At an intuitive level, it’s easy to understand why customer loyalty programs work — they give customers kickbacks and incentives for making many purchases they would have made regardless, providing them with an ongoing reason to continue interacting with a company.
Every time a member re-engages with a company to redeem a reward, it opens up a window for that company to find a better way of serving them, which in turn, strengthens the member’s perception of their relationship with the company.
However, while it’s easy to conceptualize ways in which a loyalty program can increase your company’s profit margins, every company needs reliable loyalty program metrics to measure its financial return and justify its existence.
Read on to discover how to calculate customer lifetime value, and how to leverage customer financial intelligence to make sure that your loyalty program is giving you the return you expect.
Customer loyalty metrics
There are several metrics that can be used to assess the health and productivity of your customer loyalty program. These inventories harness the information derived from customer interactions within your loyalty program and take even granular-level actions into account to create long-term forecasts of member spending.
Ultimate redemption rate
Ultimate redemption rate, or URR, lets us know which percentage of outstanding rewards will be redeemed, and serves as an indicator of customer engagement levels, as well.
Cost per point
Another important component of gauging total loyalty program liability is the cost per point (CPP). After all, your company cannot accurately quantify how much redemptions will cost them if they do not know the cost of each individual point.
Cost per point also provides companies with an opportunity to address loyalty program liability without sacrificing customer engagement rates. By devising ways of lowering the CPP, companies can keep the high customer engagement that comes from a high URR, all while reducing the financial strain on company income.
Customer lifetime value
The final and most important metric is customer lifetime value, or CLV. CLV represents how much free cash flow a customer will generate for a company over their time engaging with it. A customer with a large, positive CLV is one worth retaining, whereas those with negative CLVs tend to use resources that could be better allotted to other members.
CLV = Revenue to date + Expected future revenue – Acquisition cost – Redemption costs to date – Expected future redemption costs
The bottom line
Using customer financial intelligence, your company can parse out which customers merit the most focus and invest its resources accordingly. Allow your business to begin taking advantage of detailed customer intelligence analytics to better calibrate its efforts towards cultivating the strongest relationships.