CUSTOMER LOYALTY

How to Maximize Success with Loyalty Program KPIs

by Emma Kimmerly

January 24, 2023


Everyone wants their loyalty program to be healthy and robust. After all, a good loyalty program doesn’t just drive repeat business. It drives business, period: 73% of customers say they’re more likely to recommend a business to others if it has a loyalty program.

But not everyone knows how to maintain a healthy loyalty program. What are the signs that a loyalty program is turning short-term customers into long-term advocates for your brand? And how do you measure vague concepts like “enthusiasm” and “share-ability”?

In three words: by measuring key performance indicators. Here are the essential KPIs you need to diagnose the health of your current loyalty program.

 

Loyalty Program Health KPIs

A loyalty program is a bit like a body: if something’s going wrong, it will tend to show you symptoms. Finding the weaknesses in your loyalty program is about knowing which symptoms to look for, then learning how to improve them.

Maybe it’s time for a checkup. And if you’re checking up on the health of your loyalty program, a good action plan will start with a list of relevant KPIs. Here are a few that you’ll want to pay special attention to:

 

Enrollment Rate

What it measures: Enrollment measures how many customers view your loyalty program and ultimately design to sign up. Think of it as another way of measuring “conversion rate,” as it reflects how attractive your loyalty program looks from the outside.

Why it matters: It’s hard to have a healthy loyalty program if you don’t have a popular loyalty program. Getting customers to enroll in your loyalty program will be a mix of a few key elements, all of which you have to display before you bring customers into the program:

  • Key benefits: Is the enrollment offer enticing enough? List your key benefits. For example, if you’re selling a 1:1 ratio of points to dollars spent, tell people how few points it might take before they can make their first purchase.
  • Brand trust: The benefits might sound great, but if no one trusts your company, they won’t sign up. Highlight testimonials from loyal customers to reduce this issue.
  • Low friction: If a customer has to jump through a thousand hoops before they land on their customer loyalty dashboard, the whole process comes to a screeching halt. Even interested customers might opt out of a customer loyalty program if they feel it’s more hassle than it will be worth.

How do you communicate all three without feeling like you’re being too pushy? Post-purchase emails and web overlays are some of the most opportune times to sell your loyalty program. 

untuckit loyalty program (1)

Untuckit, for example, reduces friction with a simple post-purchase overlay. Notice how much is already there, including a default email message the buyer can send to a friend. No friction required.

 

One-and-Done Rate

What it measures: How often does someone sign up for a loyalty program…only to vanish from the face of the Earth, never to be seen or heard from again? Hopefully, your customers will return after their first experience with your loyalty program. But the rate at which they don’t return is known as the “one-and-done rate.”

Why it matters: “One-and-done” helps you measure your success after the conversion. If you’re good at getting people to sign up for a loyalty program, but not good at making them stick around, it’s a sign that something must be wrong within the program itself. 

If you find it difficult to attract conversions to your loyalty program, this can seem like a high-quality problem. But go back to the beginning. Consider your goals for creating a loyalty program in the first place. Was it to…

  • …increase customer retention? In that case, a high one-and-done rate is a bad sign.
  • …increase LTV (lifetime value)? Ditto for LTV. It’s hard to retain LTV if your customers don’t stick around.
  • …expand your loyal customer base? One-and-done signups are exciting at first, but you’ll soon find that if customers don’t stick around, you don’t reap the benefits of that loyalty.
  • …drive new engagement to SMS lists and email subscriptions? Again, one-and-done means customers aren’t hanging around to engage with your other offerings.

That’s what makes one-and-done such a critical symptom of something going wrong at your loyalty program. To mitigate these issues, consider adding additional incentives to people who participate. One of the best ways to do this is to offer tiered rewards. Tiered rewards are reward levels which escalate as your customer uses your program. 

nuuly tiered loyalty program (1)

Nuuly’s rewards get bigger the more loyal the customer is. It’s a motivating effect that can improve the “stickiness” of your loyalty program. Watch the one-and-done rate to see if it works for you.

 

Active Rate

What it measures: The percentage of active customers in your loyalty program divided by the overall members of the same program.

Why it matters: “Active rate” is similar to “one-and-done.” But it’s better at giving you a snapshot of how engaging your customer loyalty program is at any given time. You can still have repeat customers who are not one-and-done, but if they’re not active very often, there’s still some improving to do.

active members in loyalty program (1)Keep track of active members in your Loyalty Program via the Friendbuy dashboard

The reason the active rate is such an important metric: you can’t improve your program if you don’t understand your customers. It’s one thing to offer incentives that get customers to sign up for a loyalty program. But the active rate is an indication that their behavior is aligning with your goals as well.

How do you influence customer behavior? Incentives help, but we’d encourage you to look deeper. Learn what makes your customers tick. The best way to do this is to take your existing customers and gather meaningful feedback.

There are two ways to get these kinds of insights:

  • Direct from customer: Create surveys and send them out to customers. Learn the kinds of rewards and experiences they find most valuable.
  • From the support team: Gather customer experience feedback from your CX/CS team. What rewards seem to motivate your customers the most?

