Do Customers Love Your Brand? 3 Methods for Measuring Customer Loyalty

Customer loyalty is important to businesses. Loyal customers are bigger spenders, with 56% willing to spend more with a company they’re loyal to even when there are cheaper options available elsewhere. They also contribute to your marketing by referring new customers to the business through recommendations.

However, it can be tricky to measure. How do you know if a customer is loyal to your brand? Here are three of the best methods for measuring customer loyalty:

1. Customer retention rate

Often, companies measure whenever a customer makes multiple purchases and use this as an indicator of loyalty. While this can indicate how loyal your customers are, it’s a very flawed metric. A more accurate version is the customer retention rate. To calculate this, you need to work out your 'big window' and 'small window'.

The big window is the amount of time you want the customer retention rate to cover. A year is a good option, but some businesses might want to make this longer or shorter. For example, if you sell large purchases like cars, the vast majority of your customers won’t make multiple purchases in a year.

Then the small window is a shorter period of time. Half of the big window is a good place to start, but revise this to match your business. To calculate the customer retention rate, you need to take the number of customers who made purchases in both windows, and divide that by the number of customers who only made a purchase in the big window. Multiply this by 100 to get a percentage.

For example, if a business had 400 customers who made purchases in both windows and 800 customers who only made a purchase in the big window, your customer retention rate would be 50%. As the name suggests, this is the portion of customers your business is able to retain; a good indication of how many are loyal.

2. Net Promoter Score

The Net Promoter Score (NPS) is a common loyalty metric used by more than two-thirds of Fortune 1,000 companies. While it takes a bit of work to set it up, many businesses see it as an accurate measure of how loyal your customers are. The main thing you need to do is send your customers a survey.

There are only two questions you need for this survey, the first of which is: