Loyalty programmes and membership schemes are often beset with vanity metrics which struggle to quantify the programme’s success and how performance can be improved.
Fortunately, there are 15 core KPIs that all loyalty programmes should be evaluated on.
We have split these KPIs into three categories:
- The volume of members or customers in specific ‘buckets’
- The behaviours of those customers participating in the programme
- The outcomes or financial benefits derived from the volume of customers involved and their behaviour.
Each KPI should be considered over time (year-on-year, month-on-month) to really understand trend and performance. Depending on your business, you may also want to be able to review the KPIs by geography, business area or product.
Members vs non-members
A basic KPI to start with – how many users (customers, households) have you managed to enrol in your loyalty programme. And how does this compare to the number of non-members.
Members as a % of all potential members may be a useful KPI. However, in some industries, such as bricks and mortar retail, it may be difficult to accurately measure the number of non-members.
Active vs inactive members
So you now know how many members you have got. But how many of them are active?
For example, this could be calculated as:
Number of members who transacted in last 4 weeks / Total number of members
Using 4 weeks or another time period will depend on the nature of your business.
How many new members were recruited in the last period?
Again, that period will depend on your business and your objectives.
It’s inevitable that some members of your loyalty programme will lapse (another potential KPI).
Let’s assume that a some of your membership base haven’t been active for more than 12 months (this could be defined as not having transacted or not having engaged with your business). These are your lapsed members.
A proportion of lapsed members may reactivate due to marketing activity or some other stimulus. Taking these members as a proportion of your total lapsed customers will give you a reactivation rate and this can if often an important metric for CRM programmes.
Net member base growth/decline
So with these volumetrics established you can measure whether your membership base is in net growth or decline.
Most loyalty programmes are actively seeking to recruit new members.
Measuring which channel, or combination of channels, delivers more new members will help to refine your marketing strategy.
Opt-in rate by communications channel
Consumer consent is a hot topic that will only increase in scrutiny.
It’s advisable to therefore measure how many loyalty scheme members have consented to communications and how this varies by channel.
Revenue is the ultimate driver and should be measured for each of the segments that you have volumetrics for (ie. members/non-members; active/inactive members).
Revenue is a function of the following KPIs so understanding each of them will help you understand the causality of your revenue performance and the growth levers that are available.
Average transaction value (ATV)
The amount or weight of purchase that a customer or loyalty programme member spends with you in a particular time period.
Average purchase frequency
How often a customer transacts with you.
Spend per visit
The amount that a customer, member or non-member spends with you on each visit.
To put these three metrics together:
- ATV is a function of Frequency X Spend per Visit
- Revenue is a function of ATV X Number of Customers
They are a powerful set of KPIs as they give significant direction to the strategies you should be employing (eg. driving frequency, reactivating lost customers etc) and to tracking performance.
% Transactions with loyalty card
This KPI will help you monitor how pervasive your loyalty programme is with your customer base.
It should be a metric that grows over time. If it doesn’t then it could suggest issues with the level of customer interest in your programme and buy-in from your wider organisation.
Cost per member
This metric looks at the cost of your programme and divides it by the volume of programme members.
Costs should be the total cost of operating your programme so should include all marketing costs (including production and fulfilment), technology and headcount.
Cost per Member is a powerful KPI as, when coupled with a metric like lifetime value, will help you decide how much you can invest in the programme and the long term value that it will create.
Retention / churn rate
All CRM or loyalty programmes are highly likely to be predicated on engaging customers to earn their loyalty and keep them transacting with you for longer.
So measuring return, churn or attrition rate is essential.
Incremental sales per member
With your customer base split into members and non-members of your programme, it’s important to track the differences in behaviour between the two groups and understand if there are differences in customer value.
Assuming that the differences between the two groups equates to the effect of your programme may be misleading (members may be your more loyal and active customers anyway) and you should consider a holdout cell.
Nevertheless, a practical way of calculating the incremental sales of a member will help you to track ROI.