Customer activity only comes through incentives. But those incentives won’t make an impact unless they’re the kind your customers care most about. 

 

Redemption Participation

What it measures: The overall user base who redeems loyalty points and rewards. 

Why it matters: Redemption participation doesn’t tell you the rate (see below), but it will tell you how active your overall customer loyalty program is. The bigger, the better.

It might seem counterintuitive, but you want people to redeem the points they score with your loyalty program. A loyalty program, after all, isn’t a quick way to incentivize customers without giving them something on the backend. The more people who participate in your loyalty program to the point of redeeming their rewards, the better. It means they’re using it, they’re active, and they’re engaged.

To boost redemption participation, try experimenting with different types of rewards to see which motivate customers the most. For example, you can choose from the following incentives:

  • Loyalty points
  • Loyalty tier status
  • Coupon codes and gift cards
  • Birthday and anniversary rewards
  • Free shipping
  • Exclusive access to new products and promotions

A reward like “free shipping” highlights how important the metric of redemption participation can be. If customers want to redeem free shipping, then that means they’ll also have to order from you to redeem that reward. That keeps your CLV high.

Learn more: Read our guide on how to know which types of loyalty programs are right for your business.

 

Sentiment

What it measures: How your customers feel. It’s hard to quantify that, but it will give you a better understanding of why your customers might be avoiding your loyalty program.

Why it matters: Sentiment is an essential part of diagnosing problems. Numbers can tell a powerful story, but if you don’t know the why behind the numbers, you may still be left in the dark.

Use surveys and feedback from your customer experience team to uncover the secrets of sentiment. Yes, you’ll want hard data, like star ratings on specific products or yes/no percentages to the questions you ask. 

But just as important is your qualitative data. When you receive customers’ typed-out responses, pay attention to the following:

  • What words are customers using? 
  • Are there friction words (like “frustrating” or “slow”?)
  • Are there incentive words (“didn’t feel like it,” or “not worth it”?)
  • What are they saying about how they would change your loyalty program?
  • What incentives are most important to them?

Answer these questions, and you may find the reasons behind poor performances in other KPIs on this list.

Learn more: Learn how to build customer loyalty organically.

 

Redemption Rate

What it measures: Similar to redemption participation, this rate tells you the percentage of customers who redeem their loyalty incentive. Divide that number by the total number of customers in the loyalty program in a given period.

Why it matters: Overall redemption participation gives you a sense of activity in your loyalty program. But it doesn’t tell the whole story. Measuring the rate at which customers redeem their rewards tells you how engaged they are.

in-depth-analytics (1)

No business wants a loyalty program no one uses. The marketing appeal of famous customer programs like Amazon Prime or Sephora’s Beauty Insider is that they create a connection between the brand and the customer. Redemption rate is how you measure the overall engagement this loyalty program is creating. 

A high redemption rate means you have real customers who love your products, no matter the size of your overall loyalty program. Emphasis on real. That’s why platforms like Friendbuy allow rules like “new customer validation” to ensure that your loyalty program is not a vanity program. Put these rules in place to ensure your customers are genuine and engaged, and you’ll likely see your redemption rate tick up.

 

Tier Distribution

What it measures: The percentage of customers who belong to each tier you’ve created in your loyalty program.

Why it matters: If 0% of your customers have earned their way to the top tier, it means your loyalty program still has some improvement to do.

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Let’s say you’ve taken the time to consider your tiered rewards. If a customer makes 10 purchases, for example, maybe they unlock Tier 2 rewards, where they can get 1.5x the points for each purchase as they could in Tier 1. Sounds like a great deal.

But tier distribution statistics will let you know if customers aren’t having it. You can expect most loyalty program members to be at the entry stage, of course. But if so few are converting to Tier 2 and Tier 3 members, you haven’t offered incentives that make them want to keep buying.

Consult with your customer support team and run surveys to find out what would be more incentivizing to your customers. Do they really want 1.5x the points? Or would they rather unlock free shipping on future purchases? What your customers prefer will likely depend on your niche and market. When you can make your tiered rewards match up with that market, you can expect more straightforward tiered distribution.

 

Member Growth

What it measures: Member growth doesn’t just refer to the total number of loyalty program members who sign up. It also looks at the channels you employ to gain those new members.

Why it matters: Knowing where and when your members sign up for your loyalty program points you to the most important elements of your brand. 

Why does it pay to track member growth? Simple: you want to know what’s working and what’s not. If you know how many members you acquire through post-purchase overlays, for example, then you know how to drive more loyalty program participation. If customers ignore your website pop-ups, for example, you know what you can cut.

 

Member Lift in Spend

What it measures: “Lift” refers to the direct impact of a particular campaign or policy on the outcome in question. In other words, Member Lift in Spend will track the direct impact of your loyalty program on how much your customers spend.

