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 KPIs to identify how your program is running, where it needs some work, and new opportunities to explore to keep your customers engaged. 

Redemption Rate

Redemption Rate (RR) is used to determine whether customers are actively engaging with a loyalty program by analyzing all points and/or reward redemptions. Understanding this number will help a brand decide whether enrolled members are fully utilizing the program or whether points are going unused. This is beneficial for knowing which types of rewards and points are most likely to be redeemed. 

A program should try to keep its redemption rate at 20%. The lower the redemption rate, the larger the inactive member base, which can be blamed on unappealing rewards or a complex 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, enabling you to eliminate low performers and increase more valuable options. 

Redemption Rate Formula: 

Total Points Spent

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Total Points Issued 

Customer Retention Rate 

The Customer Retention Rate (CRR) shows the number of customers who remain loyal over a specific time period. Understanding this number helps you better understand other loyalty marketing strategies and how effective they are at attracting new customers versus retaining existing ones. The higher the CRR, the more returning customers there are. A low CRR suggests customers may be having a negative experience, and you should look into how you approach customer retention. 

Customer Retention Rate Formula: 

Ending Customers-New Customers

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Initial Customers 

Active Engagement Rate 

The Active Engagement Rate (AER) shows the percentage of customers who are very active in your loyalty program. This rate isn’t measured solely by how members earn and redeem points/items within a specific time frame; it can also provide insight into customer behavior, such as which products they view and how often they visit the website. 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

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Total # of Customers 

Net Promoter Score 

Net Promoter Score (NPS) is an essential KPI to track because it helps you identify which customers are more likely to recommend your brand or program to others. Knowing which customers are inclined to promote your brand will help you create more personalized offers and incentives for those customers. You can use surveys and customer feedback to gather responses, usually this is done through an online form or an email. A typical 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), Passive Buyers (7-8), and Detractors (6 or fewer). 

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 an excellent strategy for raising redemption and repeat purchase rates. Nurturing relationships with your most engaging members will lead to more long-term customers, more loyal brand advocates, and increased 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 prevent hiccups in your program 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 mindful 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!