Customer Loyalty Index — How Loyal Are Your Customers?
Loyal customers are like fertiliser for a business. When you amass them through quality products/services, exceptional customer support, and meaningful loyalty programs, they can make your company grow to tremendous heights. But loyalty is a tricky thing to measure, and it certainly can’t be measured with a single metric, which is why the Customer Loyalty Index is so useful—it combines three insightful loyalty questions into one, to get a clearer picture of your customers’ loyalty and satisfaction. And it only takes the customer about 10 seconds to complete.
In this article, we’ll explore the ins and out of the Customer Loyalty Index, including how to implement it for your company, so that you can better understand how loyal your customers are.
What is Customer Loyalty Index?
Customer Loyalty Index is a combination of three metrics that measures your customers’ current loyalty, and their loyalty in the future. It achieves this by asking three questions: how likely they are to refer your company to a friend, colleague, or family member, how likely they are to try your other products, and how likely they are to buy from you again. Each question is scored one to six by the customer, and the average of the three scores is your Customer Loyalty Index. This is an example of the third question, which shows how the scale works:
People familiar with Net Promoter Score will recognise the referral question, which CLI borrows to measure customers’ current level of satisfaction. But by introducing two additional questions, one of which focuses on future purchases, CLI provides a more rounded and accurate loyalty measurement, and may be a better predictor of customer retention. When you periodically send CLI surveys to your customers, and then track their scores over time, you have a good overview of which way customer loyalty is trending, and can make improvements if needed. If you can find a CLI benchmark for your industry, it’s also useful to compare your score against it.
It’s worth noting that CLI is not a replacement for purchase data, because what customers say may be very different to what they do. Repeat purchases should be measured with techniques like repurchase ratio and Customer Lifetime Value (also useful for creating a marketing budget), and engagement should be measured with Customer Engagement Score, to determine how committed they are to your brand. As with any human behaviour, customer loyalty is a complex psychological phenomenon that requires as much data as possible to get a truly accurate picture. But even if you’re measuring just one value (like NPS), it’s better than measuring nothing.
How to measure Customer Loyalty Index
So how to measure Customer Loyalty Index? The easiest way is with survey software like Survey Monkey, Qualtrics, and HotJar, which allow you to email the three survey questions, or have them appear on your app or website.
Once you’ve decided on a piece of software, you’ll need to set up your survey with the below questions.
Customer Loyalty Index questionnaire
The Customer Loyalty Index questionnaire has three questions to measure loyalty, each answered on a scale of one to six, with one being the biggest “yes,” and six the biggest “no.”
1. On a scale of 1-6, how likely are you to recommend [your company name] to your friends, family, or colleagues?
This question is borrowed from NPS, and measures the customer’s current satisfaction and loyalty to your business. Referrals are an excellent way to measure satisfaction and loyalty, which is why NPS has become so popular.
Just be aware that you can’t compare CLI with NPS because the two use different scales.
2. On a scale of 1-6, how likely are you to try our other products?
This question also measures current customer satisfaction and loyalty, but is framed in a different way. If you like a company’s product enough to try their other offerings, you clearly have some loyalty to them.
3. On a scale of 1-6, how likely are you to buy from us again?
This question helps you to predict future loyalty. Naturally, predictions are a little less accurate than present-day measurements, but by adding this question, you get a loyalty measurement across a wider range of time.
When you have your three scores for each customer, convert them into their respective percentages using the table below:
Next, combine the three percentages and divide by three to get an average. For example, if the scores are of 80, 40, and 60, the calculation would be (80 + 40 + 60) ÷ 3, which comes to 60. This is your Customer Loyalty Index for that particular customer. Do this for every single customer (it’s obviously easiest with a simple spreadsheet formula).
When you have the percentage scores for every customer, add them all up, and then divide by the number of customers who responded. For example, if five customers responded to the survey, and their scores were 20, 80, 80, 100, 60, the calculation would be (20 + 80 + 80 + 100 + 60) ÷ 5, which comes to 68. This means that the people who responded to your survey have a CLI score of 68%, which is very respectable.
While CLI doesn’t have an official scale or grading system for the final score, it looks something like the following:
It’s also a good idea to include a fourth question in your survey: “Is there anything you’d like to add?” This gives the customer a chance to provide further feedback on how you’re doing, which can provide potential improvements to various parts of your business: your product/service, sales process, marketing customer service, and more. These kind of survey questions are an effective way to identify customer needs—they can give you a goldmine of information!
Customer Loyalty Index summary
Customer Loyalty Index is an effective way to gauge your customer’s current loyalty, and how loyal they’ll be in future. It’s even more potent when combined with real-world purchase data. Loyal customers can be the difference between growth and stagnation, and the Customer Loyalty Index is a useful qualitative description of how people feel about your company, giving you the chance to strap on your boots and make the necessary improvements (or keep on doing what you’re doing). When you build an army of loyal customers, you can expect more 5-star reviews, more word of mouth business, and ultimately, much better growth.