Blog

Calculating Loyalty

User Rating: 0 / 5

Star InactiveStar InactiveStar InactiveStar InactiveStar Inactive
 

As you are running your business, some numbers are easier to calculate than others. Those of the tangible costs, like utilities, vendors and payroll, are known and concrete.

But there are other numbers that are a little more involved to attain and complex to compute, yet they can represent a significant part of your finances. One of those numbers is customer loyalty.

In a Forbes article titled “Calculating the Economics of Loyalty” the authors list the variables to consider when putting a value on the loyalty of your customers. The variables listed are retention rate (how long have they been customers), pricing (the amount of price concessions you have had to make to keep them), annual spending (here they point out that loyal customers spend more than others), cost efficiencies (loyal customers complain less and represent fewer losses), and word of mouth (80% - 90% of positive referrals come from loyal customers). If your average loyal customer represents $20,000 annually, not including the value of the business they bring in through referrals, a decline in trust and satisfaction will impact all the above listed factors and their value will steadily decrease.

Suddenly they will start to question if your fees are justified, considering their recent dissatisfaction. If they feel that you cannot meet their needs quickly or sufficiently enough they won’t tell you before they show you by reducing the amount of business they do with you. Additionally, the referrals will cease along with the services for which they contract you. Of course, that is not to say that the sole key to customer loyalty lies in the good use of technology, but in the twenty first century, there is no getting away from the fact that it is one of the more important aspects. Do you have a handle on your loyalty numbers? Are you doing enough to keep your customer retention rate high? What can you be doing better to not just retain customers but increase referrals? Answering these questions can improve those numbers you may not have been familiar with but were still creating an impact on your business.

 

Search

Join Our Newsletter