Measuring B-to-B Customer Loyalty

B-2-B Customer Loyalty

B-2-B Customer Loyalty

You’ve probably seen some version of these B2B customer loyalty statistics*

● Reducing customer attrition by as little as 5% can increase profitability by 20% to 125%.
● The likelihood of selling to an existing customer is 60% to 70%, compared to 5% to 20% for a new one.
● 40% to 50% of companies haven’t brought on a new vendor in the last five years.
● Loyal customers spend ten times more on your business than new ones.
● Acquiring new customers can cost up to five times more than generating new business from someone with whom you’ve already worked.
● 84% of B2B decision makers start the buying process with a referral.

Customer loyalty pays off. Measuring it gives you information about how loyal your customers are now, how you benefit (increased sales and profit and lower cost of sales), and hopefully how to continually increase that loyalty. Remember the old saying: “What gets measured, gets done.” If you do not yet measure your customer loyalty, you need to start.

Measure what matters

But what does that mean? With longer sales cycles, multiple decision makers, and complex purchase decisions with higher price tags, what does loyalty look like? For most B2B businesses, there are three types of metrics that adequately measure customer loyalty:

  1. Repeat Customer Rate (RCR): This metric tracks how long customers continue to purchase from your business after the first sale. The beauty of RCR is that you probably already have this information; you can easily establish your baseline and RCR and track it in your customer relationship management (CRM) system. You can also enhance this metric by looking for customers who purchase more volume, more frequently, or those who expand to purchase more different products or services from you. Each of those measurements tells you something a little different about how you build loyalty with your customer base.
  2. Customer Lifetime Value (CLV): This metric measures the total profit contributed by each of your customers during the entire duration of their time purchasing from your company. Again, you can probably use data you already track in your CRM to look at annual revenue, purchase frequency, and purchase trends to predict the CLV for each of your customers. Once you know the CLV of each customer, further analysis can help you understand why some customers are more loyal than others, and to implement strategies and tactics to increase CLV overall.
  3. Net Promoter Score (NPS): NPS is one of the more frequently used metrics of customer loyalty for B2B businesses. Simply, NPS measure the percentage of your customers who are most likely to refer you to others. (To determine NPS through survey research, ask customers how likely they are to recommend you to a friend or colleague. On a scale of 1 to 10, where ten is the most likely, respondents answering 9 and ten are considered your promoters. Those who select 6 or below are considered detractors, and those in the middle are passives. Subtract the percentage of detractors from the percentage of promoters to get your NPS score.)

The beauty of NPS is that it simplifies the often complicated and multifaceted relationships between B2B companies and their customers. By evaluating why some customers become raving fans, you may be able to target better your sales and marketing programs, as well as implement loyalty programs that drive results.

Move the Needle

You can decide to use one or all these metrics to give you a good picture of current levels of customer loyalty. These are all an important starting point, but none of these measures gives you enough information to know what you need to change. Further analysis on each one of these measurements can help you improve sales and marketing, increase repeat purchase, and lower cost of sales. The key is to leverage this information to maintain and increase customer loyalty throughout your customer base.

Quantitative and qualitative research techniques can help you answer questions such as: Which of my customers are loyal? What do these accounts have in common that drives their loyalty? What can I do to make these customers even more loyal? How do I get them to generate referrals and word-of-mouth? How can I increase loyalty among my less-loyal customers? What factors will motivate increased loyalty – and how will that impact profitability?

As W. Edwards Demming said, “Profit in business comes from repeat customers, customers that boast about your product or service, and that bring friends with them.” Loyal customers drive your business success by purchasing more, being less expensive to sell to, and by promoting your business through word-of-mouth and referrals. Isn’t it about time your customers started promoting you?

*Sources: Bob Murphy, Marketing Profs; Eliza Fisher, Annex Cloud

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