For any business looking for sustained growth, repeat purchases are a critical factor. The more repeat purchases, the better the growth rate.
It is a no-brainer that repeat purchases come only from retained customers i.e. the customers that keep coming back to buy more from you.
What keeps customers buying repeatedly from your e-commerce brand? What drives them to choose your products/services repeatedly instead of other brands?
Customer loyalty is supercritical to fuel growth for any B2C venture, including e-commerce businesses.
How is Customer Loyalty Defined Anyway?
Customer loyalty refers to a favorable relationship that exists between a customer and a company. It’s what keeps clients coming back and convinces them to choose you over a competitor who offers similar services.
In the context of a brand, loyalty can be viewed in a variety of ways. People are loyal to a brand because it provides them with a favorable experience, such as excellent customer service, a sense of belonging to the brand’s beliefs and ideals, or constant high product quality.
It’s not about a single product or service; loyalty develops over time as a result of a series of positive experiences that lead to a sense of trust. It also doesn’t imply that each interaction must be flawless. Customer loyalty can endure a few flaws, but too many will cause it to crumble.
So to speak – Customer Loyalty is a function of a well-found marketing strategy based on customer relations, incentives, and value.
Is There A Way To Enhance Customer Loyalty?
Absolutely! If you’ve identified the right metrics that indicate customer loyalty, you can always optimize them.
Plus, focusing on the following core pillars of customer retention can deliver unparalleled growth performance for your e-commerce business.
Your customers crave recognition. They want your brand to speak to them for what matters to them. This can be achieved to a high degree through personalized communication, offers, deals, and discounts. If your customers get due recognition, you can…
Rewards are a valuable gesture towards customers from a brand for sticking with them. Rewards are monetary or highly beneficial incentives that motivate the customers to keep coming back to your brand. Think of rewards like ‘Coupon: $50 Off of Your Next Purchase’ and drive more sales.
Through deep analysis and key behavioral data points, you can send laser-targeted campaigns to your best customers. E.g. you spot a few customers who repeatedly buy from you during the winter season. You can easily engage them as the season approaches and give them personalized discount deals as an incentive to buy more.
Measuring Customer Loyalty: 7 Important Metrics
Now that you the What and Why of customer loyalty – it is time to discover How to optimize it.
Here is a list of 7 customer loyalty metrics that you must know to develop a high-performance e-commerce brand for limitless revenue growth.
1. Repeat Purchase Ratio (RPR)
The repurchase ratio is calculated by dividing the number of repeat customers by the number of first-time buyers. While RPR is not a direct indicator of Customer Loyalty, it indicates how close a customer is to become loyal.
Most firms spend the majority of their marketing budgets on attracting new customers, which is commonly done through search and display advertising. You can adjust your marketing plan based on insights about who your repeat customers are, so you don’t waste time and money on clients who are unlikely to buy.
The goal is to reduce your costs per unit.
2. Net Promoter Score (NPS)
This indicator reveals how likely a consumer is to recommend you to their friends. NPS categorizes your customers into three groups:
- Detractors – Customers that provide a score of 6 or less are classified as “Detractors.” They will not refer you to others, are unlikely to purchase from you again, and may even harm you through poor word-of-mouth.
- Passives – Those who score a 7 or 8 are classified as “Passives.” They are happy, but not overjoyed enough to endorse you. They won’t harm you, they won’t look for alternatives, and they’ll probably keep around as long as they don’t find a better value proposition from another supplier.
- Promoters – Those who get a 9 or 10 are classified as “Promoters.” They’re your adoring fans, the individuals that camp out in front of the Apple store. They’ll most likely refer you to others and buy from you again.
You can subtract your “Detractors” percentage from your “Promoters” percentage to get the Net Promoter Score.
3. Purchase Frequency (PF)
This indicator determines how frequently the average shopper buys anything. It’s another crucial income metric because the higher your buy frequency rate, the more money you’ll make.
Divide the total number of orders placed in a year by the number of unique clients you had during that period to calculate buy frequency. This metric focuses on one-of-a-kind customers! To receive the most accurate data, make sure you’re tracking unique sales.
4. Customer Retention Rate (CRR)
The percentage of clients who stay with you over time is referred to as the customer retention rate. It’s another classic customer loyalty metric that tells you how effectively you keep your clients. The higher your customer retention rate, the better you are at keeping them.
To calculate your CRR, multiply the total number of customers at the end of a given period by the number of customers you gained during that period, then divide by the total number of customers you had at the beginning of that given period.
5. Upsell Ratio
Another sign of client loyalty is when they purchase new products. It’s a sign of their faith in your e-commerce brand.
This is why firms keep track of their upsell ratio, which is the proportion of customers who have purchased more than one type of goods versus those who have purchased only one. This is not to be confused with the Repurchase Ratio, which records existing consumers who purchase a new product.
6. Customer Lifetime Value
Customer lifetime value is how much money a customer will contribute to your e-commerce business throughout their entire time of association with you as a paying customer.
Customer Lifetime Value, or CLTV, tells you how much a customer is worth to your brand and gives insights into their overall value. With CLTV, you’ll better understand how much you should be investing in customer retention going forward – and what is the profile of your ideal customer.
A healthy CLTV indicates that customers are worth the cost to acquire them, meaning it’s more profitable for you to invest in acquiring new customers than retaining ones who have already made purchases from your brand.
When it comes to marketing your business online, the customer lifetime value is a metric that every company should take into consideration. For instance, if you were to retain 10% more of your existing clients, then the effect would be identical: Double revenue in one year.
Your CLTV is calculated by the formula:
CLTV = AOV*F*GM/CR
In the above formula, AOV = Average Order Value, F = Purchase Frequency, GM = Gross Margin, and CR = Churn Rate.
7. Customer Loyalty Index (CLI)
You may have come across surveys from brands, over emails or SMS or WhatsApp, that ask for scalar ratings.
‘How likely are you to recommend our brand to your friends on a scale of 1-6?’ (1 is highly likely and 6 is not likely at all)
Well, this is a way for businesses to assess their Customer Loyalty Index (CLI).
CLI calculation includes a rating on 3 standard questions and then calculating their average.
These standard questions are;
- How likely are you to recommend the [brand] to a friend?
- How likely are you to buy from [brand] again?
- How likely are you to try out other products/services from [brand]?
The customer responses for all three questions on a scale of 1-6 are averaged to calculate the final CLI.
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