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:
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, 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:
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 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:
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 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:
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.
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:
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.
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:
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.