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Dec 27, 2022

9 Loyalty Program KPIs to Measure Business Success in 2023

In today’s highly competitive e-commerce landscape, customer loyalty is one of the key drivers of business success. Small and medium businesses spend time and resources to put together the best strategies to reward long-time customers. 

Customer Loyalty programs are a part of more or less every retail business platform, but their effectiveness varies depending on various factors.

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How to Track Business Success with Loyalty Program KPIs?

Loyalty program KPIs (Key Performance Indicators) are the metrics used to measure business success in terms of acquisition, retention, repeat purchases, CLV (Customer Lifetime Value), and much more. Measuring the performance of a loyalty program is equally important in order to identify the areas that need improvement, and also to understand customer behaviors.

Leveraging KPIs for loyalty programs, small and medium retail businesses can compare what they are achieving with their targets. Maintaining the required values of KPIs allows retailers to improve customer engagement and scale their industry. 

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9 KPIs To Measure Loyalty Program Success

Here, we break down 9 KPIs that help measure the performance of customer loyalty programs. With these KPIs, retailers can understand the ways to approach targeted customers, and how to reward loyal customers in the right way.

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1. Member Acquisition Rate

The first and foremost KPI to consider while measuring a loyalty program’s success is the number of new members acquired. New members in a loyalty program mean more customers are likely to make repeated purchases, which translates to higher revenue. However, it's easier said than done.

Problem: Even the world’s best loyalty program would be useless if customers are not aware of it, or do not know how to register. The absence of a member acquisition strategy is only the beginning of the problem. In many cases, the loyalty program does not resonate with the target audience of an e-commerce business. Then there is the problem of customer experience - many loyalty programs make it very difficult for customers to register themselves and earn loyalty points. 

Solution: Acquiring new customers requires a well-formulated strategy that provides incentives along with convenience. A rewards program that is based on customers’ preferences and buying habits is more likely to attract new members. Most importantly, member acquisition rate as a KPI helps retailers understand how customers perceive their rewards program. 

Small and medium businesses growing in the e-commerce industry need to keep this number high and steady. It is critical to design loyalty programs in a way that customers not only understand but love. It must stand out and must be marketed to be visible across all brand pages including social media and web platforms. 

A smartly developed member acquisition program does not make customers feel that they are being forced into registering. Instead, they should want to do it themselves. For this reason, it is equally important to understand what your customers really want. 

Formula of Member Acquisition Rate

2. Churn Rate

Churn rate is the percentage of customers who do not purchase again from a given brand. This KPI has a direct effect on the revenue of retail businesses. 

Problem: A high churn rate is the killer of e-commerce businesses. On average, around 70% of customers never come back after their first purchase. The lack of a business strategy to reduce churn is one of the biggest drawbacks of an effective loyalty program. Considering customer behaviors and demographics, businesses can develop a mechanism to re-engage customers at a time when they are at risk of abandoning the brand.

Solution: After creating a churn reduction strategy, it’s important to categorize loyalty members based on analytics. Moreover, customers should be offered personalized services by observing what they really like. This tactic often helps in re-engaging customers and bringing them back for future purchases. Customer retention practices must be optimized to deliver the best results through incentives, rewards, and loyalty points.

Formula of Churn Rate

3. Loyalty Redemption Rate

Loyalty redemption rate shows the extent to which customers engage with the loyalty program of a brand or business. Redemption rate depends on various factors like customers’ perception of the given rewards program, the convenience of getting and redeeming loyalty points, and the rewards being offered. 

Problem: Companies do not know which program members are actually loyal to their brand. They also do not know which of the rewards offered to customers are most appreciated. A low loyalty redemption rate means that customers do not derive value from the rewards program and in most cases, do not find the rewards personalized. Apart from these, insufficient marketing of a loyalty program can also be the reason for a low redemption rate.

Solution: Implementing the right tools for retail management, businesses can monitor and keep records of loyalty rewards and their effectiveness. They can also view different categories of customers based on the number of purchases, and determine the rewards for each customer accordingly.

Loyalty Redemption Rate

4. Retention Rate

One of the fundamental KPIs for retail businesses is customer retention rate, which is the opposite of churn rate. While churn rate shows the number of customers that abandon the rband, retention rate is the number of customers that return for repeat purchases. It’s the metric that helps understand how effectively a business retains existing customers as compared to acquiring new ones. Depending on marketing strategies and loyalty programs, retention rates vary from business to business.

Problem: A low customer retention rate is always a hazard in e-commerce businesses. It shows that customers are not loyal to the brand. More importantly, it is a sign of a weak customer retention strategy. A low retention rate usually results from poor customer experience. 

