There is no argument over this – Acquiring customers is good, but retaining customers is better.
A popular statistic says increasing customer retention by 5% can boost profits by up to 90%. This little piece of statistic has shifted the focus of the brands on retaining existing customers. The Pareto principle is applicable everywhere, and your most loyal customers can be your greatest source of revenue. Businesses just need to utilize customer loyalty and channel it towards business growth.
Customer loyalty is the bedrock of customer retention. As a result, more companies are launching loyalty programs than ever before. But designing a customer loyalty program that actually works is not a piece of cake. It takes a gigantic level of effort to create the process from the scratch. But how do you track the process whether it actually works or not?
How to measure the performance of a loyalty program? Let us discuss the key performance indicators for measuring your investment in loyalty.
As mentioned, customer loyalty keeps your business growth on track. Loyalty programs are good, but their key performance indicators (KPIs) must be measured. There are many metrics that determine the loyalty program performance.
Numerous reports have described that members of the loyalty program spend more than non-members. The entire loyalty customer cycle starts only when customers enroll in the loyalty program. Therefore, customers need to be encouraged to become members of the reward loyalty program.
Keep the basic membership open for all your customers. The standard membership that operates on the ‘earn and burn’ method is generally free. The ‘earn and burn’ functions on the traditional principle – the customer earns reward points on every dollar spent. The points can be redeemed through discounts during the later purchases.
The number of customers joining the loyalty program is a good metric to determine the health of the loyalty program. It also provides significant data insights about customer’s shopping habits which can be used to create better acquisition strategies.
When customers are a part of a loyalty program, they tend to spend more than the average customers. When customers get exclusive access to a product before others, the chances of them buying that product increase significantly.
This is because the program has inculcated a feeling of privilege, and they find it emotionally motivating to purchase the product. The spending rates are considerably better for higher tiers.
Create a premium tier program with an annual fee that offers rewards to high-end customers. You can measure the increase in customer spending after they join the program. This is a significant metric to measure loyalty program performance.
The customers keep coming back every time because of the rewards. A points system of redeeming rewards is generally tied with discount culture, which can be availed during the next purchase. Therefore, the total number of rewards redemption is directly proportional to sales.
The rewards are redeemed in a form of a discount during a purchase, which will generate more reward points. With a huge bank of reward points, they move beyond utility purchases to luxury purchases. Reward points give them the incentive to buy products which they wouldn’t buy otherwise during a normal purchase.
Punch cards and credit cards can be integrated with loyalty to make it easy for redeeming rewards. A good reward redemption rate is an indicator of the success of a loyalty program.
The idea of loyalty programs is to keep your customers loyal to you. In other words, it means preventing the rate of customer churn. Customers leave because of various reasons such as better deals from competitors and horrible customer service experience.
One of the major levels of effort for creating loyalty is enhancing the customer experience. All the reasons for customer churn are covered in a good loyalty program,
A 360-degree omnichannel loyalty strategy covers all the reasons for customer churn. This helps you understand the pain points of the customers and offer effective solutions to prevent churn at every point. Nevertheless, the customer churn rate is one of the reliable pointers to study the efficacy of the loyalty program.
A good loyalty program does not only increase the rates of retention. But it also promotes a sense of goodwill among your loyal customers who carry your business forward. These loyal customers promote your brand by recommending to friends and family. Referral marketing is an important element of loyalty, which tracks new customers acquired through referrals.
According to a Social Media Today report, 78% of B2B marketers believe that referral marketing offers the highest levels of customer engagement. Around 55% of marketers say that it offers a lower cost-per-lead than other channels.
Trust is an important factor in referral marketing. Since the leads are already recommended by customers, the lead quality is excellent. It is easier to convert the leads obtained through referrals.
This metric does not have a direct connection in measuring KPIs of loyalty programs. But it is useful for the eventual goal of any business i.e. bettering profit margins.
Once a loyalty program is implemented, the profit margins of the companies get better over time. Therefore, loyalty is a go-to strategy for many businesses looking to improve their bottom lines in the long term.
A well-crafted rewards program offers the holistic development of your business. This helps you achieve the eventual goal – more revenue and profits. Annex Cloud helps you in designing a loyalty program that builds communication, fosters growth, and sets the cash registers ringing. We help design programs that are suited for everyone, right from a small business to a large corporation.
If you are looking to launch a loyalty program, feel free to discuss it with our loyalty experts.