The Definition of Customer Loyalty

Customer loyalty is the likelihood of customers to continue purchasing from you, and recommend you to their friends and family. Customers who are loyal spend more money with you, speak highly of you and are power users of your product or service.

Customers become loyal to a brand because they feel valued and identify as a customer of that brand. A loyal customer trusts that the brand will do the right thing for them and in the value they receive from using the product.

To build loyalty within your customer base, read on to learn more about measuring customer loyalty, and how delivering exceptional customer service can positively impact loyalty.

Why should you measure customer loyalty?

When you run a business, you have to choose carefully where to spend your money. Acquiring new customers can be expensive - you either have to pay a salesperson to convince them to buy, or invest in marketing and advertisements to attract customers. But if the customers that have already purchased once continue to come back and purchase, that saves your business money. If you have no repeat customers, it will become expensive to acquire every single customer.

When your customers are loyal, you need to spend less money to get them to spend money with you. It’s much more efficient to retain an existing loyal customer than to recruit a new customer. Keeping customers loyal is the most effective way to grow your business.

When you measure customer loyalty, you can start tracking the impact of customer service and customer experience changes on the actions of your customers. Understanding what drives customer loyalty will help your company grow more effectively.

Ways to measure customer loyalty

Measuring how loyal your customers are, requires looking at both your customers' feelings and actions. Customers might say they are loyal, but act differently. Because of this, measuring both customer sentiment and their interactions with your company will give you a full picture of customer loyalty.

Revenue Based Loyalty Metrics

Revenue-based loyalty metrics look at where your customers’ money is going. Are they continuing to spend it with you? Are they spending more? Or are they choosing to spend their money elsewhere?

Customer Churn Rate

Customer churn rate is the percentage of your customers or subscribers who cancel or don't renew their subscriptions during any given time period. The best way to calculate churn is to designate a time period and tally up the total number of customers you acquired and the number of customers who churned during that time period. Then, divide the number of customers who churned by the total number of customers acquired, and multiply that decimal by 100%.

Churn remains important as your company grows. While when you are smaller, it may seem like every customer that churns is a huge impact (often times because it is), but as you grow larger it becomes a key indicator of what changes you’ve made that might have an impact on your customer base. For example, if you remove a feature, or change pricing and note a good deal of churn, it gives you lessons that you can use to shift your strategy moving forward.

Customer Retention Rate

Customer retention rate is the percentage of customers that stay customers and continue to spend money with your company over a period of time. It can be calculated as:

Retention Rate = ((CE-CN)/CS)) X 100

CE = number of customers at end of period

CN = number of new customers acquired during period

CS = number of customers at the start of period.

Like churn, retention can seem like a huge deal when you are smaller—every customer that you keep can make a big difference to your business’ financial metrics. But, as you get larger, the customers that you keep indicate things that your company is doing right. For example, if you make a product change, or build something that people have been asking for, and see that your retention rate is higher, you can tell that you are moving in the right direction and should continue pushing forward.

Negative Churn

Negative churn is the holy grail of customer loyalty metrics. It’s what happens when revenue from existing customers is growing, rather than shrinking. Negative churn has a huge positive effect on the growth of your company - because instead of needing to replace lost revenue from your existing customers, every additional customer grows your revenue exponentially.

To achieve a negative churn rate, businesses need to prevent customers from leaving and also create ways for their existing customers to spend more money with them. This might be through plan upgrades, upsells or adding new users.

Survey-Based Loyalty Metrics

While revenue shows an exact picture of how loyal your customers are, survey-based loyalty metrics can be a good leading indicator of what customers are planning to do. Asking your customers how they feel about certain aspects of your product or service can provide insight into what makes your customers more or less loyal. Acting on these insights is what helps companies drive loyalty.

Net Promoter Score

Net Promoter Score is a metric designed to measure how customers feel about your company overall. It’s a holistic metric that takes into account every part of the customer experience from marketing, to onboarding, to the product, to service. It’s calculated by asking customers “How likely are you to recommend [COMPANY] to your family and friends?” where 1 is not likely and 10 is very likely. Customers that respond 9 or 10 are considered promoters and are likely to stay loyal and advocate for your brand. Customers that respond 6 or lower are considered detractors and are much more likely to churn in the near future.

NPS surveys usually also include a follow-up question that asks customers why they gave the score they did. The qualitative insights from these questions are helpful in targeting customer experience improvements designed to improve NPS and customer loyalty.

Customer Effort Score

Customer Effort Score is a survey metric that asks customers how easy it was for them to get help or resolve their problem. In 2010, the CEB discovered that high effort experiences were the leading cause of customer disloyalty. They believe that companies that seek to make it easy to do business are more likely to have loyal customers.

And it makes sense intuitively. We all know how it feels, as customers, to be put through a difficult and convoluted process to get a simple answer. Even if our question was answered, that frustration makes us less likely to remain customers in the future.

Surveying customers using CES after an interaction can help companies highlight where they are making things more difficult for their customers, and where they can remove friction to improve customer loyalty.

Customer Satisfaction (CSAT)

Customer satisfaction doesn’t always directly correlate to customer loyalty, and here’s why. CSAT is measured after a customer service interaction between your company and your customers. If the customer is happy with the resolution, they will rate you positively on a customer satisfaction survey. But that might not stop them from churning. While the response from the customer service team was good - the customer doesn’t want to have to talk to you in the first place. They don’t want to have a problem that they need your help to resolve.

