Okay, your company has satisfied customers. If it didn't, you wouldn't be in business for long. But here's a question few companies ask: How loyal are your customers? Will they recommend you to others? Will they stick with you through thick and thin? Or will they run at the first sign of a price increase or some other change that rubs them the wrong way?
The mere presence of customers isn't enough. You must be able to measure their loyalty so that you can use it to predict the health of your company. Too many companies spend a ton of time and effort getting a customer to make a purchase, and then they just hope for the best.
The problem with that approach is that operating in the blind in terms of loyalty makes it likely you'll make ill-advised decisions that come back to bite you. When you measure customer loyalty, you'll be able to not only make the most of that loyalty but also to make better strategic decisions for your company.
Customer loyalty isn't black and white. You can make better product decisions, provide better service and make changes to ensure you can create many more loyal customers.
Good customer management comes from good customer measurement. Customer loyalty is an important analytic for determining how well a company or product is positioned to grow or shrink based on future earnings. The best metric for determining customer loyalty depends on the industry, company and type of product or service, but for most organizations, measuring customers' intent to repurchase your product or service and their willingness to recommend your company to others provides a solid base.
Here are three ways to measure customer loyalty and determine what it means for your company:
No. 1 – Find out if they're likely to use you again
Perhaps the first way to gauge customer loyalty is to compute the percentage of customers who are returning to what you do. This data can be collected from past sales or from surveying customers about their past or future intent. Repurchase habits are measured differently, depending on the type of product or service offered.
For example, for rental car companies, the repurchase rate is a good indicator of loyalty as certain customer segments rent multiple times per year and have many companies to choose from. For software companies, a similar measure of repurchase loyalty is the maintenance contract renewal rates.
No. 2 – Find out what customers like most about your product/service
One of the most effective ways to understand what drives customer loyalty is to conduct a key driver analysis. Key drivers are things like quality (Is your service reliable?), value (Does your service provide the best bang for their buck?), utility (Does it offer essential and unique features?), and ease of use (Can your clients use your features without frustration?).
A key driver analysis tells you which features or aspects of your service has the largest statistical impact on customer loyalty. It can be conducted for all customers but also for each of your different customer segments. At the end, you'll be able to identify the most popular or unpopular features or aspects of your product or service and have customers rate that experience as well.
No. 3 – Get Your Money's Worth from Your Promoters
Generally speaking, promoters are a positive asset to your company. But before going all-out to attract as many as possible, you should take the time to understand how valuable a promoter is, both in terms of revenue and in how many new customers a promoter brings to a company.
The best way to understand how much revenue a promoter generates is to tie actual sales to survey responses to see how many promoters actually recommended someone, and how many of those people who heard the recommendation actually became clients. With some estimate of the number of promoters you need to gain a new customer, you can then weigh the cost of new programs, features, pricing and promotions to determine if the benefit from new customers outweighs the cost.
Customer loyalty isn't black and white. When you can use analytics to dig into why clients use your service and if they recommend you to others, it becomes very beneficial for your business. You can make better product decisions, provide better service and make changes to ensure you can create many more loyal customers.
Jeff Sauro is a Six Sigma-trained statistical analyst and pioneer in quantifying the customer experience. He specializes in making statistical concepts understandable and actionable. He is the founding principal of MeasuringU, a customer experience and quantitative research firm based in Denver. His clients include Walmart, PayPal, eBay, Lenovo, Google and Charter Communications. He also is the author of four books, including "Quantifying the User Experience: Practical Statistics for User Research" and "A Practical Guide to the System Usability Scale."