Customer loyalty is when your audience thinks of your brand when they need to buy a product. It leads them to coming back to your brand repeatedly. This leads to retained customers, more repeat purchases, and an overall good business.

In short, customer loyalty can have a big impact on your business. That’s what this guide is about: how to build a brand that customers stay loyal to.

How to Measure Customer Loyalty?

Before you make an effort to build customer loyalty, you need to know where you stand. Metrics can help you understand what’s working, what isn’t, and why something isn’t working.

Here are five key performance metrics to measure it.

1. Net Promoter Score (NPS)

Net Promoter Score, popularly known as NPS, measures how likely customers are to recommend your services or product in their social circle. It is a quantitative way to measure customer loyalty.

To get your Net Promoter Score, you should ask customers how likely they are to recommend your service on a scale of 1-10. Then, your team can sort the respondents into three categories:

Detractors: Includes customers who wouldn’t recommend.
Passives: Includes customers who may or may not recommend.
Promoters: Includes customers who would actively recommend.

Generally, respondents who answer between 1-6 are detractors, 7-8 are passives, and 9-10 are promoters. Calculate the percentage of each group.

Finally, you can put the numbers to the given formula to get your overall NPS score:

[Percentage of promoters] - [Percentage of detractors] = NPS score

2. Customer Lifetime Value (CLV)

Customer Lifetime Value, also known as CLV, measures the average revenue you can earn from one customer over the course of their relationship with your brand.

If a customer stays with your brand for a long time, they will make more purchases from your brand. Hence, the CLV will also be high. This results in less user acquisition costs and better customer loyalty.

Here’s the formula to calculate CLV:

[Customer value] x [Average customer lifespan] = Customer Lifetime Value (CLV)

Customer value refers to the average number of purchases a customer makes in a given timespan multiplied by the average value of a purchase.

Average customer lifespan refers to the timespan for which the average customers sticks with your brand.

3. Repeat Purchases

Repeat purchases measure the average number of repeat purchases a customer makes over a given period of time. It's an important metric as the number of repeat purchases shows how loyal your customers are, and how that loyalty grows over time.

You can measure your repeat purchase average using the given formula:

[Number of purchases made by repeat customers] / [Total number of repeat customers] = Repeat purchase average

If your repeat purchases are increasing over time, it means increased customer loyalty as well. However, if it's decreasing, you may want to check why customers aren't purchasing from you as frequently anymore.

4. Customer Retention Rate

Customer Retention Rate, also known as CRR, measures the percentage of customers a brand retains over a period of time. Retention rate is a great metric to measure customer loyalty, especially for companies that use a subscription model.

To measure CRR, you will need to calculate three numbers:

CE = number of customers at the end of the given period
CN = number of new customers during the given period
CS = number of customers at the start of the given period

Once you have figured these out, you can put these to the following formula:

[ CE - CN) / CS] x 100 = CRR

If you inverse your retention rate, you can also measure the customer churn rate which refers to the number of customers “lost” during a given period of time. Low churn rate generally indicates high customer loyalty.

5. Customer Satisfaction Score (CSAT)

Customer Satisfaction Score, also known as CSAT, measures how satisfied your customers truly are with a specific interaction, purchase, or experience with your brand. It shows the bigger picture of customer loyalty.

The more satisfied customers are with your service, the more likely they are to return and recommend your brand. Thus, CSAT is a good indicator of future customer loyalty.

Typically, it works by asking customers how satisfied they are with the recent experience on a scale of 1-5. You can then put the numbers to the given formula:

(Number of customers who answered 4-5) / (Total number of survey respondents) x 100 = Percentage of satisfied customers

How to Increase Customer Loyalty?

It takes real effort to increase customer loyalty, but it isn't impossible. With a strategy in place, you can turn new customers into loyal promoters.

There are two steps to it: Understanding customer psychology and creating a strategy. Let's dive into both of them.

Build a customer loyalty strategy

Creating a strategy has three main steps:

1. Measure where you stand

To grow your customer loyalty, you first need some internal benchmarks to understand where you stand at the moment. Acknowledging your current level of customer loyalty can also help you set realistic goals.

