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What formulas should we use to measure customer loyalty?

Learn a few ways to measure customer loyalty and find out about customer spend or "share of wallet," which expert Michael Lowenstein believes to be the most consistent and reliable way to track customer retention.

I work in customer loyalty at a circuit board manufacturing house. We do all of our business online. Recently, my company hired a new customer service/customer loyalty manager. This person has no background in customer loyalty and he is trying to measure our success with a basic ROI formula. I insist that this is not the best way to measure customer loyalty. Can you suggest any formulas we should instead be using to measure customer loyalty accurately for our online business?
There are many ways to measure and understand customer loyalty behavior. Future purchase intent, purchase frequency, likelihood to recommend, narrowed consideration set are some examples, however, the most consistent and reliable is share of customer spend or share of wallet. Beyond that, it's important to know how customers perceive both the overall value of your products and/or services on rational (tangible, functional) and emotional (relationship, brand strength) levels, especially relative to your competition.

Editor's note: For more on measuring and understanding customer loyalty, visit the customer loyalty learning g...

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This was last published in February 2009

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