Solution: Regardless of the scale of your business, ensuring a great customer experience is the key to success. Keeping in mind the retention rate as a loyalty program KPI, retailers can outperform their competitors by enhancing the overall brand experience.

formula of Customer Retention Rate

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5. Repeat Purchase rate

Repeat purchase rate is a self-explanatory KPI for loyalty programs that helps businesses add value to their customers’ shopping experience. Loyal customers are known to spend 67% more on their purchases as compared to newly acquired buyers. Similar to most loyalty program KPIs, repeat purchase rates allow retailers to understand where they lack.

Problem: A low repeat purchase rate is indicative of a poorly designed rewards program that simply does not convince the customer to make another purchase from the given retailer.

Solution: Offering personalized services, reaching out to customers on a regular basis, and getting their feedback are some of the tactics to keep them coming back. Businesses that take steps to improve repeat purchase rate can also turn their customers into brand advocates. As a result, they get a better reach when loyal customers refer their brand to others.

formula of Repeat Purchase rate

6. Customer Lifetime Value

Customer lifetime value is a constraint that can predict the revenue a business will generate from loyal customers during the lifetime. While loyalty rewards help retain existing customers, CLV shows the value, in terms of sales, a given customer has brought to the business and predicts future value. 

Problem: Having to acquire new customers every now and then is the nightmare of every e-commerce business. Ignoring important aspects that need to be considered, such as business expenditure and revenue generated in a given period, and also the predicted operation costs and revenues for the future.

Solution: Implementing the right strategies to improve customer lifetime value ends well for both the business and the customer. Monitoring and controlling CLV proactively can help businesses build strong relationships with customers.

Such KPIs demonstrate the significance of customer experience in the success of a loyalty program. Building value is a two-way process, which entails that your loyalty program must focus on customers’ preferences as well as business benefits to improve CLV. 

formula of calculate CLV

7. Average Order Value

Average order value is a loyalty program KPI that predicts future revenue by taking into account macro and micro-level constraints. Having average order value as a KPI in an e-commerce business means that you have a clear vision of where your business is going. 

Problem: If there is a decrease in average order value over a period of time, or the existing loyalty program is not producing the desired average order value.

Solution: To increase average order value, small and medium businesses can strategically apply discounts on different products and also help determine when it’s best to hold a particular price. Average order value can be calculated based on a particular segment of products and services, or for individual products. 

The ideal scenario is when your average order value remains constant or increases over a given period of time.

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8. Incremental Margin

Considering loyalty program KPIs discussed until now, incremental margin may seem like an outlier. However, it is one of the KPIs that can help optimize the rewards program of any retail business.

Problem: Not being able to get an incremental margin is one of the common challenges faced by e-commerce businesses. 

Solution: Retailers can achieve incremental margin by delivering some extra value with the existing price tag, instead of putting the product on discount. Another alternative is to include products with a large price difference but also have a higher perceived value. Loyal customers help improve incremental margins if the rewards program compels them to go for products with higher price margins.

9. Refunds

Just like traditional businesses, online retailers also need to focus on providing refunds when necessary. This loyalty program KPI applies only to high-end rewards programs as small and medium businesses offer loyalty program memberships for free. Paid loyalty programs offer instant rewards and higher value to members. Providing refunds on lower value products through smartly developed strategies helps maximize value for these members. 

Problem: When a customer stops buying from a brand because they did not receive a refund. In cases when this KPI falls above or below the ideal number, businesses need to reconsider their strategy to provide their loyalty program members with the benefits they want. They also need to work on customer engagement to ensure repeat purchases, and ensure that the cost of products is not too high as compared to the perceived value.

Solution: Getting feedback from customers is crucial in order to establish an effective loyalty program. E-commerce businesses can send online survey forms to know what customers really want, and design their rewards program accordingly. 

Another aspect to consider is the overall value proposition, as customers’ buying behaviours are heavily influenced by actual product value. For premium loyalty programs, delivering the required value is a must. This particular KPI for loyalty programs requires constant tweaks and updates, as a single strategy doesn’t apply in all cases.

Make Your Loyalty Program more Successful with XStak

Customer loyalty is something that can never remain constant, and neither can it be measured by a single metric. Modern businesses require modern tools to constantly monitor and upgrade constraints in their loyalty programs to extract the maximum value for customers.

XStak’s Omniretain provides valuable insights to develop a loyalty program that resonates with members who are here to stay. Aligning your rewards program with customers’ preferences has never been easier, as XStak provides in-depth KPI analysis to measure the success of your rewards program in real-time. With Omniretain, your business can give loyal members a variety of reasons to make repeated purchases. 

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