Six KPIs that will tell you how good your loyalty programme is

How to Measure and Optimize the Success of Your Loyalty Program: 6 Key KPI

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One program is the biggest one, and another is the most popular. People are different as well. We tend to focus on who has more members and how many new members joined last year, as it is a great number to publish in the PR materials. But the size of the club does mean nothing without a broader context, e.g. smaller brands will have smaller clubs, but it does not imply they should be perceived as less successful? So which are the loyalty program KPI that is worth focusing on?

We look for emotions and relationships between members and the brand in loyalty. We want to be loyal to our members and solve their problems. But it may take a lot of work to measure, placing you between sentimental stores about the emotional testimonials taken from the focus groups. It may not be convincing for your CFO during the yearly budget process to persuade her or him to invest another million in your program. For that reason, you should abandon the loyalty jargon and start to speak the language that is understandable for the entire organisation— to show the real benefits that your program delivers.

Excel and math are the most universal languages in all companies worldwide. So it’s important to find such loyalty program KPI that translate the changes in customer behaviour and emotional relationships into this lingo.

Throughout the years, I was looking for a simple way to evaluate the loyalty program, which would help me benchmark my work. So here are six loyalty program KPI that I found helpful in programme assessment. It contains four main steps:

  1. How big is your base?
  2. How active is your base?
  3. How many transactions do you identify?
  4. What is the value that your programme brings to the organisation?

So let’s begin!

How big is your base?

1. Members penetration

% of members out of customers

The number of members divided by the number of individuals in your market.

Why it is so important:
In contrast to the number of members, this loyalty program KPI will tell you the real strength of your program by putting it in a certain context. It is less important how many people have joined your club. What is more important is how many of your customers are left unrecognised and remain anonymous. Members penetration shows you how many of your customers you directly connect with. Thanks to member penetration, you will quickly understand the potential and compare your program with the competition.

A different variant of this loyalty program KPI worth consideration:

  • Instead of focusing on individuals, you can concentrate on households (the number of at least one household member who joined your programme, divided by the number of families/households on the market) if your programme is targeted to the households instead of individuals.
  • You can define the size of the market — if you sell products to the limited consumer segment (e.g. luxury cars or products for parents with small kids).

Benchmark: in my opinion, if your penetration is lower than 50%, you have to work harder!

2. Communication

% of member base digitally communicable

The percentage of communicable members (members who either have opted-in for the members’ email addresses and/or phone numbers and provided the appropriate and actual mobile number or email address) divided by the total number of members.

Why it is so important:
Communication is the foundation of every programme. Having direct access to your members gives you a substantial competitive advantage. Owned media are a valuable asset, and these metrics tell you what your reach is. Sometimes it is mandatory to provide your email address or phone number and the marketing consent while joining. In some markets/brands, consent is not compulsory. But no matter your local legal situation, the truth is that members change their contact details, and even when you start with a 100% communicable base, it will erode at some point. This metric will tell you how many members you can stay in direct contact with.

A different variant of this loyalty program KPI worth consideration:

  • You can measure it separately for members, depending on consent levels, available in your market (e.g. consent for regular communication, consent for customer profiled communication);
  • You can split the email and mobile phone into separate metrics depending on the channel. You can also add or exclude channels (e.g. consent to push in-app messages), whichever is more important for you.

Benchmark: in my opinion, if you can communicate with less than 75%, you have to rethink your strategy.

How active your base is?

3. Interactions (interaction + purchases)

% of active members (interactions and purchases)

The percentage of members that have interacted with your brand during the measured period at least one time in one of the traceable ways (like identified transaction, identified/logged-in web visit, interaction with email communication), divided by the total number of members.

Why it is so important:
Many brands focus primarily on transactions. They are critical, of course. However, transactions are the most desired form of interaction, and they are not made out of anything. Most of them are preceded by members interactions that you can trace in your digital and offline channels. It is a truism , but most of the customer journeys start online, so recognising the starting point is the base for successful conversion. They expose the customer’s interest, show the preferences, and help you understand the complete funnel. This metric will show you the gap between how many people interact with you and how many of them actually proceed to purchase.

A different variant of this loyalty program KPI worth consideration:

You can split the interaction and track them separately (e.g. how many people log in to your website or add the product to the basket). Thanks to that, you will recognise how different interactions overlap and what mix gives optimal results.

Benchmark: in my opinion, if you can’t track more than 75% of your best customers, you have to start to worry.loyalty program KPI

4. Activation (purchases)

% of active members (purchases only)

The percentage of registered customers who have made at least one identified purchase with your brand during the measuring period divided by the total number of members.

