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3 Steps for Measuring Customer Loyalty and Rewards

Posted, by Jennifer DiPietro on 05/04/2016
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While getting a customer in your store for the first time is important, in order for your success in retail, the focus needs to be placed on repeat business. It is 6-7 times more expensive to acquire a new customer than it is to keep one. Customer loyalty programs work well, but most businesses may be getting it wrong. Here are 3 steps for measuring customer loyalty and rewards ideas.
Track Customer Purchasing Habits  In order to measure the effectiveness of a loyalty program we need to record the number of new customer vs. the number of repeat customers. This is the very basic first step, tracking who is coming in and what they have purchased. The easiest way to obtain this information is through a connected POS system. A connected POS system automatically sets up customer profiles and tracks their purchases every time they return. This helps provide retailers with an insightful analysis of their customer base. Having linked loyalty cards/spending cards also helps in tracking customer purchases.
Calculate Important Metrics Simple metrics can help a retailer know whether or not their loyalty program is impacting their customers. Some important metrics to consider:

  • Redemption Rate – How many customers are redeeming rewards from their loyalty cards (if you are using a punch card or stamp system, keep those cards on hand to track the number of cards redeemed vs. the number of cards given out). Determine the percentage of customers redeeming their rewards (Total redeemed / Total given out). Analyzing how many customers are actually redeeming rewards will determine whether or not rewards are given out frequently enough to keep customers coming back.
  • Loyal Customer Rate – How many times does a customer need to return to your store to be considered a loyal customer? Depending on your industry this number may vary. But this metric is important in determining who your loyal customers are. Using the number of customers considered loyal / total unique customers will determine whether your loyalty program is resulting in more repeat business and customer loyalty.
  • Customer Lifetime Value (CLV) - When measuring customer loyalty CLV can be tricky, but it can give you an idea of the long-term value of your loyalty program. CLV is based on the amount of money a customer spends over the time they are a customer. 4 calculations go into CLV: average order value (the average amount a customer spends per your determined time frame i.e. visit, day, month, year), frequency rate (total number of orders/total number of unique visitors), and average customer lifespan (how long your loyal customers remain customers based on your metrics or an industry standard if you are a younger company). Average order value x frequency x lifespan = CLV. Tracking this metric will give an accurate, long-term picture of the health of your customer loyalty program. Learn more on these metrics here.

Choosing a Rewards Program You may think it's wise to just immediately start with this step, but when you have important metrics in place beforehand you are already prepared to measure if your program is working to reward loyal customer and then make any appropriate adjustments to the program over time. Best ideas and examples for loyalty programs:

  • By X amount of product, Get 1 free: The simple, classic reward.
  • Spend $X and get X dollars free: This is one of the most common reward from the CVS ExtraCare loyalty program
  • Membership programs: Pay a membership price in advance and get a % off every order or a similar perk. Amazon Prime is a good example. Pay for prime membership and get the benefit of 2 day free shipping, among other things.
  • “Good Deeds” Rewards: At some coffee shops if you bring your own cup you get your drink at a lower price. Or bring back 5 cups get a free small drink.
  • Shared Rewards: Common with small businesses, you could offer combined discounts. Purchase something from one location and get a discount on something at another location.
  • Gift Cards: Rewarding customers with your gift card also keeps customers coming back to use that gift card on future purchases or even online.

Measuring customer loyalty is crucial and implementing rewards programs are a great way to keep your customers coming back again and again. Check out this
article and infographic from Selfstartr to learn even more about the true value of loyalty programs.


Topics: Incentives & Rewards, loyalty, measure customer loyalty, Retailers & Merchants, reward customers, Rewards & Loyalty, rewarding loyal customers, rewarding loyalty, rewards and loyalty

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