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8 Awesome KPIs To Measure Customer Engagement

Monday, March 04, 2024

8 Awesome KPIs To Measure Customer Engagement

Building a successful business is all about creating long-lasting relationships with customers. We all know that person who goes to the same coffee shop religiously every morning, or who wouldn't dream of buying from another brand.

That kind of loyal customer doesn't just happen by accident - it takes actively engaging customers so they feel connected to your business.

I see it all the time with my clients. The ones who really focus on understanding customers and making them happy tend to see those same smiling faces again and again.

On the other hand, businesses that let relationships fade end up with high customer churn. And it takes 10 times more effort to attract a new customer than keep an existing one!

That's why having awesome customer engagement is so essential. Things like repeat purchases, referrals to friends, stellar reviews online, or customers who stick around for years – these signify you've got people who feel engaged with your brand. They buy again because they had a great experience.

For example, take Maria who – let’s say she runs a boutique jewelry store downtown. She offers customers special discounts on their birthdays, remembers little details about their lives, and even had custom bracelets made as thank-you gifts for her top 10 most loyal return shoppers last year.

Is it any wonder so many clients rave about her to friends? Her engagement efforts totally work to turn customers into advocates.

Now Maria diligently tracks key performance indicators or KPIs related to customer engagement so she knows what's working and what's not. Things such as – how many repeat customers does she have? How many new signups for her newsletter?

What about referrals or reviews? By keeping tabs on these engagement metrics over time, she can set goals and measure whether new efforts are actually increasing loyalty.

The key is picking the right KPIs to monitor that will best reflect whether customers feel connected and happy with her boutique’s customer experience. Not sure where to start? Well, today I’ll be digging into 8 awesome options that any small business can track to effectively assess engagement. From churn rate to Net Promoter Score and more, understanding these metrics is key!

KPI #1 - Repeat Purchase Rate

Repeat Purchase Rate

Let's dive right into a powerful metric – the repeat purchase rate.

This handy KPI shows the percentage of customers that come back to make another purchase after that valuable first transaction with your business. It's a great way to see at a glance how many return-engaged customers you have versus one-time shoppers.

I always encourage clients to monitor this important rate each month. To calculate it, you simply divide total repeat transactions by the total initial purchases in that month. For example, if you had 100 new customers purchase in April but 40 returned to buy again, your repeat rate would be 40%.

Now what's a good target? I generally want to see this percentage climbing steadily over 40-60% for healthy small business clients in most industries. If the rate is below 40%, it usually indicates potential issues with customer experience or retention efforts.

Over time, the goal is to keep improving the repeat rate which signifies loyal customers who genuinely enjoy buying from your business.

No matter your niche, keeping close tabs on repeat purchase rates is vital for measuring engagement. If customers don't come back happy, you'll constantly fight an uphill battle in attracting new leads rather than profiting from loyal fans.

KPI #2 - Customer Churn Rate

While gaining new customers is important, you also have to focus on retaining the loyal clients you already have. That's why tracking customer churn rate is a must. This metric shows what percentage of customers stop doing business with your business over a set time period.

A high churn rate is bad news – it means customers don't stick around long and engagement efforts are failing. I once worked with an online retailer whose churn clocked in at over 15% per month! Doing the math, they had barely any repeat buyers after a year.

To calculate monthly churn, you simply divide the number of customers lost by your total customers at the start of that month. For example, if you had 1000 subscribers in January but 150 unsubscribed or stopped buying by February, your churn would be 15%.

The ultimate goal is to have churn under 5% monthly. Anything higher means reassessing your retention and engagement strategy. Slowing churn rate over time equals better customer lifetime value and repeat purchase rate too.

Keeping close tabs on churn gives you the power to identify weak points before they permanently drive customers away. Paired with other metrics like customer satisfaction score or repeat purchase rate, you have all the information needed to boost engagement over the long run.

KPI #3 - Customer Lifetime Value​

Customer Lifetime Value​

Let's talk about a metric that looks beyond first sale – the customer lifetime value or CLV.

This powerful KPI calculates the total revenue you can expect from an average customer over the entire relationship with your business, from initial purchase till churn. It's one of the best ways to measure long-term engagement.

