What KPIs should you monitor to measure the performance of your loyalty programme?
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April 16
At Splio, we’ve often explained which loyalty programs are available to you and how to launch one that meets your needs. Because, as you know, retaining customers costs less than acquiring new ones. But once customers are enrolled in your program, how can you be sure to get the most out of it?
The answer to this question can be summed up in one sentence: it is essential to monitor certain performance metrics on a regular basis. A successful loyalty program is only the first step toward building customer loyalty. To go beyond mere enrollment and sustain your relationship over time, you must tailor your program to the expectations of your loyal customers.
Here are the key performance indicators to help you ensure that your program continues to meet members' expectations.
#1 – Retention rate and churn rate.
These two metrics are opposites but are an excellent way to gaugethe appeal of your program. On one hand, you have the enrollment rate, which represents the percentage of your customers who are actually part of your loyalty program; on the other hand, you have the attrition rate, which measures the number of members your program has lost over time.
The key to a program’s longevity is, of course, having a high retention rate among its customer base. This reflects effective communication about the program and an appealing value proposition for consumers. But what matters most is having a low churn rate, which shows that the program is more than just a facade and actually delivers on its promises.
Our advice is that it’s better to start with a loyalty program that’s more “realistic” at first glance but delivers on its promises over the long term, to avoid disappointment and member attrition.
#2 – Acquisition cost.
The acquisition cost is the average amount you spend to sign up a new member for your loyalty program. To calculate this acquisition cost, you’ll need to determine the total amount spent on your acquisition campaign (including technology costs, social media ads, operating expenses, personnel costs, etc.) and then divide that amount by the number of new members who actually signed up for your loyalty program as a result of these efforts.
By comparing the cost of acquiring a new member with the average revenue they generate, you can calculate the ROI of your efforts. When you launch your loyalty program, your acquisition cost will be high because you’ll be testing different channels and strategies. After analyzing the initial results, it will decrease significantly since you’ll be able to refine your strategies by keeping only the most effective ones for your brand and optimize your conversion funnel to attract even more new members.
Today, you can optimize your customer acquisition costs through customer referral program, a new channel for recruiting new customers at a lower cost and generating additional revenue, while strengthening the loyalty of your existing customers.
#3 – Average order value and revenue.
The goal of a loyalty program is, of course, for it to bring in more than it costs. By investing in your loyalty program members—whether during the onboarding process or to retain them—you hope that your members will spend“more”than non-members, thereby making your efforts profitable and generating additional revenue.
To measure this result, you need to calculate both the average order value for members versus non-members, as well as the percentage of your revenue generated by members of your program. Combining these two calculations will quickly show you whether your program is profitable and, more importantly, whether it drives additional sales.
Deeluxe, the online-only ready-to-wear retailer has increased sales on its e-commerce site through customer loyalty initiatives. Just a few months after launching the “Deeluxe Club,” the online-only retailer has seen an average cart value that is 16% higher among program members compared to non-members, and program members already account for 41% of the brand’s total revenue.
#4 – Repurchase rate and purchase frequency.
The repurchase rate is the percentage of customers who have made at least two purchases over a given period, divided by the total number of customers during that same period. Purchase frequency, on the other hand, is calculated by dividing the total number of orders by the number of unique customers.
As part of a loyalty program, it’s important to calculate these two KPIs by separating your members from your non-members to compare the results. The ultimate goal is, of course, for the repurchase rate and purchase frequency of your loyalty program members to be higher than those of customers who are not part of the program. With higher repurchase rates and purchase frequency among your members, this gives you insight into the effectiveness of the marketing initiatives implemented as part of your loyalty strategy: Are you communicating enough (or too much) with your members? Does your relationship with your members endure over time? Does the program deliver on its promises? These are all questions you should ask yourself regularly to prevent your program from losing steam.
#5 – Customer lifetime value.
Customer lifetime value is an estimate of the revenue you expect to generate over the course of your relationship with a given customer. In other words, it gives you an estimate of how much your customers can bring in, allowing you to determine how much you can invest in acquiring and retaining them while remaining profitable. Even though this is a KPI that changes slowly over time, the goal of your loyalty program is precisely to increase your lifetime value—and thus your profits.
Instead of relying on market statistics—such as the principle that “acquiring new customers costs five times more than retaining them ”— it’s more effective to do your own calculations to ensure you can see the impact of your marketing efforts on your performance metrics.
You have everything you need to ensure that your loyalty program performs at its best and stands the test of time. Now it’s up to you!