Without customers, you wouldn’t have a business. It’s a pretty simple and universally acknowledged truth. Customer relationships make up the life-blood of a symbiotic business relationship, affecting both B2B and B2C marketing and impacting the receptivity of your products.
Because of this, it makes sense that pleasing your returning guests also helps increase your potential return on investment. When we refer to ROI here, we are defining it as the gain generated on an investment -- in this case, the investment is your customer loyalty. Maintaining customer loyalty, however, is often easier said than done.
So, how do you, the conscientious businessperson who cares for your customers, make wise decisions that improve your ROI metrics? How do you figure out if the price of investing into your loyal customers is worth the cost?
Have no fear! Here are the top 3 reasons we’ve discovered that prove customer loyalty increases your ROI and the best ways to track it.
Loyal Customers Talk More.
A 2012 article by Forbes notes that in general, between 80% and 90% of positive referrals come from your most loyal customers while Nielsen research states that 92% of respondents trust referrals from people they know. Basically, word of mouth is one of the best mediums for getting your business publicized to reputable and potentially loyal customers.
If you’ve ever used an NPS score to gauge the loyalty of your customer database, you’ll know that your business promoters are anyone who scored a 9-10 on the NPS scale.
These are the individuals who are very likely to share about their experience to their friends and family. Aka, they are marketing for you. That’s free advertising! Considering the cost of marketing nowadays, this is incredibly beneficial in any business environment.
How to track this: Loyal customers spread the word to their friends and families but this also means it can be difficult to track who they are talking to.
While it can be tough to find out an exact number of people they are engaging with unless you follow customers around (which we don’t recommend doing), you can take advantage of email and social media metrics to track how many people are sharing your consumer emails and social media ads with their friends (make sure you include content sharing option on all your digital advertising). HubSpot, MailChimp, Facebook, and Google Analytics are just a few examples of platforms that offer thorough analytics based off of tracking your consumer campaigns.
Also consider sending out a survey that asks whether guests were referred. Use this data to calculate how much of your business is garnered through word-of-mouth.
Loyal Customers Spend More.
A 2016 report by the Luxury Institute stated that repeat customers have a 60-70% chance of making another purchase on a future visit, and prospective clients have a 54% chance of buying after a second visit. Additional research also suggests that promoters typically have lower churn rates than your detractors, and therefore they have more active years at your business, which could lead to a longer period of consistent sales.
Their likelihood to spend more and make repeated visits suggests that their average transaction value (ATV) is higher than a regular customer’s. It also could suggest that people who are loyal to your brand or business aren’t looking as closely to the price tag of your product. They believe in you and the value you bring and they trust that what they’re getting is worth the cost.
How to track this: Keep track of spend from your loyalty members and what they are spending money on. Compare it every quarter to purchases from an average customer to calculate the spending patterns of your loyalty guests and your success at retaining them and increasing their quarterly spend.
Loyal Customers Have a Higher Lifetime Value.
It’s easy to please people who expect to be pleased. To borrow a formula from the customer communications group, the lifetime value of a loyal customer can be discovered the following way:
While it can be difficult to measure, understanding your CLV helps you determine your business’ monetary worth and gives you a foundation to determine your probability of future growth. Research suggests that a 5% increase in customer retention increases business profits by 25%-95%. If your business experiences a regular churn (i.e.-- customers leaving your business), you will end up spending more money than necessary on bringing in new customers.
While this obviously has a negative impact on your revenue in the long run, loyal customers are already committed to you, automatically increasing their likelihood of having a high CLV. Once you calculate their CLV, you can then put a plan into place to increase the longevity of their relationship with you.
How to improve this: Have you ever stood in the middle of a supermarket and felt overwhelmed by the options, the layout, the amount of effort it will just take you to get anything you want? The best way to make a sale and keep your customer happy is to guide your potential customer through the store, making their choice to purchase something straightforward and simplistic. In other words, reduce their cognitive load. Studies dating back to the late 1990s show that overloading consumers with information can actually affect health, stress, and overall happiness and make it even more difficult to make a decision.
Basically, tailor the experience to your user and make it very clear what steps you want them to take. You need to understand what your guests want in order to give them the experience they desire. This doesn’t mean you only promote one product at a time, it just means that you thoroughly think through how your customer will want to discover your products and you’ve made it easy for them to do so without bombarding them with secondary information that they don’t really care about.
To help with this, we suggest (1) investing in market research to make sure you are giving your target demographics what they want and (2) make sure you have staff members available during every step of the customer's journey to ensure guests don’t get overwhelmed, side-tracked, or lost. This personal touch will also help convert a new customer into a returning one, which brings you one step closer to having a loyal customer and a higher ROI.
While calculating and determining your loyalty base’s ROI may at times seem daunting, there is no doubt of its benefit to your business’ future success. These individuals who continuously care about your company will end up helping you generate the most profit in the future, which is why understanding them and paying attention to their needs is critical for long-term success.