The formula does seem complex – multiplying average purchase size, average yearly purchases, and average customer lifespan. But breaking it down step-by-step makes tracking CLV very doable. Most ecommerce platforms or accounting software can automate reports too.

Focusing on CLV is smart because it quantifies both value and duration of engagements, not one-off sales. For example, a business may get thousands of new sign ups after a promotional campaign. But if 80% of those new customers disappear within 3 months, that early spike in revenue doesn't signify loyal relationships.

I always encourage establishing industry benchmarks for CLV and comparing over time. If your average CLV rises from $1500 to $2500 after superior engagement initiatives, that's a stellar sign of progress. Retaining customers longer and nurturing loyalty pays off big time when you do the lifetime math!

Monitoring CLV reveals the revenue impact of increasing repeat purchases and lowering churn rates in one powerful metric. It puts long-term customer engagement into tangible financial terms quarter-over-quarter. Rather than celebrating a sale, smart businesses celebrate lasting and mutually beneficial customer relationships. Tracking CLV helps guide that process.

KPI #4 - Customer Acquisition Cost

When aiming to grow your customer base, an important metric to always keep an eye on is customer acquisition cost. This calculates how much you are spending on average to acquire each new customer. It's key for gauging if your marketing expenditures are paying off.

For those unaware, you can find your customer acquisition cost by simply dividing your total acquisition spending over a period (say monthly or quarterly) by the number of new customers gained in that same timeframe. The total spend should include all marketing initiatives – ads, events, giveaways, sales team salaries if applicable, etc.

For example, if a business spent $5000 last month on marketing campaigns and sales efforts that brought in 200 new customers, the cost per acquisition would be $25 ($5000/200).

Is this good or bad? Well, comparing it to metrics like customer lifetime value helps give useful context. You ultimately want to pay less bringing in each customer than the revenue that person will generate for your business over time. A $25 acquisition cost that results in a $1000 lifetime value from repeat business is clearly effective spending.

If your acquisition cost is high or rising over time, that signals struggling efficiency in your customer growth strategies. Review where marketing dollars are going and redirect funds to channels with the best conversion rates. Setting a target cost per acquisition or cap per monthly spend helps optimize budgets over time.

Keeping tabs on customer acquisition cost and fine tuning based on customer lifetime value data will transform your business growth. Suddenly you can quantify leads in dollars and cents while tying spend directly to the engagement levels that follow. Powerful stuff, I tell you.

KPI #5 - Share of Wallet

Moving beyond just your own sales data, another useful metric is share of wallet. This tracks what percentage of a customer's total spending goes towards your business versus competitors. It reveals your "share" of each person's wallet within your niche industry over time.

The concept is right there in the name – you want to measure and ultimately increase the slice of the pie you get compared to rival businesses. For example, a customer may spend $1000 a year total on your type of product. If they spend $100 with you annually, your share of their wallet is only 10%.

To determine share of wallet, you'll need to survey customers or make estimated guesses about total category spend. If you sell gourmet chocolate and the average chocolate buyer purchases $500 chocolate gifts annually, figure out what amount is spent specifically at your shops.

Growing individual share of wallet means customers allocate more of their category budget to you rather than competitors. I encourage aiming over at least 5-10% as a starting benchmark. Share rising over time indicates growing loyalty and engagement with your brand's unique offerings.

The goal with this metric is two-fold – bring in new customers and make sure their share of wallet rises. Someone may spend $300 on luxury skincare, but you want the lion's share of that budget, not the spa down the street. Share of wallet keeps you focused on building preference, not just making one-off sales.

KPI #6 - Net Promoter Score

Net Promoter Score

Let's discuss a popular metric for gauging customer loyalty and satisfaction - Net Promoter Score or NPS. This measures how likely your customers are to recommend your business to friends, family or colleagues based on their experience. It directly taps into that vital word-of-mouth advocacy.

​Calculating NPS is actually quite simple. You just survey customers asking some variation of: "On a scale of 0-10, how likely are you to recommend us to someone else?" Scores classify people into three camps:

  • Detractors - giving you a score of 0-6. They had some issues and won't be advocates.
  • Passives - gave a middling 7-8 rating. Satisfied but not loyal fans.
  • Promoters - raving fans who gave you a 9 or perfect 10. This group drives referrals and growth.

