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Customer Loyalty, the Most Important Metric, Pt. 1 

Chad Storlie is a marketing director and a lecturer of marketing at the University of Minnesota, Carlson School of Management. He is a retired Lieutenant Colonel in the U.S. Army Special Forces (Green Berets), an Iraq combat veteran and a widely published author. His work can be seen at www.CombatToCorporate.com.

Editor’s Note: This is Part One of a two-part column.

Business is besieged with metrics. Return on investment, website visits, website return visits, shopping cart abandonment rates, and average customer spend are all important and well-used metrics to evaluate the success of a business.

As with all business problems, everyone agrees that metrics are vitally important. What no one can agree on is which metrics are the most important.

Until now.

The most important marketing metric is customer loyalty. Customer loyalty is the ongoing instance of a customer that continues to repurchase from a business when they have competitor and substitute offers available. Every morning you go to the same coffee shop which is slightly out of your way when there are several other coffee shops closer to your route. You pass by a tea shop and a doughnut shop, so you can get your same small coffee day after day. On most Friday’s, you treat yourself to a scone.

On an individual customer basis, the one customer that buys one item a day is practically invisible. Yet, it is the collection of loyal customers that are at a business every day and purchase every instance when they have a need that are the most valuable to a business. This collection of loyal customers is what sustains a business, allows it to grow, allows it to outlast competitors, and allows it to innovate and create new products and services. Customer loyalty works well in business-to-consumer, business-to-business, and in every industry.

Customer loyalty is your number one success metric to maintain and to grow.

How Many Loyal Customers Do You Have?

The first step in growing customer loyalty is to determine what percentage of your customers and what percentage of your revenue comes from loyal customers.

You may be able to use data from existing loyalty programs, credit card information, or other data sources to determine the number of loyal customers. Most importantly, your organization, from a small coffeeshop to a multi-billion international enterprise, must agree on a definition of a loyal customer.

Loyalty could be weekly for a restaurant or gas station or it could be once every three months for an auto dealer service department. The central issue is to have a proven definition of what loyalty is for every employee.

Use an NPS of Your Customers

What keeps the loyal customers loyal?

The net promoter process (NPS) is one of the simplest and most telling tools of evaluating customer loyalty and helping a business grow loyal customers. The NPS is based upon the question, “Would you recommend this product or service?”

The customer can then respond based on a low score (number = 0) or a high score (number = 10) scale. Only a score of a 9 or a 10 makes a customer a “promoter.” Customers that have scores from 0 to 6 are “detractors,” most likely un-loyal customers.

When you subtract the detractors from the promoters, you have a net promoter score. NPS surveys should also tell you what promoters like and what detractors want to see improved.   

 

BIO: Chad Storlie is a marketing director and a lecturer of marketing at the University of Minnesota, Carlson School of Management. He is a retired Lieutenant Colonel in the U.S. Army Special Forces (Green Berets), an Iraq combat veteran and a widely published author. His work can be seen at www.CombatToCorporate.com.