Measuring Customer Loyalty involves looking at three factors: relationship strength, perceived alternatives and critical episodes. Ronald van Haaten, a recognized expert on the topic, has a great slideshare that discusses the link between customer satisfaction and loyalty, including some of the key things the top companies are doing to measure loyalty.
For me personally, I like to think of customer loyalty as a combo of customer satisfaction and customer retention. To improve customer loyalty, you first need to know how satisfied your customers are, and how likely they are to continue doing business with you.
Before I get into discussing my three step guide to measuring customer loyalty, I wanted to shed light on four reasons you should be taking customer loyalty seriously:
- Loyal customers cost less to keep. With customer acquisition costs are rising like we’ve never seen before, you need to understand that it costs 6-7 times more to acquire new customers than it does to keep existing customers. Keep your customers happy.
- Loyal customers tend to be less inclined to switch and are less price sensitive. This can lead to stable cash flow and increases profits.
- Loyal customers that have been with you for a long time are your biggest advocates – they will generally initiate free word of mouth and referrals.
- Loyal customers are generally less expensive to service because they know what to expect and are familiar with what you offer. They require less hand-holding which means increased savings for you.
Now you know why measuring customer loyalty is so important, let’s get into my three step guide.
1. Survey your customers
The first step involves surveying your customers. This is a strategy backed up by Bob Hayes, author of Measuring customer satisfaction and loyalty. He calls it a subjective measurement approach which aims to self-report your customers feeling and behaviors towards your company.
Here are some great questions to be asking your customers in your survey (use a 1-10 rating scale):
- How likely would you be to recommend <company> to your friends/colleagues?
- How likely are you to continue using <company>?
- Overall, how satisfied are you with <company>?
Client Heartbeat can periodically and automatically survey your customers to assist you in measuring customer loyalty. The tool has the questions I have listed above, already built into the system. It aims to help you determine how loyal your customers are, and identify who you customer advocates are – similar to the popular Net Promoter system.
2. Analyze feedback to measure loyalty and advocacy
Once you’ve sent out surveys and got your results back, it’s time to give them an analysis and determine your level of customer loyalty and advocacy. If you have used a regular online survey tool and asked the questions listed above, pop this data into a spreadsheet and work out your overall average. If you are getting scores above 8.4 you’re doing pretty well. Anything below and there is room for improvement.
Why 8.4? Well… over at Client Heartbeat we analyze A LOT of data around customer satisfaction, loyalty and advocacy. In a recent benchmarking study, we found 8.4 to be the average rating for customer advocacy – which is a strong indicator of customer loyalty. Companies that scored above that, were considered to have strong customer loyalty, and companies that scored below, they had below average loyalty.
Remember, customer loyalty differs depending on your industry. I find that property managers tend to have much lower loyalty and advocacy than say… accountants.
If you want to know how your customer loyalty stacks up against others in your industry, try Client Heartbeat, the tool has a world leading benchmarking feature that gives you industry averages and top performer ratings across a range of benchmarks, including customer loyalty.
3. Follow up with customers for further insight
The final step in my three step guide to measuring customer loyalty involves following up with specific customers to discover further insight that can help you improve customer loyalty and grow your business.
There are two particular groups of customers you want to be contacting:
- Your loyal customers: pick out your customers that gave you the highest ratings –these guys are you advocates. Nurture them, do whatever you can to continue to build the relationship, and help them become stronger advocates. If you are interested in learning more about how you can leverage customer advocates, I recommend watching this webinar by Rob Fuggetta, CEO of Zuberance and author of Brand Advocates: Turning Enthusiastic Customers into a Powerful Marketing Force.
- Your unhappy customers: these are the customers who have said they wouldn’t recommend you. This is a huge indicator that they are unhappy with your service. Anyone that wouldn’t recommend you to friends or colleagues are not be happy with the level of service you are delivering. These guys need a follow up call and you need to help understand what has gone wrong, and why they have given you the low rating. Use this feedback to save the customer from leaving and improve your service so it doesn’t happen again.
Measuring customer loyalty doesn’t need to be hard. If you follow this three step guide, you will get some amazing insight into exactly how loyal your customers are, and identify unhappy customers who aren’t currently satisfied. Use this feedback to improve your customer loyalty and grow your business.
Ross’ other popular posts on customer loyalty, customer satisfaction and customer retention: