Building customer loyalty is a good strategy for increasing profits. In this article, I provide you with 10 ideas for metrics you can use to measure customer loyalty.
Measuring customer loyalty, it’s a bit like taking the pulse of your business. Without precise indicators, it’s impossible to know if your efforts are bearing fruit or if your customers are slipping away. In a context where acquiring a new customer costs up to 7 times more than retaining one, mastering these metrics is essential for your growth. Yet, many companies navigate by sight, relying on intuitions or overall turnover figures. In this article, I explain which indicators to use and how to calculate each one. Based on my experience at IntoTheMinds, I also propose a prioritisation based on your level of advancement.
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Key takeaways in 30 seconds
- 3 direct indicators: retention rate, attrition rate and repurchase rate for an immediate diagnosis.
- 7 indirect metrics: CLV, NPS, customer satisfaction, … to refine your analysis.
- Long-term measurement: integrate your indicators into an annual barometer.
- Focus on attrition: if you don’t have an indicator in place, this is the one to implement first because it’s the one that makes management react the fastest.
- Intelligent combination: use several metrics for a complete view, but only once you have implemented a direct indicator.
The 3 direct indicators: your priority dashboard
These three metrics form your foundation for measuring customer loyalty. Always start with them to establish a reliable state of play. My advice? Prioritise the attrition rate because it has this particular gift of making management aware of real customer losses.
1. The retention rate: your stability indicator
The retention rate measures the percentage of customers who continue to buy from you over a given period. It’s your barometer of loyalty par excellence.
Calculation formula:
(Number of customers at the end of the period – New customers during the period) / Number of customers at the beginning of the period × 100
In concrete terms, if you start January with 1000 customers, gain 200 new ones and end with 1100 customers, your retention rate is 90%. Not bad, but there’s still room for improvement!
2. The attrition rate: the red alert for your business
The opposite of the retention rate, but how much more telling! It indicates the percentage of customers who have stopped buying from you. Your goal? Minimise it absolutely.
Calculation formula:
(Number of customers lost during the period / Number of customers at the beginning of the period) × 100
An attrition rate of 10% means that one in ten customers leaves you each period. Multiply by the average value of these customers, and you get the real cost of your failure in customer loyalty.
3. The repurchase rate: the recurrence indicator
This metric reveals the percentage of customers who buy again after their first purchase. Particularly useful for measuring the effectiveness of your new customer onboarding strategy.
Calculation formula:
(Number of repeat customers / Total number of customers) × 100
A low repurchase rate? It’s often a sign of a disappointing customer experience during the first contact or a lack of post-purchase follow-up.
The 7 indirect indicators: to refine your strategy
Once your direct indicators are in place, move to the next level with these more sophisticated metrics. They measure behaviours that influence customer loyalty and give you a more nuanced view of your performance.
4. Customer Lifetime Value (CLV): your hidden treasure
The CLV estimates the total revenue a customer can generate over the entire duration of their relationship with your company. A loyal customer will naturally have a high CLV thanks to their repeated and lasting purchases.
Calculation formula:
CLV = (Average value of a transaction) × (Number of purchases per customer per year) × (Average duration of the customer relationship in years)
Note: I’ve classified this indicator as “indirect” because a very loyal customer but with small transactions might not stand out in this calculation. Hence the importance of cross-referencing data!
5. The loyalty program participation rate
This indicator measures the percentage of customers enrolled and active in your loyalty program. But be careful to define what an “active” participant is – passive enrolment is not enough.
Calculation formula:
Number of active participants in the program / Total number of customers
A loyalty program with a low active participation rate often reveals unattractive benefits or poor communication.
6. The Net Promoter Score (NPS): the recommendation indicator
The NPS measures the likelihood that your customers will recommend your company. A satisfied and loyal customer will naturally be more inclined to recommend you. I’ve written many articles on the subject in recent years. If you want to deepen this topic, I recommend this article that deals with the disadvantages of the Net Promoter Score and this one that talks about its widespread use in satisfaction surveys.
Calculation method:
On a scale of 0 to 10, classify the responses into three groups:
- Promoters (score 9-10)
- Passives (score 7-8)
- Detractors (score 0-6)
NPS = (% promoters – % detractors)
A positive NPS indicates that you have more promoters than detractors. Excellent sign for your customer loyalty!
7. Purchase frequency: the regularity indicator
This metric indicates how many times a customer buys from you over a given period. Alone, it doesn’t say much. But compared to the general distribution of your customer base, it becomes very telling.
Calculation method:
Determine the quartile to which each customer belongs based on their number of purchases over the reference period
A customer in the upper quartile buys more frequently than 75% of your base. This is your priority target for loyalty programs!
8. Customer Satisfaction Rate (CSAT)
The CSAT evaluates satisfaction by asking customers to rate their experience on a scale (usually 1 to 5). Satisfaction being linked to loyalty, this metric remains relevant. Of course, measuring CSAT requires all the logistics inherent to customer satisfaction surveys.
Calculation formula:
(Number of positive responses / Total responses) × 100
Keep in mind that the satisfaction-loyalty correlation varies by sector. Always use CSAT in combination with other indicators.
9. Customer engagement: the rising metric
This measure evaluates your customers’ interaction with your brand via digital channels: social networks, newsletters, loyalty platforms. Sephora, for example, now rewards this engagement in its My Sephora program.
Possible indicators:
- Email open rate
- Social media interactions
- Participation in loyalty programs
- Time spent on your site or app
10. The direct recommendation rate
Different from NPS, this indicator measures concretely how many new customers arrive via recommendations from existing customers.
Calculation formula:
Number of referred customers / Total number of customers
A high rate indicates a customer base that is not only loyal but also ambassadors for your brand. The holy grail of customer loyalty!
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How to use these indicators effectively?
Now that you know your 10 metrics, here’s how to exploit them intelligently:
- Start with the direct indicators. They give you an immediate snapshot of your situation. My advice: integrate at least one of them into an annual barometer to track long-term evolution.
- Combine several metrics. A customer with a high NPS but low purchase frequency reveals untapped potential. It’s up to you to dig into why they don’t convert their satisfaction into repeated purchases.
- Adapt to your sector. An e-commerce will follow purchase frequency and digital engagement more closely, while a B2B service will prioritise CLV and retention rate.
- Measure over the long term. Customer loyalty is built over time. One-off variations do not necessarily reflect an underlying trend.
Frequently asked questions about loyalty measurement
Which indicator to choose as a priority if I’m starting out?
Excellent question! I recommend starting with the attrition rate. Why? Because it has this advantage of creating a shock with management. Seeing concretely how many customers leave each month generally pushes for action faster than “positive” metrics.
How often to measure these indicators?
It depends on your purchase cycle. For an e-commerce with frequent purchases, a monthly follow-up of direct indicators is sufficient. For a B2B service with annual contracts, a quarterly follow-up will be more relevant. The important thing? Keep regularity in your measurements.
How to interpret an NPS of 30?
An NPS of 30 means you have 30% net promoters (promoters minus detractors). It’s good, but there’s room for improvement! Focus on feedback from passives (scores 7-8): they are often easier to convert into promoters than detractors.
My indicators contradict each other, what to do?
It’s normal and even desirable! Metrics that contradict each other often reveal precious insights. For example, a high satisfaction rate with a low repurchase rate may indicate a pricing or post-purchase communication problem. Dig into these paradoxes, they often hide your biggest levers for improvement.
Should these indicators be segmented by customer type?
Absolutely! An overall retention rate can mask significant disparities between segments. Do your premium customers behave the same as your occasional customers? Segment at least by customer value, seniority and acquisition channel for finer insights.
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