Curious to know how your loyalty program is performing? Don’t know what metrics or analytics to measure or compare to?
Al Lalani, Co-Founder of Annex Cloud and Chief Strategist, offers you the top 10 metrics to measure for your own loyalty program. Whether you've had a loyalty program for a number of years, just recently launched or are looking to launch, these metrics will offer you some great insight.
Welcome to Annex Cloud Market Movers. Today's edition is around loyalty levers, where we bring the best advice where you can pull the best levers to improve the success of your loyalty program. Today's topic specifically is going to talk about the top 10 metrics that you need to measure to understand and improve the success of your loyalty program. Let's jump right in.
The first one is the enrollment rate. Your customers are going to start discovering your loyalty program. They're going to discover through the various channels that you're going to market it. You're going to describe the benefits of your loyalty program and entice your customers to join your membership, join your loyalty program. Even if it's a free membership, it's still a membership. It's a club in some capacity, ideally where people have to enroll themselves inside that loyalty program. And the first measure of success is how many people can you entice and excite to join that loyalty program when they see the benefits and they feel like there's something in it for them to join that loyalty program. And so the first metric you measure is how your enrollment rate is growing towards the membership. But that's not just enough.
The next thing you need to look at is the activation rate or engagement rate for members versus non-members. Enrollment rate might be a vanity metric because you can get people to enroll in the program by looking at the benefits that they get, but how many people stay engaged in that loyalty program once they sign up for that program? How many people remember that program?
It's a well-known fact that people, in general, join close to 20 different loyalty programs, but that they might be only active in three of those programs. And so you need to keep your members engaged. You need to keep those people active. One of the few ways that we tell people that they can do that is by covering and having the loyalty program cover the entire life cycle of the customers. It's not just about that transaction. It's about the entire customer experience. And the number of touchpoints you have throughout those customer journey experiences can all be rewarded in some capacity or at least be measured, and thereby increasing the engagement rate or the activation rate for your loyalty program. And that's the second metric that we look at very closely and try to improve.
The third metric is the repeat purchase rate or repeats conversion rate. And this one is also signified by a negative churn. So it really depends on how you look at the conversion or the improvement of your loyalty program over time, by looking at how often your customers are doing what you consider a conversion.
And so if that conversion is a purchase, how often are they buying and how many times are they repeat buying? Or if it's a continuity program, how less are they churning from that program? And that's why you've got a negative churn. And so looking at the repeat purchase rate or repeat conversion rate and looking at the reduction in churn is another metric that you're looking at for the success of your program. And more importantly, now, comparing this to your non-members versus your members and making sure your member’s repeat purchase rate or repeat conversion rate is higher and the members churn is lower.
The fourth point that you are going to look at is the average spend per member. So it's not just important to have your members buy more often from you. It's also important to have them spend more with you every time they come to buy from you. And that's specifically understanding or assuming that you've got a conversion based program. But even if it's a continuity based program, you're looking at how long they stay with you. And so that's the measure in this case. So the average spends or the average length of time that they stay in the program, that's an important measure of success of your loyalty program.
Lifetime value is a great metric to look at for the success of your program, because it looks at how much people are spending and how often they're buying, as well as how long they're staying within the program. So the lifetime value of that member is a very, very important metric that we track and try to improve what that loyalty program.
Now, the first five metrics are very common. We talk about them all the time. You might've seen them in other places. The next five metrics are a little different, and these are metrics that we also try to look at as measurements of success in your loyalty program.
Number six is the percentage of sales attributed to your loyal member base. And this part is an important metric that you look at. Back in 2008, in the midst of a downturn, 2008, 2009, 2010, Zappos used to have 80% of their sales come from existing customers, from their existing member base. And this is a great way to measure the success of your program by looking at how many and what percentage of your sales are attributed to your loyal customers. And how is that increasing as a portion of your entire volume of sales, whichever way you measure that.
If your members are really excited about your program, if your members are really excited about the incentives and the benefits that you're giving for those programs, they are going to come back to your site, to your app, to your channels directly without getting an external incentive for them to come in. They're not going to come through paid search. They're not going to come through potentially email marketing. They're not going to come through comparison shopping. They're going to come directly to your site, to your app, to your stores, or to your channels to come back and buy again without getting an external incentive. And that's an organic way. And so if that is improving and that's increasing, your loyalty program is succeeding.
The next very important metric that we look at is the reduction in discount cost. Discounts are a way to the bottom. The more discounts you give, the more people are excited to come back. The moment you take away those discounts, people don't come back. This is a very common tactic in email marketing, where a lot of retailers especially will give discounts or incentives for having those members or having customers or email subscribers come back and buy. The moment you don't send an email with a discount, people don't convert the same way. So loyalty programs are a great way to reduce those discounts, is essentially take people away from that free program mindset of using a discount and only buying when there is a discount available. Loyal members will come back and buy more often anyways.
A good example obviously is Amazon Prime. You don't price shop anymore. You go and buy on Prime very easily because you're now trained in your head to very clearly go directly to Amazon to make your next search, thereby coming and buying without a discount and not even price shopping, essentially. So that's a way if your discounts are reducing and your loyal members are buying without discounts, that's a great way to know that your loyalty program succeeding.
The next measure that's extremely important is your advocacy rate or your referral rates. Are your most loyal customers referring other customers to buy? Are your most loyal customers referring other customers to come back and convert, whatever you found it conversion, Are they advocating your product or your service to other people and driving those people to convert to become members, to become purchasers, to become subscribers of your service? If that's happening, then your advocacy rate is going up, your referral rate is going up. That's a great measure of success for your loyalty program.
NPS with a nine or 10 is a great measure that your loyal members are excited about your service. They're excited about your loyalty program, they're excited about the benefits they're getting from the loyalty program. And they may not be discounts. They might be benefits that they care about, but these benefits and these incentives, whichever we are driving for those loyalty members are working.
I hope you enjoyed those 10 measurements for the success of loyalty programs. For more such examples and for great discussions with market experts and luminaries, come join us at annexcloud.com/marketmovers.
Thank you again.