Mastering the art of measuring customer loyalty

Once you launch your loyalty program the work isn’t done just yet. Measuring data is crucial to running a successful loyalty program. There are multiple key performance indicators (KPI) that you can use to measure your success throughout your program's lifetime. Here is a quick guide on how to use these 5 KPI’s to identify how your program is running, where it needs some work, and new opportunities to look into to keep your customers engaged. 

Redemption Rate

Redemption Rate (RR) is used to determine whether customers are actively engaging with a loyalty program by looking at all of the point and/or reward redemptions. Understanding this number will help a brand determine if the members that are enrolled are fully utilizing the program or if there are points being left unused. This is beneficial to know what types of rewards and points are most likely to be redeemed. 

A program should try to keep their redemption rate for 20%. The lower the redemption rate the more non-active member base which can be blamed on unappealing rewards or a difficult earning/redemption process. However, if the redemption rate is too high then it could mean that points and rewards are being earned too easily which can cause a dramatic increase in your program's costs. Having these calculations will allow you to identify high-performing types of points and rewards among active program members, which will let you eliminate low-performers and increase more valuable options. 

Redemption Rate Formula: 

Total Points Spent

‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾

Total Points Issued 

Customer Retention Rate 

Customer Retention Rate (CRR) will allow you to see the number of customers that are staying loyal within a specific time period. It is beneficial to understand this number because it makes you more aware of other loyalty marketing strategies and how effective they are when it comes to attracting new customers versus keeping the existing ones. The higher the CRR the higher the number of returning customers. A low CRR means that customers could be experiencing a negative experience and you should look into how you are approaching customer retention. 

Customer Retention Rate Formula: 

Ending Customers-New Customers

‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾  x100

Initial Customers 

Active Engagement Rate 

Active Engagement Rate (AER) will show you what percentage of customers are very active in your loyalty program. This rate isn’t only measured by the way members earn and redeem points/items within a specific time frame; it can also give you insight on customer behaviors like what products they view and their website visits. AER is crucial to track throughout the year to see how effective your loyalty program is to the business. You can use this to determine the impact of promotions or events, such as double-point days or holiday/birthday bonuses. 

Active Engagement Rate Formula: 

# of Customers who are Actively Engaged

‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾

Total # of Customers 

Net Promoter Score 

Net Promoter Score (NPS) is a very important KPI to keep track of because it will help you see which customers are more likely to recommend your brand or program to others. Knowing which customers are inclined to promote your brand will allow you to create more personalized offers and incentives to those specific members. You can use surveys and customer feedback to gather responses, usually this is done through an online form or an email. A common survey question would be “How likely are you to recommend our brand to your friends and family on a scale from zero to 10?”. The number that people respond with is their Net Promoter Score. There are three types of groups: Promoters (9-10 score), Passive Buyers (7-8), and Detractors (6 and less). 

Net Promoter Score Formula:

# of Promoters-# of Detractors 

Customer Lifetime Value 

Customer Lifetime Value (CLV) is key to creating a lasting relationship with your customers. CLV represents the total amount of money a customer is expected to spend in your business, or on your products, during their lifetime. It is a more complicated metric to calculate but it is valuable to know. Focusing on your program's most valuable members is a great strategy for raising redemption and repeat purchase rates. Nurturing the relationships with your most engaging members will lead more long-term customers, more loyal brand advocates, and an increase in purchases. 

Customer Lifetime Value Formula: 

Average value of a purchase X number of times the customer will buy from you each year X average length of the customer relationship (in years).

So you have gathered all of this information, what’s next? You need to understand the results and determine what that means for your program and what needs to happen next. Consistently reviewing these metrics will stop your program from having hiccups that you aren’t aware of. You can’t grow customer loyalty by launching a program and sitting back to see what happens next. You need to be aware of all areas of your loyalty program and by using these metrics you will be better prepared for long term performance and growth.

Still have some questions about measuring your programs' customer loyalty? Let us help!