Still, measuring customer satisfaction can ensure that your customer service isn’t causing disloyalty. While good customer service might not be enough to keep customers who are running into trouble around, bad customer service is surely enough to drive them away.

Build customer loyalty with exceptional customer service

Many customers agree that high-quality customer service is an important driver of customer loyalty. Bad service drives customers away.

Even though the customer service department might not be solely responsible for improving customer loyalty, the quality of service has a big impact on how customers feel about your company. If you're slow to respond, rude to customers and unable to help - you can be sure that customers won’t stick around.

There are a few things you can do to provide exceptional customer service that wins loyal customers, creating customers for life.

Remember the basics

Customers consistently rank the same aspects highly when it comes to quality customer service - and they aren’t hard to deliver on.

SPEED OF SERVICE

Valuing your customers’ time, not making them wait on hold and responding quickly is critical to providing excellent customer service. In today’s world, convenience is king, so anything you can do to be more responsive to customers will help increase their loyalty.

BE PERSONABLE

Treating customers like they are actual people is simple in principle, but after eight hours of answering angry customer questions it can be hard to do consistently. But if your team is able to connect with customers by being friendly and genuine, your customers will have a better experience and come back for more.

ANSWER THEIR QUESTIONS

There’s nothing more frustrating than being given the run around by customer service agents, only to realize they can’t help you. Focus on resolving the customer’s questions above everything else.

Listen to your customers

Every time a customer writes into your customer service team they are providing information about their experience. Whether they are asking for a new feature, reporting a bug or simply unable to understand how the product works - this is valuable information that can help improve customer loyalty. Customers want to feel heard and they want businesses to listen to their concerns. Showing that you care about customers’ needs will keep them loyal to your business.

SEND CUSTOMER FEEDBACK TO THE RIGHT TEAMS

Don’t waste the valuable insights from your customers by letting them sit in your inbox. Take the time to categorize incoming feedback, analyze what customers are asking for and deliver this information to the team that can action it. For example, if customers are consistently confused about a marketing promotion, send this data to your marketing team so they can make changes.

CLOSE THE LOOP

When customers take the time to give feedback, respect their time and make sure to follow up. When a customer’s suggestion is implemented in the product, send them an email to let them know. Not only will the customer be pleased that your company listens to their needs - they are also much more likely to start using a new feature when they hear about it directly from you!

SOLICIT FEEDBACK AT EVERY STEP

Not all customers will write to customer service for help, but they will still have opinions about your product. Sending out feedback surveys will help collect insight from all customers. It’s also important to collect feedback from every step along the customer’s journey. How do they feel about onboarding? Did the sales process feel smooth to them? You can even ask about your cancellation process - by making it easy for customers to leave on their own terms, you’re keeping the door open for them to come back.

Be proactive

As we discussed earlier, customer effort is one of the leading causes of disloyalty. When customers have to put in work to use your service (either through dealing with customer service inquiries or stumbling through complicated features), they often decide it’s not worth it. One of the most effective ways to prevent customers from churning is to anticipate any bumps in the road and smooth them out before customers encounter them.

NEXT ISSUE AVOIDANCE

Next issue avoidance is the process used by top customer service teams to ensure they don’t just answer the question the customer has now - but also the next question they might run into.

For example, imagine your customer writes into customer service to add a new user to their billing plan. You add the new user and let the customer know that you’ve done what they asked. Two hours later you get another email from the customer asking how they set up the new user’s permissions and settings. Wouldn’t it have been easier to send that information along to the customer in the first email? You could have avoided the customer running into a new obstacle by setting them up for success in the first response. To start with next issue avoidance, think about the next steps your customer will take after they read your email - are they going to need to set up something? Is there another step they need to know about? By offering this information proactively, you can guide the customer to a complete resolution of their question.

A GLOBAL PROACTIVE STRATEGY

A global proactive strategy is even more effective in improving customer loyalty. Rather than just avoiding future issues for the customer in front of you, be proactive in removing obstacles that many customers encounter. If you’re tagging incoming questions from customers in your help desk, you can identify common trends. Then, implement a fix for all customers that might possibly run into the problem. Not only does this mean your customers won’t be inconvenienced - it also means that your team won’t need to deal with the incoming questions, giving you more time to provide excellent service to other customers.

Make it easy with self-service

Customers love to do business with companies that make it easy for them to be successful. Offering a self-service portal for customers to resolve their own issues will improve their experience. Firstly, they won’t need to wait for assistance, because self-service is always open and always available. Secondly, they can work through solutions at their own pace and choose their favorite format - video, images or text.

The Importance of Customer Loyalty

Measuring customer loyalty, and working to improve it over time, is one of the most important things you can do to grow your business. Customer loyalty is the key that ramps up customer growth, spreads word of mouth and increases your brand value.

To improve customer loyalty, it’s important to measure what your customers think about your existing product. Identify areas of opportunity and act on them to improve the customer experience. Secondly, measure how loyal your customers actually are - do they keep churning or are they sticking around month after month? Getting to negative churn rates will accelerate your business’ growth.

Excellent customer service will prevent customers from becoming disloyal. By delivering on the basics, listening to what customers want and making it easier for them through being proactive and self service, your customer service team can be a driver of customer loyalty.

Improve Customer Loyalty with Freshdesk

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Over 150,000 businesses use Freshdesk to create loyal customers by delivering amazing customer experiences.

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