Customer loyalty

For most organisations, it costs over five times as much to gain new customers than to retain existing ones. This means that loyalty is critical to keeping costs down. When a new organisation is starting up, it can have higher costs than revenue. Pressure to be profitable will be based on the ability to secure funding. New organisations can be further impacted if they lower prices as a differentiator. This means even less revenue per customer. In the worst cases, an organisation can go bankrupt. Although tempting, an organisation needs to be careful not to focus its strategy predominantly on attracting new customers.

There are many additional benefits to people becoming loyal to you:

• Become brand ambassadors, recommending you to others. This is particularly effective online, where positive social media and reviews can reach a wide audience much faster than word of mouth. Forbes noted that 77% of people would recommend others based on a single positive experience.

• Engage in your social media, giving increased exposure

• Are a good source of feedback

• The Harvard Business Review, alongside Bain, found that increasing customer retention rates by 5% increases profits by 25% to 95%

  • Customers and businesses will consolidate to buying from a few suppliers

  • Will potentially pay more

  • Reduces price sensitivity

  • More revenue based on an increased CLV rate (Customer Lifetime Value)

  • Reduced CAC rate (Customer Acquisition Cost). This is the cost of sales and marketing divided by the number of new customers over a time period. A high CAC rate and low CLV will cause an organisation to fail.

Overall, loyalty is about letting customers know you care about them. It is a relationship with your organisation beyond transactions.

Improving customer loyalty

There are some different strategies required based on selling to businesses or customers. For B2B customers, achieving the expected Return On Investment (ROI) is very important to retaining them. They may be tracking ROI using Key Performance Indicators (KPIs). The loss of a B2B customer can significantly impact revenue. For B2C customers, these can be more easily replaced and have lower acquisition costs. The first section will deal with loyalty strategies that are common to both.

B2C and B2B loyalty

• Regularly communicate with customers

  • Don’t just seek sales opportunities

  • Seek feedback and, after receiving it, act on it

• Offer rebates based on increased buying that can be used towards further purchases

• Incentivise referrals. This can be for both the person being referred and the referee

• Invites to VIP events

• Map and improve the customer journey. Being clear on where customer pain points are, for example, in product configuration or pre-sales demonstrations, can give you a competitive advantage.

• Provide a personalised experience that resonates with their needs

• Keep innovating with your loyalty programs

• Provide post-purchase communication

  • Thank you messaging

  • Access to support

• Focus on an improved employee experience. This has a positive impact on the customer service they provide.

• Optimise payment methods such as offering PayPal or simplifying the purchase process

B2C (Business to Customer) loyalty

• Create a loyalty program. When offering loyalty rewards, tailor these to your customer’s buying habits to increase success.

  • Member-only discounts

  • Early access to sales or new products

  • Reward points - allow members to build up points towards discounts or free products

  • Offer non-monetary awards

B2B (Business to Business) loyalty

• Offer discounts

  • It is very important to offer discounts that provide value to your organisation. Discounting on quantity may create a race to the bottom where your customer demands to pay less and less. If they are large enough, you will have little choice but to agree. Offering discounts that create a win-win will yield better results. Think strategically about the value of what you want to promote. Would it help for them to buy another product line from you, be a reference for you, or have monthly payment terms?

  • Focus on the value you offer to customers (ROI) before discussing discounts. Demonstrate how you provide value above and beyond a competitor (i.e. differentiators). Avoid offering additional discounts until you need to beat a competitor.

  • Limit the number of discount types and keep the discount simple

  • Be consistent with discounts for your customer groups

  • Train the sales team to understand the value of the discounts

  • Create communication that promotes the value of the discount

  • Monitor the discount regularly to see how well it is landing

  • Have an escalation policy and limit discounts. Be prepared to say “no”.

  • Consider promotional discounts, such as those tied to a marketing campaign

• Create a loyalty program. When offering loyalty rewards, tailor these to your customer’s buying habits to increase success.