Why it matters: You’re not building a loyalty program for your health. You’re doing it to see if it has a bottom-line impact on the amount of money your customers spend. You can measure that with CLV, to be sure, but Member Lift in Spend gives you an accurate idea of how a loyalty program inspires customers to buy more.

Tracking “Member Lift in Spend” puts the value of your loyalty program in plain, measurable language. That’s what makes it particularly useful for testing different ways to entice new customers. For example, here’s an A/B test from NatureBox:

naturebox ab test (1)

With a platform like Friendbuy, it’s possible to track customers and find out who’s spending more based on specific terms of acquisition and behaviors. When you know the true “member lift” of a campaign you’ve put together, you’ll have real-world data that tells you what customers like.

 

Reward Redemption Rate

What it measures: How many customers redeem the rewards you offer them? And how often do they redeem them?

Why it matters: A customer redeeming award sounds like a payout on your end. But consider what else it means. It means a customer is visiting your site. They’re logging in. They’re browsing. And if they’re redeeming a reward like “free shipping,” they’re also buying something to trigger that reward.

Imagine you’re on the fence about a purchase. You click a product, you go to the checkout page, and then you see something like this:

thinx order confirmation (1)

Adding loyalty or referral credits to their order means customers are more likely to add impulse purchases. Customers who are redeeming rewards at a higher rate are also customers who are checking in often. And that means potential sales.

 

Churn Reduction

What it measures: “Churn” is the percentage of customers you lose over a specific period. Subtract the difference between two periods to see how much you’ve reduced churn.

Why it matters: Reducing churn is a double negative. The positive it creates: keeping more customers on your loyalty program, which keeps customers active with your business.

To get your churn numbers, take your lost customers over a specific time period and divide those by your total customers. Then multiply by a hundred. This will give you the percentage of customers who dropped off. For example, losing 24 out of 100 customers creates a 24% churn rate. A lower rate means fewer customers dropped off.

After all, that’s the goal of loyalty programs: keeping customers around. If you can minimize churn while maximizing new customer conversions into loyalty program members, you can drive overall growth into the loyalty program.

 

Customer Lifetime Value

What it measures: Your CLV is the average amount of money a customer spends in their long-term relationship with your brand.

Why it matters: Customer acquisition is far more expensive than customer retention. The more you can retain customers and increase their CLV, the less you’ll have to spend on marketing to new ones.

To build CLV, make sure it’s one of your key metrics from the moment you launch a loyalty program. You should be able to track your CLV when you begin the program, and then continue updating it quarter after quarter as you progress.

To improve CLV, focus on the full range of strategies available to your loyalty program:

  • Run surveys to find the most powerful incentives for your customers
  • Offer those incentives with tiered rewards to keep customers around
  • Reduce loyalty program friction by making it easy to redeem rewards
  • Add automated reminders whenever someone can redeem their points so they remember to come in and shop

 

Customer Retention Rate

What it measures: Take your total customers in a period, divide it by total customers in a previous period, and multiply by 100.

Why it matters: It’s the opposite of churn rate. If your retention rate is high, it means customers are sticking around, and your loyalty program is working.

customer retention rate (1) (1)

Think of your customer retention rate as the basic “life signs” of your loyalty program’s health, as essential as a heartbeat. If you’re not retaining customers, something is going wrong. You’ll need to step in.

The challenge with increasing customer retention rate is to diagnose what’s going wrong. To do that, ask yourself the following questions about your customer behavior:

  • Who are typically your best customers, and what keeps them buying from you time and again?
  • What perks do customers value when signing up for loyalty programs? Do they want redemption points? Gift cards? Exclusive access to new products?
  • If customers do drop off, what are the reasons for that? What can you do to remove those challenges from your buying process?

 

Repeat Purchase Rate

What it measures: How many customers return for a second purchase or more, divided by the total number of customers in a certain period.

Why it matters: It comes down to dollars and cents. Your repeat purchase rate shows the tangible behavior which clues you into your customer’s true feelings about your brand. If they’re not making repeat purchases, something is going wrong.

Why aren’t customers buying? It’s one of the top questions you can ask. But if you want accurate answers, you may have to incorporate surveys:

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Surveys like this, which let you configure different “thanks” notifications and messages, will help you get specific, detailed information about what customers are thinking. Since your repeat purchase rate is a tangible measurement, look for feedback that’s equally tangible. This will help you address any problems you might have.

Building a Healthier Loyalty Program

A great loyalty program isn’t always brain surgery. It’s a simple system of finding the right platform, adding the right incentives, and watching as customers sign up. But sometimes, there can be issues with your loyalty program that you can’t figure out. 

That’s where KPIs become important. It’s not simply enough to know about their existence. But if you…

  • Set your goals and use those same goals to inform the KPIs you track
  • Track KPIs over time to watch the impact of your decisions on your loyalty program

You’ll start to see improvements. And it doesn’t hurt to have a great platform to help you manage these KPIs and institute the changes to drive real impact on customer loyalty. Friendbuy can help as you launch your loyalty program to reduce churn and maximize the value you get with every customer.