Client loyalty: KPI to measure your success
If we go from the basis that a satisfied client transmits its positivity and happiness to at least 3 people the same way a client who is not satisfied transmits this feeling to 9 other people, this added to the fact that bringing in 9 new clients is 4 times more expensive than keeping an already existing one, talking about client loyalty strategy is no longer an option for companies, it’s an obligation, as it is for loyalty KPI which will allow us to measure success.
Europe’s economic situation has helped to strengthen the demand and loyalty of the clients we are talking about. The search for the most competitive price has reduced the loyalty of clients. The consumer has become hyper sensitive towards the price. According to a study done by Nielsen, 24% of consumers try different establishments in order to find the best price or promotion and ¾ have changed their buying habits with 1 sole objective: saving money.
Although it’s not all about the price for this type of consumers, the state has forces companies to realise that to increase sales and market fees, they must try to create a loyal client. Do you want to know what performance indicators you must analyse in a client loyalty strategy?
What KPIs of client loyalty must you analyse?
- CPS (Customer Profiability Score)
Customer Profiability Score in a KPI for client loyalty measures the profitability of a client in a certain period of time (meaning, how much money the company generates and how much will it cost to satisfy their needs). Their formula is:
CPS= total (income – expenses) / total (expenses)
This indicator is very useful to make a ranking of our more profitable clients. (Be careful! You must not mix this up with the more valuable ones) and analysing the content means a whole of loses for the company.
- LTV (Life Time Value)
If the CPS is a KPI of client loyalty capable of measuring the profitability of a client, the next step will be analysing how long that responsibility will be maintained. While CPS looks into the past, the LTV forces us to focus our attentions on the future.
This performance indicator is capable of measuring the long term profitability of a client by analysing the actual economical value and breaking down the projection of cash flow in consequence of our relationship with the future client.
It’s important to know the difference between the value of a client and the average ticket of a purchase. After having worked in digital agency for a while I have notices one thing: too many managers just centre their strategy in improving sales, which of course is one of the main indicators of their company: without sales there is no paradise. This means they leave completely aside the client value, without realising that in the end this will have a negative effect on sales. The formula to analyse LTV goes as follows:
LTV = value average sale X Monthly or annual repetitions X average life of the client
Let’s look into it with an example: gyms.
50 euros monthly fee X 12 monthly fee X 2 years of average loyalty from the client = 1.200 euros
A gym’s LTV is of 1.200 euros, which will allow us to create more aggressive recruitment strategies, like for example given new clients a free month.
Despite this, de best way of analysing the importance of a measuring the LTV is by analysing the case of betting houses. What business could afford giving away up to 100 euros to new clients? A Business with a massive LTV. The adrenaline of the first best creates an addiction which keeps the client hooked to this world, increasing the frequency in which they bet, therefore, constantly increasing the LTV.
3- NPS (Net Promoter Score)
The Net Promoter Score is a loyalty KPI able measure the loyalty of a client, predicting its behaviour in certain situations. The way of analysing this is very simple:
- You must ask your clients if they would recommend your services to a friend or family member. Clients must rate this from 0 to 10.
- Divide this clients in 3 groups:
- Promoters (rating 0 and 10): they are completely satisfies clients, loyal to your brand.
- Passive (rating 7 and 8). Satisfied clients but not enthusiastic. You take the risk they will be disloyal to you with a rival company.
- Detractor (rating 0 to 6). Unsatisfied clients. A danger for the company, as they can hurt your image, though, for example, social media channels.
Calculating the NPS. To make this possible we need to take the amount of detractor clients away from the promoters. The result will be a number which oscillates between -100 to 100. If the result is positive we can consider we have and acceptable level of loyalty and if it’s over 50 we can consider it to be excellent.
What other metrics do you use to monitor your loyalty strtegies?