  • Keep it simple to understand

  • Have a digital interface to show progress and rewards

  • Tailor rewards to your customers’ buying habits to increase success

  • Align with your own strategy, such as offering additional discounts for a new AI feature

  • Offer discounts (see section above)

  • Free shipping or installation (software)

  • Offer extended payment terms

• Increase B2B loyalty for high-value customers and those with the potential to be. A good indicator of this is the size of the organisation. Their negotiating power will be directly proportional to their size. You can consider applying these to lower-value customers if you think the cost is worth it.

  • Be clear on who you need to target within the business

  • Understand the strategic goals of the organisation to better tailor offerings

  • Access to valuable material, such as product previews

  • Become a trusted partner and offer consultancy from your own industry experts

  • Keep in regular contact with your customers. Schedule regular meetings between the senior leaders of both organisations for high-value customers.

  • Implement Account Based Marketing (ABM), where you target high-value customers with personalised messaging

  • Improved customer support

    • Dedicated account manager

    • Improved service hours/service level agreement (SLA)

Measuring customer loyalty

Customer loyalty is not static, it can fluctuate based on experiences. Therefore, it is important to track trends and keep close to customers who may leave you. You can further segment your customer data to look for trends. For example, does the size of a customer’s business impact their loyalty? This can help you refine your Ideal Customer Profile (ICP). If you see consistent churn from a specific group, you can either improve your value proposition or stop targeting them.

This section is split into leading and lagging metrics. Lagging metrics measure something that has happened while leading metrics measure potential future events. If a customer has churned (a lagging metric), it may be too late to get them back.

Lagging indicators:

• Customer Retention Rate (CRR) - The percentage of customers who joined you then left over a set time period. This is calculated as CRR = ((E-N)/S) * 100

  • E = Number of customers at the end of a time period

  • N = Number of new customers during the period

  • S = Number of customers at the start of the period

• Revenue Churn - The amount of Monthly Recurring Revenue (MRR) lost over a period of time.

  • It has two additional benefits to tracking the CRR:

    1. This is especially helpful where customers spend very different amounts, for example, are two of your signature accounts churning or two small ones?

    2. Customers may not be churning but could be receiving additional discounts or downgrading their contracts

  • There are two calculations used here:

    • Gross Revenue Churn - The percentage of recurring revenue lost due to churn and downgrades in a specific period.

      • Gross Revenue Churn = (Lost MRR ÷ Beginning MRR) * 100

    • Net Revenue Churn - Factors in new revenue expansion.

      • Net Revenue Churn = ((Lost MRR – Expansion MRR) ÷ Beginning MRR) * 100

Leading indicators:

There are many leading indicators, which can vary depending on your industry. The metrics provided below should be a good starting point when deciding what to track. You may wish to gain more in-depth insights. In this case, customer focus groups, surveys and one-to-one interviews can help.

• Customer Lifetime Value (CLV) - Increasing loyalty should lead to an increase in this metric. This is calculated as CLV = (Customer value) * (Average customer lifespan)

• Net Promoter Score (NPS) - The likelihood of a customer recommending you on a scale of 1 to 10.

  • Scores 0-6 are considered negative and may be at risk of churn

  • 7-8 are considered neutral

  • 9-10 are considered positive with the high likelihood they will personally recommend you

  • The NPS score is derived from the percentage of positive scores ignoring the neutrals

• Customer Satisfaction Score (CSAT) - The customer’s satisfaction with a part of your organisation, such as support or product quality. Look out for those that are low and improve them. This will give a more granular view than NPS.

• These are particularly useful for software companies such as SaaS:

  • Customer Effort Score (CES) - This provides an understanding of how easy you are to use. This can be run at a feature level to give more targeted insights.

  • Visit frequency - How often are people using your software?

  • Usage levels - How much usage do they have when there?

• Repeat Purchase Rate (RPR) - This is calculated as RPR = total repeat customers ÷ total paying customers