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5.

Customer Loyalty

Customer loyalty is a hot phrase in the tech and SaaS industries, as of late. Everyone wants their customers to be loyal and love them, but what does that really mean and what does it get you? Having a loyal customer is like having a loyal friend: they are there for you in the good times, they are there for you in the hard times, and they try to understand where you’re coming from if you do something that makes them sad. But, just like a loyal friend, you need to cultivate that relationship with your customer.

You can’t expect them to just automatically love and trust you and support everything your brand does. Along with those things, too, a loyal customer will:

  • Talk about you and your product to their friends and colleagues.
  • Buy from you, if they need your products.
  • Remain loyal to your company over your competitors and come to you first.
  • Be open and willing to try new products that your company offers.
  • Be slightly more understanding of your company if there are outages, errors or bugs that they run into, and give your company the benefit of the doubt.
  • Offer more constructive insights about what could be better about your product.

Creating this kind of loyalty with your customers is super important, but measuring it and knowing where you stand is even more so. Here are some great metrics to use to measure both where your customer loyalty stands, and what it’s paying back to you in dividends.

Customer Lifetime Value

Customer lifetime value, or CLV for short is a metric that measures how much value an individual customer is going to provide to a store or company throughout their relationship with the company. It’s calculated by customer value multiplied by the store’s average lifespan. This metric is incredibly useful because it shows if loyalty from your customers is being boosted over time and, if so, by how much. CLV also serves as an excellent benchmark for loyalty programs; if you choose to start a customer loyalty program, you can compare where you were before the program launched to where you are after it, and be able to see if you made an impact in CLV. If you didn’t, some questions that you might be able to ask are:

  • Where are there opportunities to provide customers with an even more excellent experience?
  • Are we using the right incentive for the loyalty program, or is there something else that might be better?
  • Are we using the right loyalty builder (points, bagels, etc.), or should we shift it to something more accessible to our customers?
  • Where can we create value (perceived or real) for our customers?

Having an understanding of the earning potential for your company, specifically based on loyalty, can help you generate more revenue while simultaneously creating a better experience for your customers. CLV lets you get a better handle on that.

Churn

Churn is every company’s nightmare. Whether you’re big or small, losing customers and the revenue that they generated for you is painful. Churn is calculated as:

Customer Churn Rate = (Customers beginning of month − Customers end of month) / Customers beginning of month

So, for example, you would have a 10% churn rate if you had 500 customers at the beginning of the month and 450 at the end of the month:

(500 − 450) / 500 = 50 / 500 = 10%

Churn is important for a few reasons: first, when a customer leaves your company and stops using your product, normally it’s because of something that your product doesn’t offer or has done wrong. Beyond that, it’s an opportunity for you to gain insights into where you might be losing customers: if someone churns, you could ask for additional thoughts into why they are leaving, especially if they were once a loyal customer, then use that information to improve your product experience for everyone else.

If your churn number is rising, here are some questions you can ask yourself to see how you can do better:

  • Why are the majority of customers churning? Is it product-related, pricing-related, support-related or something else?
  • If we find a specific correlation between churn and a specific area (product, support) what can we do to shift it towards loyalty?
  • Are there ways that you can detect churn prior to it happening, such as specific behaviors that customers perform before churning?
  • What period are you using to calculate churn? Monthly, quarterly or annually?

Consider, also, the amount of churn that you are experiencing and how it fits in tandem with your number of customer growth. While churn is important to have a hold of, having a certain amount of it is natural once your company enters a certain stage of growth. When you hit that stage, pull back your focus on churn, and start to focus on ways to cultivate loyalty instead.

Repurchase Ratio

Repurchase ratio is just what it sounds like: it’s the number of times your customers repurchase your product versus ones who don’t. Repurchasing — or customers returning over and over again — is the peak of loyalty. Imagine this: a family decides to go out for ice cream with their two-year-old son. They try to find an ice cream place close to their house, just in case their two-year-old has a meltdown, and then read a few reviews. They pick a place, go, and it’s amazing. So amazing that they bring their son there every Sunday now, as a tradition. How loyal does that sound?

To calculate this metric for subscription-based models, you divide customers who have renewed, by the number of customers who didn’t. For transactional models, like the ice cream shop, you need to first calculate the average time between the first and second buys of repeat customers, as well as its standard variation. By adding two times the standard variation to the average time, you will have captured 95% of your repeat customers. Divide this by the number of non-repeat buyers, and you have a close estimate of your repurchase ratio. Here is a tool to calculate your standard deviation.

Unless your product has made it extremely difficult to switch to another platform or service, your repurchase ratio will tell you a lot about the loyalty that you have cultivated within your customer base. If your repurchase ratio is making you worried, here are a few questions that you can ask yourself:

  • How can we make the customer’s first experience with our product amazing?
  • Can we reach out to people that are not renewing or returning and offer them a coupon to come back to drive retention?
  • Is our repurchase model working for our company? For example, should we automatically charge people each month, or wait for them to purchase for themselves?

Driving people to return and repurchase through excellent service and a solid product is the biggest testament to your brand doing awesome work. Work at increasing your accessibility and connection with your customers, and you’ll see this metric start to go where it’s supposed to.

Upselling ratio

Similar to repurchase ratio, this tracks the number of people who have bought multiple products of yours, versus those who have purchased just one. To calculate it, take the number of people who have bought more than one of your product, and divide it by the number of people who have only purchased one. For some companies, this will be more meaningful than others. Maybe you only have a single product, for example, like a helpdesk, so you only have more advanced iterations of that single product. These further iterations still count as “upsells” and indicate that a customer trusts enough in your brand after their first experience that they want to do more. A great example of this is Apple products.

People that use Apple products are extremely loyal and, after their first purchase of one, likely will continue to purchase other, new Apple products when they fit a need (or even if they don’t). Apple has done such a good job making their system sync up that now, it just makes sense for people to own all of their products. So, how can you get there? Here are a few questions to ask about your company:

  • Is your new product compelling enough to sign up for, or are you able to make the value known?
  • Does it sync or work in tandem with other products that you have?
  • Do you have members of your success, sales, or support team actively talking about these products and offering them as solutions to your customers?
  • How have you built trust with your customer base or showed your dependability?

If people depend on your company for a product that they need either in their personal or business life, they trust you; if they trust you for multiple products, they trust you deeply. The upselling ratio is a great indicator of whether your company has cultivated that trust needed, or if you could have a strong brand infrastructure.

Customer engagement

While customer engagement isn’t a specific metric, it does help you qualify how loyal and invested in your product your customers are. There are a few different metrics that can be good to track for customer engagement and to allow you to see how you’re doing:

  1. Activity time. How much time people spend using your product or being on your site. This can be collectively for whole companies or on an individual level.
  2. Visit frequency. How often do people visit your site or use your product? Depending on the type of product you offer, this can range from a few times a week, to a few times a month and your customers will still be considered loyal.
  3. Core user actions. Designate a few things that you want to be core to the user experience. For example, as a website building site, you might want users to change the default font color on their homepage. This would be a core user action, amongst other things, that you could track for your users. Tracking these core actions and their completion can help you see where you might need to shift your strategy to better guide your user.

As you track these over time, you can see if your “fit” with your userbase is getting better, and people are becoming even more embedded in your product, thus becoming more loyal.