How to Calculate the Value of Customer Loyalty

How to Calculate the Value of Customer Loyalty

Much has been said about the value and importance of customer loyalty. Intuitively we know it’s (usually) better to keep our customers coming back than to see them go to our competition. It’s one thing to understand this as a general business principle. It’s another thing entirely to see how customer loyalty can impact your bottom line.

Sometimes seeing the difference in dollars and cents can have a bigger impact on what we do to keep our customers coming back. This makes it harder to ignore the value of customer retention.

To help with this, I have created a tool that tells us how much our revenue and net income might be affected by specific changes in customer loyalty. I call it the Customer Loyalty Value Calculator.

(Note – this calculator does not address lifetime value of a customer. That’s a different concept.)

This tool measure the impact of changes in three areas of customer loyalty:

  1. Customer retention (keeping your customers coming back)
  2. Repeat business (increasing the amount of business they do with you)
  3. Referrals from customers (increasing the referrals they give you)

The customer loyalty value calculator is easy to use and does not require a login or anything. Just click and go. You can enter any data you want from made-up numbers to actual data for your company. The calculator does not store any information so nobody sees it but you.

Here’s an example.

Let’s say you operate a small accounting firm.  Your annual revenue is $500,000. By increasing customer loyalty 10% (across the three factors of retention, repeat business or spend and referrals) you could see an increase in revenue of 21% and a similar increase in profit.

Of course, these are fictitious numbers. It’s more illuminating when you enter your organization’s actual figures. That makes it real.

The key here is you get to go from a generalized idea to specific numbers. And even though they are just estimates, they can offer guidance and motivation to spur your efforts to increase loyalty. A tool like this might give you the financial backdrop you need to pursue an initiative to increase customer loyalty like investing in a full CRM package for your sales or service efforts.

Take a look at the calculator and let me know what you think.

The article was written by Kevin Stirtz