How to Measure Customer Loyalty
Imagine you are the organizer of an annual baseball tournament. You will put ads in the local newspapers, online, on flyers, etc. to advertise the upcoming event. You will also contact businesses to see if they would be interested in sponsoring your event. More than likely you will have businesses sponsoring your tournament that has sponsored it in the years prior. These are the sponsors who are loyal and you know you can count on for as long as the tournament endures.
Those loyal sponsors are like business’ loyal customers. So, what metrics do you need to measure customer loyalty? Let’s talk about three…
Customer Lifetime Value (CLV) – This is a way to measure how much value a customer will bring to your business over his/her entire lifetime. This is a fantastic metric that will help you assess your business’ current health and future success. To calculate CLV, you need to consider how much a customer spends at your business and how often they shop with you.
Repeat Purchase Rate (RPR) – A repeat purchase rate is the percentage of customers who have made more than one purchase from your place of business. The way to calculate your RPR is fairly simple. Looking at your sales for an entire year, you take the number of customers who purchased more than once and divide that by the total number of customers you had all year. RPR is a great way to look at where your business is right now (like a snapshot) in regard to customer loyalty.
Net Promoter Score (NPS) – This is a measure of customer loyalty that involves surveying your customers. Whenever a business is just opening or maybe revamping their look/products, they will have customers to complete surveys. A survey question that is always present is, “On a scale of 1 to 10, how likely are you to recommend (your business’ name) to a friend?” For those who would highly recommend you (answered a 9 or 10), they are called promoters. Those who answered a 7 or 8 are called passive. Those who answered a 6 or under are known as detractors. Your NPS is calculated by subtracting the percentage of detractors from the percentage of promoters.
Measuring customer loyalty is an important part of running a business. Your business’ success or failure depends upon the loyalty your customers show over the years. At FanTribe, we actively listen to the sports fan and keep them engaged. Still not sure what customer loyalty looks like?