To generate an overall NPS, you take the percentage of Promoters and subtract the percentage of Detractors. For example, if 60% of your customers are Promoters and 20% are Detractors, your Net Promoter Score would be 60 - 20 = 40.

The goal is to have your NPS over 50+ consistently. Anything under 30 signals customer experience issues that require attention. Monitoring NPS trends over time shows if loyalty and satisfaction are improving based on your engagement initiatives. It directly quantifies that critical word-of-mouth advocacy that no ad can buy.

KPI #7 - Customer Satisfaction Scores

Another important way to measure engagement is by regularly surveying customer satisfaction. This means asking targeted questions to gauge how happy clients are with key elements of their experience. It provides quantitative insight into meeting (or missing) expectations.

For example, you may send an email survey asking questions like:

​"On a scale of 1-10, how satisfied were you with the shipping time of your last order?"

"How likely are you to recommend our services to other small business owners - very unlikely, neutral, very likely?"

"Please rate your satisfaction with XYZ's customer service team."

​Analyze results segmented by factors such as customer type, purchase history, etc. Look at overall scores as well as drill down into specific feedback details. That reveals what parts of delivering for customers you ace and where serious improvement is urgent.

I recommend benchmarking over 75% satisfied as an okay starting point but pushing toward over 85%, especially on critical touch points like service and product quality. If your satisfaction scores start dropping quarter over quarter, that signals customers are becoming less happy and engaged with your brand. That means it’s time to proactively listen and address pain points before they churn away.

Monitoring satisfaction alongside metrics like Net Promoter Score provides well-rounded insight into the complete experience customers receive and how it evolves. Both require regularly checking in with clients rather than making assumptions. But closing experience gaps pays off tremendously in loyalty.

KPI #8 - Email Performance

Email Performance

Email marketing remains a bread-and-butter tactic for every business I work with, driving 20% or more of overall revenue. By tracking key email metrics over time, you can better understand customer engagement and optimize this vital channel.

Every campaign and segmented audience will have different benchmark targets based on goals. But broadly, you want to monitor:

  • Open rates - What percentage of subscribers actually open your emails? 20%+ is good for cold contacts like leads. Over 40% indicates strong engagement from customers.
  • Clickthrough rates - Of those who do open, how many click links to visit products, articles etc? 2-5%+ is solid. Low click throughs mean content doesn’t compel action.
  • Conversion rates - What percentage take your desired action like purchasing or signing up? 10%+ conversion sounds small but can massively impact sales at scale.

Review rates monthly and after each campaign. If you notice open rates dropping despite growing your list size, that likely signals stale content lacking relevance or value. Adapt topics and offers addressed to subscriber interests and behaviors.

Well-optimized email nurtures relationships, driving repeat engagement which pays off in the long run. Compare metrics to past performance to squeeze more revenue from this channel.

Last Remarks

Measuring customer engagement does not require complex statistics. By starting to track these 8 KPIs, you can benchmark where you currently stand, then test and monitor new strategies to boost performance over time.

The key is to not view engagement metrics in isolation. Rather, analyze the connections to reveal insights. For example, how does improving repeat purchase rate and share of wallet impact customer lifetime value? How can boosting NPS and satisfaction scores decrease churn?

Use the data these KPIs provide to tell an evolving story of the customer journey with your brand. Identify weak points in the narrative early before customers reach the unhappy ending on their own. Dedicate resources to strengthening and improving engagement efforts for the long haul.

Don’t let worrying about complicated formulas hold you back either. Leverage the many user-friendly analytics platforms and CRM tools now available to small business owners on every budget.

At the end of the day, customers will only engage deeply with companies that also show commitment to the relationship. By truly listening and addressing pain points revealed through these metrics, you demonstrate that their experience matters. And loyal, satisfied customers are any brand’s most valuable asset.

The ultimate goal is not just lead generation and initial sales. It's fostering connection and mutual benefit that persists for both the customer and your business. Consistently tracking engagement KPIs provides the roadmap to get there.

​If you want to dig deeper into data-driven customer engagement strategies… I would highly urge you to sign up for my No B.S Newsletter before it closes down. Every month I share actionable tips on using timeless business principles, metrics, automation, and personalization to connect with customers in a meaningful way.

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