What is Customer Loyalty, and How Can You Measure it?

What is Customer Loyalty, and How Can You Measure it?

All businesses want their customers to be loyal. Somebody who comes back time after time to your store, placing a huge order each time, leaving rave reviews? Yes, please!

Well, when it comes to online stores, the concept of ‘customer loyalty’ gets, not necessarily more complex, but more broad. You interact with customers through various channels (email, social media, and for some businesses, real life too). You also have far more competition. So if you want to measure customer loyalty, how can you do it? And what is customer loyalty in the digital age?

customer loyalty scale

What Is Genuine Customer Loyalty?

So: it’s easy to tell if a customer is loyal to Tesco. Each Saturday they do their ‘big shop’, and through the week, they pick up their bits and bobs from the Tesco Metro on their way home from work. Simple.

Well, the same does apply to online shops. If a customer keeps returning and making purchases to your E-Commerce store, that’s one way of defining them as a loyal customer. But there’s also more to it than that.

  • Do they recommend your store to their friends, e.g. by posting about it on social media?
  • Do they use your store to the exclusion of others?
  • Do they engage with emails and offers that you send them?
  • How frequently do they buy from you?
  • How much is their average order value?

It’s not possible to measure each way that a customer can be loyal. So, for example, you might never know if they recommend your store to others if they do it face to face. Similarly, if they use other online stores when they buy different products, there’s no way for you to tell. But the four metrics below tell you a whole lot about how ‘loyal’ a customer is to your online store.

4 Top Ways To Measure Customer Loyalty

1. Customer Lifetime Value (CLV)

First up, we have a metric called ‘customer lifetime value’. Before we get into CLV specifically, we should point out: we’re starting our list with the basic data that you should already have to hand. You can set up CRMs and other marketing software tools to take note of all this data automatically, and we’re starting with the simplest first.

CLV is pretty self-explanatory. It’s a total monetary amount: every penny that a customer has spent in your store. Say a customer made two or three minor purchases through your store over the course of a few months, and then made one big, bulk purchase of a few hundred pounds not long after. That’s a good sign that they trust your store, and believe that what they’re buying is good value.

The only problem with CLV is that it can get skewed quite easily. One customer who comes back every month to buy just three or four low-price items is arguably more ‘loyal’ than one who only ever made two high-value purchases. This is a recurring theme when it comes to measuring loyalty: it’s not just about one metric, it’s about a bigger, broader picture based on loads of different variables.

2. Visit Frequency

Here’s another basic stat: visit frequency. How often does a customer visit your store? They might not be buying something each and every time they visit, but if they come to your store every other day to add something to their basket, that’s a great sign. Again, this is something you can piece together based on stats you should already have ‘lying around’.

Once you start thinking of multiple variables, you start coming to interesting conclusions. So far, right at the top are the customers who visit the most regularly and who spend plenty of money on your site. But which do you think is more ‘loyal’: a customer who visited twice and spent £100, or a customer who visited twenty times and spent £20? It’s up to you, but you might benefit from encouraging ‘loyalty’ that impacts your bottom line above all. This could be either ‘bread and butter’ customers who come back once a week, or high rollers who place big orders less frequently: whoever makes you the most cash.

3. Email Open Rate/Email Engagement

Another stat you could use to measure loyalty is email engagement and email open rates. Using basic stats like open rates and clickthrough rates, you can gauge how much a customer likes reading your newsletter, checking out your offers and visiting your site. Harking back to what we mentioned above, this isn’t a metric which necessarily affects your sales. But it’s great for giving you an all-round picture of customer loyalty. Why? Because it shows that customers want to interact with your store through at least two channels (i.e. directly through the site and through email). A customer that engages through email, through social media and directly by browsing your site is definitely loyal!

4. Net Promoter Score (NPS)

This last metric is one that you won’t necessarily have to hand. NPS is based on how likely a customer is to recommend your store/products to others. In order to actually find that out, though, you’ll have to rely on customer surveys. So, naturally, you’re working with a more limited pool of data than when you’re looking at email open rates, for example.

That being said, NPS is one of the most important stats for measuring loyalty. There are three typical grades when you consider NPS data:

  • Detractors. These customers are actively unhappy with your product or service. Given the opportunity to leave a review, it might be negative, and they wouldn’t recommend your store to a friend or to their family.
  • Passive Customers. These customers are somewhere in the middle; around a score of 6 or 7 (given a scale where ‘1’ would never recommend your store, and ‘10’ most definitely would). As a passive customer, they wouldn’t bother to leave a review, and wouldn’t go out of their way to tell their friends about your store.
  • Promoters. On the scale above, they would give a score of 9 or 10. Maybe they already recommend your store to their family and friends! Naturally, your goal is to have as many promoters and as few detractors as possible.

As we mentioned above, you’ll need to conduct a survey to get an idea of whether a customer would recommend your service. With your NPS and all the other factors combined, you can get a great picture of how loyal your customers are. The last thing for you to do is combine the scores into one big total out of 100. And there you have it: a customer loyalty score!