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78%
increase in order count
68%
higher customer spend
In February 2020, the forecasted growth for ecommerce was 2.8%, and by June, the ecommerce market is expected to grow by 14% to reach $4.184 trillion. With so many brands fighting for their time in the spotlight, brand loyalty is crucial to shine and secure long-term growth.
With it being so important, it’s not surprising that you’re probably wondering, “Well, how can I make sure the effort I put into brand loyalty is working?”. You could then be thinking, “how is brand loyalty measured?” and “what are solutions to increase brand loyalty?”.
There’s a common misconception that loyalty can be only tracked by a loyalty program. But there are many other ways to track customer loyalty, whether you have a rewards program or not.
In this blog, we’ll show you how to analyze customer loyalty with and without a loyalty program.
Customer lifetime value shows the value of a customer during the entirety of their business relationship with you – from their very first purchase, right up until their last sale.
The simplest measurement based on existing data for CLV is:
CLV = customer revenue per year x duration of the relationship in years
Through analyzing and tracking your customers’ lifetime value, you can allocate your marketing and sales budget more effectively. Instead of investing in customers who rarely engage with you. Invest in customers who will convert to loyal members that will bring in more revenue.
Repeat purchase rate indicates the percentage of customers that have shopped more than once at your store.
You may think that a customer who ordered from you only three times might not be considered a loyal customer. But, keep in mind that after the first purchase, the likelihood of a customer making a second purchase is 30%. And, after the second purchase, their likelihood of a third purchase jumps to 50%. By investing in your customers who have higher repeat purchase rates, you will generate more revenue. And, through analyzing your customers’ repeat purchase rate, you can also easily understand which customers to invest in.
Repeat purchase rate = (repeat customers / total customers) x 100
Hint: Try retargeting the customers who have higher repeat purchase to motivate them to return to your site and make a purchase.
If you have a loyalty program, you can also implement a tiered loyalty program structure or create promotional campaigns to encourage repeat purchases further.
Net promoter score is a survey that asks your customers how likely they are to recommend your store to others on a scale of zero to ten. Keep in mind that people are four times more likely to buy when referred by a friend. In other words, referrals help you increase the number of new shoppers whilst keeping your acquisition costs low.
Here’s a bit more on how an NPS survey works.
Customers who indicate:
Then you just need to apply the formula below to see your overall net promoter score.
NPS = (number of promoters — number of detractors) / (number of respondents) x 100
Through the data you gather from your NPS survey, you can easily identify your at-risk customers and brand advocates. After segmenting your customers, you can then deliver more targeted communications to boost brand loyalty.
Average order value is the average total value of every order placed with a retail business over a defined period of time.
AOV = total revenue / total number of orders
AOV defines your most valuable customers, and helps you spot when customer spend is decreasing.
Since acquiring a new customer costs five times more than retaining an existing one, putting your efforts into existing customers with higher AOV will improve your bottom line.
A loyalty program can play a key role in increasing your AOV. With one, you can encourage members to spend more by enabling them to unlock exclusive rewards or by creating limited-time campaigns. Our research also showed that the average basket size of a loyalty program member that uses a loyalty reward in a purchase is 39% higher than the basket size of a customer that doesn’t.
As an ecommerce store owner, it’s inevitable that you will lose customers. It’s just part of the journey. What can be done, however, is to understand where customers are falling off, why they’ve stopped making purchases and how to improve your user experience to minimise churn. That’s why knowing the percentage of customers lost over a period of time is important.
The time frame to measure customer churn rate is up to you. However, it’s recommended to measure it on a month-to-month basis to position you in a more proactive stance for your retention strategy. After doing this, take how many customers you lost and divide it by how many customers you had to get the customer churn rate.
CCR = (lost customers / total customers) x 100
This metric measures how often the average shopper makes a purchase. It’s another important revenue metric because the higher your purchase frequency rate the higher your revenue will be. To calculate purchase frequency, divide the total number of orders made in a year by the number of unique customers you’ve had in the same time period.
PF = total number of orders (365 days) / total number of customers (365 days)
Note: This metric focuses on unique customers! Be sure to ensure that you’re tracking unique sales to get the most accurate data.
Customer retention rate measures what percentage of customers stay with you over time. It’s another quintessential customer loyalty metric telling you how well you’re keeping your customers. The higher your retention rate, the better you’re doing at keeping customers.
To calculate your customer retention rate, take the total number of customers at the end of a given period, subtract it from the number of acquired customers in the given period and divide it by the number of customers (at the beginning of that given period). Then times by 100 to get your percentage.
The period of time could be anything you want but to make it easier, use one year as a standard time measure.
CRR = ((number of customers at the end of a period – number of new customers during that period) / number of customers at the start of the period) x 100
Customer engagement score is a great indicator of how engaged your customers really are with your brand, products, or service. By measuring customer engagement, you not only get a feel for how loyal and engaged your customer base is, but you can also gain insights into the effectiveness of your current marketing and customer service strategies – and make important data-driven decisions to improve the customer experience.
Calculating your customer engagement score isn’t quite as simple as other metrics because you need to consider all factors that will impact your customer engagement, and this is different for every business. Your engagement factors could be things like subscription renewals, email opens, engagement with key product features, specific actions taken around a campaign – they will vary depending on your product and business model.
Here are the steps you should take to calculate your CES.
– Identify the engagement factors you want to track.
– Assign an engagement score to each event depending on the value of the action. A higher value action which indicates more engagement should equate to a higher score. (For example, email open = 2 points, customer survey completed = 4 points).
– Use the data you have to track the engagement of your customers and collect this information.
– Add up all the values to calculate your customer engagement score.
CES = engagement factor value #1 + engagement factor value #2 + engagement factor value #3
Different businesses use different metrics to calculate their customer engagement score, and there is no one-size-fits-all approach. The goal is to find a way to measure the level of customer engagement so that you can identify trends and areas for improvement.
A loyalty program gives you access to the spend, AOV, and repeat purchase rates of both your program members and guest shoppers. Through having a snapshot of your customers’ value, you can evaluate your loyalty program’s performance and better understand at what point each group is dropping off and failing to return to your store.
Your loyalty program data will also help you to segment your loyal, at-risk, and churned customers. By unlocking insights about your customer segments, you can deliver more personalized experiences and communications for each segment.
As you can see, your future success depends on your existing customers. Through analyzing your customer data more effectively, you can easily increase your customer spend, repeat purchase rates, AOV, and referrals which will directly boost your revenue.
To grow your business further and secure long-term sustainability, you need to frequently revisit those formulas, and see where you can make improvements to keep your current customers.
Whether you already have a loyalty program or you’re looking for cost-effective ways to drive revenue, you can visit the LoyaltyLion Academy to become the go-to expert in ecommerce loyalty.
