The loyalty funnel: 3 KPIs for measuring customer retention
How do you find customers and keep them coming back for more? Columnist Jordan Elkind outlines the multiple stages of a "loyalty funnel" and explains how you can target customers at each phase.
As retailers move from acquisition-heavy marketing tactics to a more balanced view of how to find and keep great customers, loyalty and retention marketing have become stronger priorities for today’s data-driven marketers.
When approaching customer loyalty as a marketer, it’s imperative to consider the multiple stages of brand engagement each customer travels through, and how to target each customer as they enter (and exit) each unique stage.
One way to visualize these discrete stages in customer loyalty is via a funnel model.
The customer loyalty funnel
When picturing the customer journey as a funnel, each stage represents a deeper level of loyalty, and thus, a higher-value customer. In the first stage of the loyalty funnel are members: individuals who have signed up for your mailing list but have yet to make a purchase.
As customers make their first purchase, and then continue to make repeat transactions, they move further down the funnel and earn a more valuable customer status.
There is a corresponding KPI (key performance indicator) to measure each of the major transition points in the loyalty funnel. Optimizing for these KPIs will allow you to both size opportunities and action on targeted retention campaigns to improve customer loyalty.
Here are three customer-centric KPIs to measure moving down the customer loyalty funnel:
1. Member Activation Rate
It’s not a given that everyone who signs up for your mailing list will immediately (or ever) make a purchase. A marketer’s top priority for new members is to entice them into becoming active customers as quickly as possible, while they’re still highly engaged with your brand. Therefore, the first customer-centric KPI in the loyalty funnel that you need to track is Member Activation Rate.
Member Activation Rate is the percentage of members who made a purchase within 60 days of signing up. For simplicity’s sake, let’s say you acquired 100 new members in your database during the past two months. If 20 of them place an order within the same time frame, you would have a member activation rate of 20 percent.
It’s important for marketers to capitalize on the full value of shoppers from the very start of the customer relationship. New members who have recently signed up for your list are familiar with your brand and are prime to be cultivated into high-value customers. A high Member Activation Rate sets the tone for a well-populated funnel later on.
2. Early Repeat Rate
Once you’ve converted your members into one-time buyers, the next customer-centric KPI to measure along the loyalty funnel is Early Repeat Rate.
Early Repeat Rate is the percentage of new purchasers who make a subsequent purchase within 60 days of their initial purchase. Following the previous calculation, if 20 of your members make purchases within 60 days of signing up, and then five of those new customers make another purchase during the following 60 days, you would have an Early Repeat Rate of 25 percent.
Early Repeat Rate is a measure of your brand’s “stickiness” with new customers. As you continue to cultivate these buyers, you have the opportunity to lead them along the path to becoming high-value, “gold” customers.
3. Orders Per Active Customer
Congrats! By now your marketing efforts are really starting to pay off, and your customers are well along the initial phase of their loyalty journey. The last KPI that we’ll cover is Orders Per Active Customer, which is the average monthly order rate for customers who have made two or more purchases while they are “active.”
There are many strategies that you can try out for boosting your customers’ repeat rates. One is to segment your customer base by personas, which are distinct segments of shoppers who tend to have similar demographics and exhibit similar purchasing behaviors.
You also can test out affinity campaigns that target customers with a high likelihood of purchasing certain products, categories or brands. Different tactics work for different retailers, so the key is to keep experimenting until you find what works.
The loyalty funnel presents a simplified framework for visualizing your customers’ brand engagement over time. By measuring your performance against KPIs like Member Activation Rate, Early Repeat Rate and Orders Per Active Customer, you can pinpoint opportunities for growth or improvement within your larger retention and loyalty strategies.