How to measure customer loyalty: 7 loyalty metrics

Repeat customers are increasingly important for retailers, and offering an effective loyalty program ensures higher retention rates, as well as bigger basket size and customer lifetime value. Definitely, a win-win for retailers and shoppers alike.
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Why metrics are important

Launching successful loyalty programs is a huge challenge for retailers. Research unfortunately shows that over 80% of loyalty programs fail. For this reason, the majority of retailers wonder how they can ensure a greater loyalty program performance and get the best results.

Measuring your program’s performance – whether it’s good or bad – will help you make decisions in the future that will benefit your company. There are a few ways you can measure loyalty program performance, which will help you to improve your program and ensure your customers stay loyal to your brand.

1. Enrollment Rate

The first measure of success is to know how many people are willing to join that loyalty program once they learn more about the benefits. 

In other words, Enrollment Rate is the first metric you measure and tell you how your enrollment rate is growing towards the membership. 

2. Active Engagement Rate

This metric is translated into how many of your customers that have signed up for your loyalty program are actually engaging with it. In other words, it is the rate at which your loyalty program members are gaining and redeeming their points in a given time period.

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Active Engagement Rate =

Number of customers engaged / Total number of customers

The average consumer belongs to 13.4 loyalty programs but is only active in 6.7 of them. The participation rate is the metric that tells you whether you need to be doing something different to get customers engaged with your rewards. One example is to reward your customers for referrals.

3. Customer Retention Rate

This metric measures how many of your customers during a specific time have shopped at your store before. Customer Retention Rate will help you know how many of your customers keep coming back to your store, and you need to take into consideration the number of customers you started offering rewards around the same time frame.

Customers Retention Rate =
Nr of customers (end of period) – Nr of acquired customers (throughout the period) / Total nr of customers

4. Repeat purchase rate (RPR)

One of the main goals of a loyalty program is to help boost your repeat purchase rate. This metric gives you the number of repeat purchases every year and helps you understand how your loyalty program is carrying out.

One thing to take into consideration is this metric doesn’t show results in the short term. As for loyalty, It takes time to increase this. In addition, any repeat purchase rate in the 20-40 percent range is considered successful. Increasing Customer Retention and improving loyalty is directly related to the repeat purchases you get.

Repeat purchase rate =
Nr of customers who bought more than once (1 year) / Total nr of customers (1 year)

5. Redemption Rate (RR)

Redemption Rate is the metric that helps you understand your loyalty program’s performance. It will show you how often people are redeeming points that they’ve earned at your store on discounts or other rewards.

Redemption Rate =
Number of points redeemed / Number of points issues 

This metric is directly tied to the performance of your loyalty program, so if you have a low redemption rate you may want to rethink your loyalty strategy (such as changing how points are earned and redeemed). For those of you who are measuring this for the first time, the average rewards program has a redemption rate of 13.67%, so don’t fret if yours is less than 20%.

6. Lifetime Value

Lifetime value is a powerful metric when measuring the success of your loyalty program. because it shows you how much people are spending and how often they’re buying, and the most important thing: how long they’re staying within the program. 

A strong loyalty program should sustain and grow this value over Lifetime, which increases when a customer spends more and more on every transaction, and studies have shown loyalty program members generate from 12% to 18% more revenue per year than customers who are not members. 

Lifetime value is calculated by multiplying a customer’s purchase frequency with average basket volume, then dividing it by their retention cost.

7. Referral Rates

Also known as “Advocacy”, is a great KPI to measure the effectiveness of your loyalty program. This metric tells you how many of your most loyal customers are referring other customers to buy your products.

Your referral rate is the volume of referred purchases as a % of your total purchases. For example, a 1% referral rate means that 1 in 100 purchases at your store happens thanks to your referral program.

Referral Rates =
No. of referred purchases / No. of total purchases

Start measuring your loyalty program

Repeat customers are increasingly important, and offering an effective loyalty program will ensure a higher retention rate, as well as more brand advocates.

While metrics and measurement are key, how we embrace these metrics and what we do with them drive the real business benefit. If you’re planning to build a measurement-driven loyalty program that keeps your customers engaged and coming back for more, contact us for a demo.

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