Apr 22, 2022
You may have heard the saying that “data is the new gold” and this is certainly true when it comes to measuring the effectiveness of your loyalty program.
Measuring the success of your loyalty program starts with capturing the right data and deciding on key performance metrics to inform future decision making.
So what data points and metrics should businesses measure?
Your customer loyalty (or repeat purchase) rate is a key metric for any loyalty program and tells you the proportion of customers who actually return to make another purchase. More importantly, it informs you if your loyalty program is actually working.
If your business has a low or declining loyalty rate, then consider running surveys to better understand why customers are not returning.
Calculation = (Total number of repeat purchase customers) / (Total number of customers) x 100
Your customer churn (or attrition) rate is another key metric and tells you the proportion of customers who switch to another provider, which is particularly useful for subscription model businesses.
To minimise churn, ensure your loyalty strategy also targets your ‘at-risk’ customers, such as those who leave negative feedback, decrease their subscription level and spend, or unsubscribe from marketing communications.
Calculation = (Total number of lost customers) / (Total number of customers at the start of the period) x 100
If you run a loyalty points or rewards program, your redemption rate informs you of how engaged your customers are.
If your business has a low redemption rate, then this may be a sign that your customers are unaware of the rewards they can redeem. Ensuring your business continually promotes rewards offered as part of your loyalty program will help minimise this issue.
Calculation = (Total points redeemed) / (Total points earned) x 100
Knowing your average transaction value tells you how much your customers typically spend in a single transaction. Ultimately, businesses will want their average transaction value to increase over time.
If the average transaction value declines over time, then there are many reasons why this may occur. Is the average transaction value declining due to customers purchasing less or are larger discounts being offered?
Whatever the reason, you’ll want to investigate why this is the case if your average transaction value is falling.
Calculation = (Total $ value of all transactions) / (Total number of transactions)
Understanding your average purchase frequency informs you of the average number of transactions a customer makes over a given time period. A strong loyalty program will turn first-time customers into frequent purchasers.
If your average purchase frequency is low or declines over time, then this could be a sign that your competitors are providing a better experience.
Calculation = (Total number of transactions) / (Total number of unique customers)
Measuring your average customer lifespan will inform you of how long a customer remains loyal with your brand.
If your average customer lifespan is low or declines over time, then it may be time to review and optimise your loyalty program.
Calculation = (Total number of years) / (Total number of unique customers)
For many businesses, this is one of the most important performance metrics. Your customer lifetime value informs you of the total revenue generated by a single customer, or in other words, how much is a customer actually worth to your business.
If your customer lifetime value is low or declines over time, then you may wish to consider conducting research to truly understand why customers are spending less in each transaction, purchasing less frequently and/or becoming less loyal.
Calculation = (Average transaction value) x (Average purchase frequency) x (Average customer lifespan)
Ensuring your business measures and sets aside a regular time to review key performance metrics is paramount.
After all, in order to improve performance, businesses need to measure it.
If your business needs help with measuring the success of your loyalty program, then EonX can help.
Contact us today at email@example.com for a free strategy session.
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