Posted 16 Sep 2019, Editor's Desk
Getting a customer is easy, but getting their loyalty is the difficult part. To make your customer loyal, you first need to do his purchase analysis.
Whenever a customer comes to your store, you need to observe which kind of products he is purchasing and in which kind of products he is interested.
If you incentivize the products in which he is interested, he will buy your products and become your loyal customer.
To know how to build customer loyalty, you need to understand the customer loyalty formula.
Following are the 5 important loyalty formulas on how to gain customer loyalty.
Formula #1: Repurchase Rate
The repurchase rate is one of the formulas to know how to gain customer loyalty.
Repurchase rate = (Number of repurchases/ Number of unique purchases) x 100
10,000 people purchase your product. Among them, 1000 people came again to purchase something from you. In this case, your repurchase rate is 10%.
Once you got the repurchase rate, it becomes easy for you to increase it.
Formula #2: Net Promoter Score (NPS)
NPS is also one of the ways to know how to gain customer loyalty.
NPS is the rate to which your customers are satisfied with your products and services. NPS is calculated as follows:
NPS = Promoters (Highly satisfied customers) – Detractors (Dissatisfied customers)
You can determine your number of promoters and detractors by taking customer feedback on a scale of 1-10. Different ratings on the scale have different meanings like:
Rating 1-6 – means customers are not satisfied with your products or services
Rating between 7-8 – means customers are neutral about your products or services
Rating between 9-10 – means customers are highly satisfied with your products or services
Let’s talk about customer loyalty example:
If 100 people visit your restaurant in a month and 70 people gave you either 9 or 10 rating, 10 people gave you 7-8 rating and the 20 people gave you a rating between 1- 6, then your NPS is:
Net Promoter Score (NPS) = 70 – 20 = 50
Formula #3: Up-Selling and Cross-Selling Ratio
To know how to build customer loyalty, you need to first determine the up-selling and cross-selling ratio.
Suppose, you have a fast food outlet and a customer buys a burger from you.
Can you sell something else with the burger like a cold drink or ice cream?
If yes, then you can create a meal for him like McDonald's does.
If a person comes to buy a particular product but he buys some other product as well, this is called cross-selling and up-selling.
Up-selling and cross-selling ratio:
= (Number of customers buying more than one product/Number of customers who bought a single product) x 100
If 5000 people are buying 1 product from you and among them and 1000 people bought more than 1 product, then your upselling and cross-selling ratio will be:
Upselling and cross-selling ratio = (1000/5000) x 100 = 20%.
Now, you just have to increase this upselling and cross-selling ratio and your turnover will increase drastically.
Frequency means how frequent a customer buys your product, whereas recency means how recently the customer bought your product.
Calculate the frequency and recency of a loyal customer.
You need to know whether the customer is coming to your shop because he loves to shop there or he is coming just because the other shop is closed.
Formula #5: Redemption Rate
Give free coupons to your customers and ask them to redeem it on their next visit. This will encourage the customer for repeat purchases.
Soon, he will become your loyal customer as he is getting extra benefits from you.
Redemption rate = (Total loyalty points issued by you/Redeemed points) x 100
If 10,000 loyalty points were issued in a month by you and about 5000 points were redeemed, the rate comes out to be 50%.
All the above formulas will help you in understanding how to build customer loyalty efficiently and effectively.
An increase in customer loyalty will not only increase your customer base but will also grow your sales and profit.