Why it is so important:
All roads lead to transactions. It’s the ultimate goal for your programme — convert members to shoppers. Many brands would consider members as active only if they made a purchase. In my view, it’s not necessarily true, as people can still be engaged by interacting with you, but it can be hard to defend in front of your CFO (the thing is that interactions don’t create any revenue for your brand). Usually, you measure it in the last 12-month rolling period, indicating how many people are active and how many of them are lapsed.

A different variant of this loyalty program KPI worth consideration:

You can split it per channel. It helps you understand how many multichannel customers you have and allows you to dig deeper into their value.

Benchmark: in my opinion, if you see that less than half of your base didn’t purchase last year, it is time to make some changes!

How many transactions do you identify?

5. Member share of sales

% of members’ transactions

The percentage of identified members’ transactions during the measuring period divided by the total number of transactions in the same period.

Why it is so important:
It is tricky, easy to mistake with % of active members. Member share of sales helps us understand how many of our yesterday’s, last week’s or year’s transactions were made by identified members. In other words, what is the percentage of our turnover you can assign to individual people, which you know. Or, if you prefer, how much of our turnover is not anonymous for your brand. Identified transactions give you information about the value of the members. You can calculate their visit frequency and average basket size, leading to the total member spend. And behind every purchase hides a tremendous knowledge about your customer. What products do they buy, in which style, on which rung of your price ladder? And when you launch a triggered post-purchase communication, you can increase the volume of communication sent to your members by leveraging this metric.

A different variant of this loyalty program KPI worth consideration:

You can calculate this metric in quantity (number of transactions) and value dimension (total value of identified members’ transactions during the measuring period, divided by the total turnover value in the same period). This metric (in percentages) should be higher than the original one since the value of your members should be higher than that of regular, anonymous customers.

Benchmark: in my opinion, you’re doing a great job if you can identify 60% of your daily sales for the offline (that sales more than 70% through the offline channels) brands and 90% online only.

What is the value that your programme brings to the organisation?

6. Return on Investment (ROI)

ROI = business benefits (amount gained) minus the investment costs (amount spent) divided by the investment costs in the same period. ROI is expressed as a percentage, so if your ROI is 10% then that means every 1 euro you spend will generate 0,10 euro revenue.

Why it is so important:
Return on Investment is a well-known profitability metric used to evaluate how well an investment has performed. It is the language that your CFO and CEO know like the back of their hands. It helps make apples-to-apples comparisons and rank investments in different projects or assets. So it gives you a common denominator for all investments in the organisation. Thanks to this simple metric, you can compare your programme performance with other marketing investments and every single investment in your organisation.
Be careful, however. Apart from all the strengths this simple metric has, it also hides some limitations. The most essential point is which costs/investments should be included in the calculation? Should development costs be considered or not? What period should be taken into account? As your programme matures, you spend less and less on development, but more and more for member offers (that will grow proportionally to your member base). All these business rules should be aligned with your CFO.

A different variant of this metric worth consideration:

As I mentioned above, a simple formula (net programme benefits divided by programme costs) may be hard to define and depends on your company’s financial business rules. Depending on them, different components are included, e.g.:

  • Co-worker costs/working hours that your programme generate;
  • Digital development costs (like digital systems, licences) that your programme require;
  • Cost of discounts / redemptions

Benchmark: ROI=1000% (for every 1 euro invested, you get a 10 euro return) is the level your CFO will give you a high-five every morning!
Other two KPI’s that might be useful in programme evaluation.

And two supportive yet still important loyalty program KPIs

The above six loyalty program KPI will help you evaluate your loyalty club, no matter what industry you’re working in. On my “favourites” list, you can find two more connected to the member value in time, where the benchmark depends on the products or services you sell.

7. Member average spend
Year on Year average of 12 months spent per identified member

The total value of all members’ identified transactions during the last 12 months divided by the number of identified members divided by the same number for the previous 12 months (months 13-24)

Why it is so important:
This metric shows you the value of your programme for the brand. It also indicates the growth of this value. This metric should increase faster than the global company turnover, as you want your programme to be the growth engine for your brand. Your programme should grow more quickly than your company.

A different variant of this metric is worth consideration:

You can show this metric with the split for other members segment. It will tell you where the growth comes from and which segment is the most promising and requiring investment. At some point it may also lead you to the decision that it’s time to let go of some customers…

8. Customer Lifetime Value
Knowing your existing and future customer value and connecting it with the company’s value is the Holy Grail in the loyalty industry. Many dreams about it, and more talk about it, but only a few know how to achieve it. The problem is that with 100% certainty, you can measure the value only of the lapsed customers — as you know exactly, how much money they left with your company.

Future value is always estimated and requires broad knowledge about what aspects create this value. It’s a fascinating topic for another article on this blog.

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