfied and loyal.
To calculate the repeat purchase rate, you need to divide the number of customers who made more than one purchase during the period by the total number of unique customers during the same period. Then, you just need to multiply this number by 100 to get a percentage.
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Let's take an example: over a one-year observation period, out of 2000 customers, 200 made more than one purchase, this means that the repeat purchase rate is 10%. In general, a good repeat purchase rate is considered to be between 10 and 20%.
3. The upsell rate
The upsell rate measures your company's ability to encourage existing customers to purchase complementary products or services (cross-sell).
To calculate the upsell rate, you need to divide the number of transactions that included an additional purchase by the total number of transactions, then multiply that number by 100.
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Let’s take an example: you sell phones and accessories. Over a six-month period, you made 5,000 phone sales. Of those sales, 1,000 customers also purchased additional accessories, such as protective cases or chargers, when they bought their phone. The upsell rate is 20%, so 20% of the customers who bought a phone from you were also convinced to buy additional products.
4. Customer attrition rate
Customer attrition rate, also known as churn rate, measures the percentage of customers lost over a given period of time. It is the mirror of retention rate: Retention rate + churn rate = 100%. If you have a retention rate of 85%, your churn rate is 15%.
The churn rate is calculated by dividing the number of customers lost over the period by the total number of customers at the beginning of the period. The result is then multiplied by 100 to obtain a percentage.
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Let’s take an example: you sell subscriptions. At the beginning of the year, you had 10,000 subscribers. At the end of the year, you notice that 1,500 subscribers have not renewed their subscription. The attrition rate is 15%, so this means that you have lost 15% of your subscribers during the year.
5. Customer participation rate
Customer engagement rate measures the degree to which customers engage and interact with your brand, whether through purchases, use of your products or services, or participation in loyalty programs and surveys. This KPI helps you understand how engaged customers are with your brand, which is an important precursor to loyalty.
Calculating engagement rate depends on the specific metrics you consider to be representative of customer engagement. First, you need to define what an “active customer” means to you. Then, to calculate the metric, simply divide the number of active customers by the total number of customers, then multiply the result by 100.
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Let's take an example: You have a total of 100,000 customers. Among them, 40,000 are registered and active in the loyalty program. The participation rate is 40%, so this means that 40% of your customers are actively participating in your loyalty program.
6. CLV or Customer Lifetime Value
Customer Lifetime Value is an estimate of the total value a customer will bring to your business over the course of their relationship with you. This metric is critical to understanding the true economic “weight” of each customer and to guiding strategic decisions about customer acquisition and retention. A high CLV indicates strong loyalty and long-term profitability potential.
There are several ways to calculate CLV, but the principle is always the same: you estimate what the customer can bring you per year and you multiply this estimate by an average relationship duration expressed in years.
You get an estimate of the value your customer will generate for your business throughout their relationship.
The formula varies depending on the company's business model:
For a Retail / Ecommerce company, we generally use the average basket and the number of transactions: CLV = Average basket X annual number of transactions X lifespan of the customer relationship.
For a company that sells subscriptions, CLV can be calculated by multiplying the subscription amount by the subscription period. This is actually a simple adaptation of the previous formula.
