Finding the right KPIs to track the success of your loyalty program can be a real challenge. There are millions and one metrics available, and it’s easy to get lost in the mix. While every industry and brand have their own needs and goals, these 5 KPIs are a great way to monitor your loyalty program overall health.
1. Program participation
Program participation is key to measuring your loyalty program’s performance. A low penetration rate is a sign that your program isn’t performing well.
The penetration rate can be calculated using the number of customers, transactions, and total sales, and is expressed as the percentage of customers/transactions/sales captured by your program.
Penetration rate = (number of members/number of total clients) X 100
If your penetration rate is too low, your program is probably only attracting your “best” clients. Although it’s necessary to have your best clients in your loyalty program, these alone will not generate additional visits or increase the average basket, as they have almost reached their full purchasing potential. Your segment of “good” clients is the one that represents the largest opportunity, since they have the potential to become more loyal, increase their purchase frequency/volume, and migrate into your segment of “best” clients.
Your penetration rate for sales must be higher than the penetration rate for transactions. For example, if your penetration rate for transactions sits at 50%, your penetration rate for sales must be above 50%. In fact, loyalty program members tend to have higher than average baskets than non-members.
2. Retention rate
Customer retention rate is an important indicator in loyalty marketing. It helps you understand if your program is meeting its key objective: retaining customers.
To calculate the retention rate for any given period, you need to know the number of customers at the beginning and end of the period, as well as the number of new customers acquired over the same period.
It is calculated like this:
Retention rate = ([number of customers at the end – new clients] / number of new clients at the start) X 100
A high retention rate means your customers are largely loyal. A low retention rate means that customers are straying from your brand. There are many reasons to explain a low rate, from a program that’s not attractive to customers to the low quality of products/service, a poor pricing strategy, and more.
It’s crucial to quickly identify the causes of a poor retention rate and take measures to rectify it. You will greatly benefit from increasing your retention rate, since an increase of just 5% can boost profits from 25% to 95%.
3. Redemption rate
Your redemption rate is the percentage of rewards (points, cashback, vouchers, etc.) that customers exchange. This KPI is a good indicator of your program members’ level of engagement.
To calculate your redemption rate, you need to divide the number of rewards redeemed by the total program currency issued. For example, in a points program, you would calculate it like this: Redemption rate = number of points redeemed/total number of points issued.
It’s important to follow your redemption rate closely, since members who redeem for rewards are usually more engaged with your program and tend to spend more. Redeeming for rewards is a healthy part of any loyalty program.
Your redemption rate can be influenced by many factors, including the ease with which members can earn and redeem rewards, as well as the perceived value of those rewards. To increase your redemption rate, you can try simplifying the process for redeeming rewards, varying the ways members can earn points/etc., testing new rewards, or implementing a new communication strategy.
4. Net Promoter Score (NPS)
Your customer satisfaction rate—also known as your Net Promoter Score (NPS)—indicates the level of satisfaction your customers feel when it comes to their experience with your program. The higher the rate, the greater the probability that customers will make additional purchases.
To measure customer satisfaction, you will need to survey members with the following question: How likely are you to recommend our brand to a friend or colleague? Let customers reply on a scale of 0 (not at all likely) to 10 (very likely). Their responses can then be grouped into 3 categories:
- Promoters: For customers who indicate 9 or 10
- Passives: For those who indicate 7 or 8
- Detractors: For responses of 6 or below
To calculate your NPS, simply subtract the percentage of “detractors” from the percentage of “promoters.”
To get a complete picture of this KPI, be sure to fully understand the reasons your customers gave for their answers by asking follow-up questions. The more your rate of customer satisfaction is supported by data, the easier it will be to identify what actions you should put into place to improve your customer experience.
5. Customer lifetime value (CLV)
Customer lifetime value measures a customer’s value from the time of their first purchase. Commonly known as LTV, this KPI reflects the total purchases you can expect from any given customer throughout their business relationship with your brand. The more a customer purchases with you and the longer they remain loyal to your brand, the higher their CLV will be.
Here’s how to calculate your customer CLV.
A simple way to calculate this is to multiply transaction average by customer purchase frequency over a given period in order to calculate your CLV. Then, simply multiply this value over the lifetime of your customer. If you apply this to each of your customers, you can calculate the length of their business relationship with your brand.
See also: How to increase your customer lifetime value.
When program members are more loyal and engaged, they generally have a lifetime value that’s higher than non members. Be sure to always compare this KPI between members and non-members in order to get a better idea of your program’s performance.
These 5 KPIs are excellent ways to measure your loyalty strategy performance. Remember that goals vary by industry and brand. To ensure the success of your program, it’s important to follow the right performance indicators. Start by identifying your goals and determining the key indicators that will enable you to oversee your objectives. You will then be able to quickly assess whether you need to take action in order to improve your program.