How to Measure Customer Loyalty to Grow Your Business

Grow your business through customer loyalty. Learn how to measure it and why it is so important.

Ashley Stander
By Ashley Stander
Romi Hector
Edited by Romi Hector

Published July 7, 2022.

There are two reasons why it is important to measure customer loyalty. Firstly, the probability of selling to an existing customer is approximately 60-70%, while the possibility of selling to a new customer is only 5-20%. Secondly, a loyal customer will keep coming back and market your business through word of mouth. Word-of-mouth marketing is powerful because it doesn't cost anything and builds your brand organically.

Formula for Calculating Customer Loyalty

There are many different ways to calculate customer loyalty. Here are five formulas you can use:

  1. Customer Retention Rate You'll need to find out how many customers you have at the end of the period you are calculating. Then, subtract the number of new customers in that period. Divide by the number of customers you had at the beginning of the period and multiply that by 100. The answer will be your customer retention rate.
  2. Repurchase Ratio This is the number of customers with more than one purchase divided by the total customers who made a purchase. This formula calculates how likely it is that your customers will repurchase products after a first-time sale.
  3. Purchase Frequency For this, divide your total number of orders by your total number of unique customers. This will tell you how frequently your customer buys from you.
  4. Customer Loyalty Index This index measures customer satisfaction. It looks at how likely they are to come back to your store in the future. It assigns a number between 0 and 100, which tells you how loyal your customer base is.
  5. Customer Engagement Score Simply count the number of customer support interactions and divide that by your total number of customers. This metric tells you how your customers interact with your customer service.

Can Customer Loyalty Be Improved?

Most definitely! There are many strategies and methods that you can use to improve your customer loyalty. Your best bet is to research your unique customer retention requirements and find the strategy or method that works best for you.