Here's how you can figure out where you're at currently:

Run an NPS and/or CSAT survey to get a general satisfaction benchmark from your customers.
Use internal data to mark your current retention and churn rate.
Calculate your Customer Lifetime Value (CLV) if you have enough data

Then, put these numbers to industry-specific benchmarks to assess where you stand. If you’re a new startup and don't have enough data, you can still run an NPS or CSAT survey to get an idea of overall satisfaction and loyalty.

2. Set your customer loyalty goals

Increasing customer loyalty is a vague goal. A better way to create goals is by focusing on what you'd like to achieve with increased customer loyalty.

You could be targeting anything, such as:

Expanding your audience through more word-of-mouth referrals
Increasing customer retention and decreasing churn rate
Improving customer satisfaction for more loyalty

Define your primary objective with customer loyalty, and then set clear, actionable goals that you can measure with KPIs.

3. Make a plan to achieve them

Now that you know where you stand, and what you want to achieve, you can make a plan to get to where you want to be.

For example, if you want to increase your retention rate to acquire new users and reduce the churn rate, you will need strategies to reduce churn. It could be creating a loyalty program or something unrelated.

Whichever solution works for you, create an actionable plan with it. You can iterate it later as you measure the results over time.

The psychology of how customer loyalty works

Before you dive into creating a strategy, it's important to understand how customer loyalty really works. For instance, most strategies fall into two categories: rewards or rescues.

Rewards are positive reinforcements that lead the customer to take action (such as, referring a friend) to get something as a reward.

Rescues are negative reinforcements that lead the customer to take action to “save” themselves from something they don't like. For instance, customers often spend more to get special discounts (which rescues them from paying more).

Depending on your audience's goals and pain points, implement the rewards and rescues strategies accordingly. Moreover, customers don't get loyal with one-time rewards. To get loyal customers, you have to be the kind of brand that customers want to be loyal to.

5 Popular Customer Loyalty Programs

Loyalty programs are one of the best ways to keep customers coming back to you. If executed well, first-time customers can turn into long-term retainers. Here are five popular customer loyalty programs brands use:

1. Referral programs

Referral programs work by rewarding existing customers for referring new ones. It typically works with a unique referral code or link that traces back to the referrer so that they can be rewarded.

A great advantage of programs is that customers can control how many rewards they earn. If you want to acquire new users through word-of-mouth marketing, referral programs are the way to go. They are simple, and thus, subscription-based companies can implement them.

2. Paid membership programs

Paid membership programs work on a one-time or subscription-based membership fee. Rather than customers earning rewards from the brand, they purchase access into the membership program to get benefits.

These programs work on both the rescue and reward strategies. Customers pay to save themselves from inconvenience and get exclusive benefits.

Since customers pay to join these programs, they tend to be more loyal to the brand. Brands with paid membership programs can earn immediate revenue upfront. However, this also makes it difficult for new customers to ‘try’ how the loyalty program is like.

3. Points-based programs

Points-based programs are one of the most popular customer loyalty programs out there. They are endlessly customizable and can work for almost all kinds of business models.

The loyalty program works by rewarding customers with “points” either through purchases or by completing certain tasks. These collected points then add up to rewards, such as discounts or free items from the brand.

4. Tiered programs

Tiered programs work on the basis of how much customers are willing to spend. With these programs, customers have to work their way to higher tiers to get better rewards.

For example, customers spending up to $100 in a year may get to the “Bronze” reward tier while customers spending $101-350 may be rewarded in the “Gold” tier.

You can combine both the rewards and the rescue tactics for your customers with a tiered program. An advantage of this program is that your business earns as customers work their way up to the tiers.

5. Exclusive access programs

Exclusive access programs reward members through exclusive access to various rewards, such as sales, discounts, and perks. These programs don't necessarily have to be paid, though.

This exclusive access to perks and content create a whole new sense of loyalty to your brand in customers. Exclusive access programs are particularly popular among digital product businesses.

Bottom Line

Building a brand that customers are loyal to isn’t a one-step thing. It takes multiple strategies to work in sync to build a community that doesn’t just buy from you, but sticks with your brand.

With Natively’s no-code AI app builder, this gets a little easier though. It allows you to focus less on product development and more on your customers. In fact, you can also integrate a loyalty program in your app.

Not sure where to start? Start with prompting Natively’s agent to build your app.