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From the Little Stream Software blog
When it comes to metrics, having a single value to track can make a lot of difference. If the metric is too confusing or difficult to find, there's a good chance you'll end up ignoring it.
Loyalty can be measured in a lot of ways
Calculating your customer loyalty is one of the those tricky metrics. Loyalty can mean a lot of different things:
- Does the number of orders matter?
- How recently they've ordered?
- How much they spent in total (LTV)?
- What products they order?
- How often they use a coupon or discount code?
- And so on...
All of these could be factored into your customer loyalty metric but that's where it gets into the confusing and difficult to track territory.
Using RFM for customer loyalty
In Repeat Customer Insights the RFM model is used in many of the analyses. It's a very strong behavioral model that factors in three significant parts of customer behavior and gives you a single score for each customer.
That means you can track just that score and see a customer's loyalty.
There's a problem with RFM scores, they can be confusing to use as they look like numbers but don't work like numbers. Each digit is a ranking meaning you have to compare each digit individually.
For example two customers might have scores of 515 and 444. Common sense would think the 515 customer is better and more loyal (515 is greater than 444). But that's wrong.
The 515 customer has actually only ordered once (the 1 in the middle), they just ordered really recently (first 5) and spent a lot (last 5).
The 444 customer has orders many times (middle 4), spend more than average (last 4), and last ordered fairly recently (first 4).
That's why in the app I use the RFM scores and boil them down into a single letter grade for the customer:
A, B, C, D, F
Comparing an A and a B customer grade, you'll know right away that the A customer is better. Maybe not in every way, but overall they are a stronger and more loyal customer for your Shopify store.
Summarizing Customer Grades storewide
You can also look at the letter grades as a whole and see how your store is doing.
What if you have 1,000 A customers but 10,000 F customers? There's a clear sign of customer loyalty falling.
10,000 A customers, 20,000 B customers, and 100 F customers? Your customer base is fiercely loyal.
Everyone who uses the app has access to the Customer Grades but writing about it right now, I'm thinking of a few new ideas to make them even more useful. We'll see, there's already new features I've planned for the next few months.
Make your metrics easy to find and track. It makes all the difference in the world.