The mathematics of measuring customer loyalty and engagement

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COVID-19 has shut down businesses around the world, forcing the remainder to work remotely. This poses challenges not only of a logistical nature, but from a customer-focussed point of view, too. Businesses must keep their customers engaged, while exploring new ways to keep them loyal. 

But for this to be effective, they must have the right processes in place to assess the effectiveness of those measures. More specifically, they'll need the right metrics and methods for quantifying customer loyalty and engagement. So what are they?

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Customer Lifetime Value (CLV)

Your CLV is calculated as follows:

(Average transaction value X average number of times your customer transacts before lapsing) – your cost per acquisition (CPA)

Figuring out the CLV is a fairly simple way of calculating how much business a specific individual is worth to you. And, measured with consistency and over time, it’s a vital data point for assessing the efficacy of your long-term engagement strategies.

Retention Rate

Particularly in the SaaS (Software-as-a-Service) field, retention rate is one of the most important metrics for organisations. Here’s how it’s calculated:

Number of active users that continue their subscription

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Total number of active users at the beginning of time period

Statistics suggest you’re 40% more likely to sell to an existing customer than converting a completely new one – so it pays to get to grips with this formula sooner, rather than later.

Net Promoter Score (NPS)

How likely are you to recommend us?

It’s a question you’ll likely have been asked after purchasing a product or service. It belongs to the NPS, a popular way of examining how likely your own customers are to recommend you. 

Founded in 2003, it’s a survey you can run that asks your customers to rate your business on a scale from 1 - 10. 

From here, it divides your customers into ‘Promoters’ (good), ‘Passives’ (not so good), and ‘Detractors’ (bad). It’s a tried-and-tested platform for leveraging an understanding of what you’re doing well, and where you can improve the user journey.

Redemption Rate

Firstly, let’s not underestimate the importance of customer loyalty campaigns. Utilising your own social media processes or an external loyalty program software, you can engage new customers, while rewarding your most frequent flyers.

But how do you calculate the effectiveness of these endeavours?

Well, you’ll need to get to grips with the redemption rate. It looks like this:

Number of points spent on rewards

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Total number of points issued

Essentially, the redemption rate tells you how many of your users are actually redeeming the rewards they receive through your customer loyalty scheme. It’s a good way of measuring not only how engaged your clientele is, but how effective your current loyalty program is, too.

Oh, and the average redemption rate is about one in seven people (13.67%). Make it your mission to get this number higher!

Visit Frequency and Recency

You don’t need a formula for this one. Looking at how often your customers are paying you a visit is a pretty clear indicator of how well you’ve managed to connect with them. 

Likewise, pay attention to the last time they used your services – if it’s a while ago, it could be an indicator of low ‘true’ loyalty.

Sales per Customer

This one speaks for itself. Sales per customer is calculated as follows:

Revenue

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Number of customers

It’s a basic metric, sure. But when it comes to figuring out the demographics of your biggest spenders – and nurturing your biggest accounts – it’s also an indispensable one.

Email clicks and opens

It goes without saying, but understanding how your audience is engaging with your brand’s email content is of the utmost importance. 

For one, it’s a kind of litmus test for how well similar content will perform on your website and social media channels. Your own email database is also a fertile testing ground for paid marketing campaigns. Better still, you'll have an overall idea of how well your existing customer base is connecting with your brand and messages.

To measure how well your emails are doing, you can try using CRM software. As well as creating and sending emails through the system en masse, you can also measure how many people opened them, and see the percentage that clicked through and read the content. It’s no granular solution, but it’ll provide a broad picture of the health of your communications.

Plus, when done right, email CRM can provide an excellent ROI. As the Head of CRM at a major London-based digital marketing agency says:

“Marketing CRM is such an important part of our business, as it operates with such a high ROI – this will vary depending on your business, but could be as much as 96%.”

So, with both better engagement and your bottom line at stake, it’s important to get to grips with the metrics of email marketing.

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Ultimately, it’s a combination of systems such as CRM and ERP (Enterprise Resource Planning solutions, such as SAP) that will help you engineer – and measure the effectiveness of – your customer loyalty campaigns. You’ll also be able to do all this while remaining grounded within your company’s key priorities and processes.

Don’t spend all your time and budget chasing prospects and paying through the nose for ‘hot leads’. The real, sustainable value lies not in finding new customers, but in nurturing the ones you’ve got.

And, with a data-driven approach and the metrics employed above, you’ll have everything you need to do just that; scaling your business with better customer engagement, and more loyal customers.