Customer loyalty and retention are both crucial indicators of the health of your business.
Together, they can help you better understand your customers, monitor customer sentiment, and track (and predict) revenue growth.
Yet, while they’re often used interchangeably, customer loyalty and retention are not the same things. To get real clarity on your business’s successes and opportunities, you’ll need to use both metrics side by side.
So, what’s the difference between customer retention and customer loyalty?
Customer retention measures how many customers continue to do business with you over a given period, whereas loyalty measures the likelihood of them remaining your customer in the future.
In this article, we’ll explain all you need to know.
Customer Retention vs Customer Loyalty
Customer retention identifies which customers haven’t churned. Customer loyalty predicts who will stay in the future.
Now that you understand the basics, there’s a little more nuance to it than just that.
The differences between customer retention and customer loyalty are important for any business to know:
Retention describes while loyalty predicts. Retention only shows you how many customers, and how much revenue, remain with your company over time. Customer loyalty, however, measures the likelihood of customers to stick around.
Retention is purely transactional; loyalty is emotional. Retention simply tracks the interactions a customer has with you, as well as the value of those transactions. On the other hand, loyalty digs into the way your customers feel about your brand. That gives you a deeper insight into their satisfaction and overall experience.
Retention shouldn’t imply loyalty. If a customer is retained, it doesn’t necessarily make them loyal. It could just mean that they don’t have an alternative option — but a better offer elsewhere could turn their head.
So, do customer retention and loyalty mean the same thing? No. But it’s important that you measure them both side by side.
Let’s go further into what each concept can do for you.
What Is Customer Retention?
Customer retention measures the number of customers that hang around over a given time frame.
Take away the customers that have churned and exclude new customer acquisitions and you’ll have your customer retention rate.
Retaining customers is good for business.
It reduces the costs of customer acquisition, for one thing. It helps you build deeper relationships with your customers so that you can satisfy them further (and prevent them from going elsewhere). And, it supercharges revenues.
According to Bain & Company, a 5% increase in retention can increase profits by up to 95%.
Yet, lots of businesses don’t know their retention rates at all. In our eBook Retention Management to Cut Churn, we found that 44% of B2B leaders couldn’t tell you their retention rate.
Depending on your industry, your retention rate should look a little like this (according to our 2021 B2B NPS and CX Benchmarks Report):
How to Measure Customer Retention
There are two ways of measuring retention in your business. We suggest you track both.
Customer retention rate (CRR). CRR measures the absolute number of customers that you retain. It’s simple: if you had 10 customers, but three of them churned over a year, you would have a retention rate of 70%.
You can use the following formula to describe this better:
Here, CS represents the number of customers at the end of a given period (monthly, annually, or quarterly), while CE represents the number you had at the end.
Revenue retention rate (RRR). Alternatively, RRR measures the amount of revenue that you’re retaining. This matters particularly in B2B contexts, where different customer accounts can have radically different values.
Here, you’ll need the following formula:
For example, let’s go back to those 10 customers.
Together, they gave you a revenue of $30,000. Two were worth $5,000, two were worth $4,000, two were worth $3,000, two $2,000, and two $1,000.
The three customers that you lost could be those two worth $5,000 and one worth $4,000. This would mean that you retained just $16,000, or 53.3% of your revenue (compared to 70% CRR).
Alternatively, you could have lost two customers worth $1,000 and one worth $2,000. That would mean you retain $26,000, with an 86.6% retention rate.
Knowing the difference is essential for accurately tracking your retention. However, knowing your past retention rates won’t help you assess your future retention — only loyalty can do that!
What Is Customer Loyalty?
If customer retention is purely transactional, customer loyalty is largely sentimental.
It describes an attitude to your organization among your customers. Loyalty is a sort of attachment, commitment, or affection, rather than just a continued engagement.
While loyal customers also bring revenue gains, the benefits are different.
For example, loyal customers are more likely to leave feedback and be forgiving of slight mistakes. They’re also more likely to try new products. And, of course, they’re much more likely to recommend you to others in the future.
But not all loyal customers are the same. That’s why we speak of different types of loyalty:
Transactional loyalty. Essentially, transactional loyalty is another word for customer retention. Customers repeatedly buy from you but don’t necessarily show any other sympathy for your brand.
Engagement loyalty. If a customer follows you on social media, signs up for your email newsletters, and downloads your white papers, they can be said to be engaged. This is a solid ground for a greater connection.
Emotional loyalty. This is where we get to deeper forms of loyalty. It often comes through personal relationships, such as individual engagements.
Advocacy loyalty. When customers are really loyal, they’ll be your advocates. That means that they will recommend you to others, speak at your conferences, or engage in referral programs in other ways.
In this way, customers are not just retained, but they have a deeper connection with you that can last into the future.
How to Measure Loyalty Using Net Promoter Score
The most reliable way to keep track of your loyalty is through customer sentiment surveys. We recommend that you use Net Promoter Score (NPS), the most widely used surveying system among B2B brands.
NPS measures loyalty by asking customers how likely they are to recommend your brand, product, or service to a friend or colleague, on a scale of 0-10. Based on the customer’s response, they’re then categorized as a promoter (scoring 9-10), passive (7-8), or detractor (0-6). Promoters are your most loyal customers, while detractors are those who pose a risk of churn.
With this data, you can calculate an overall NPS score, between -100 and 100, by subtracting the proportion of detractors from the proportion of promoters. According to the designers of NPS, this is the best predictor of future revenue there is.
How to Improve Retention and Loyalty
Loyalty and retention are not the same things. But, as loyalty grows, retention will grow, too.
To ensure strong revenue into the future, put the following 5 steps in place.
1. Collect customer feedback with a voice of customer program. Loyalty comes through trust, and the only way to build trust is to listen to your customers and show you care. A voice of customer (VoC) system enables you to do exactly that, by collecting feedback through NPS and other customer sentiment surveys.
By the way, in B2B brands, one survey per customer account won’t be nearly enough. Aim to survey as many different customers as possible.
2. Close the loop with all customers. No VoC system will be effective in creating loyalty unless you act on the feedback you receive. Close the loop fast with all customers at all levels of your business — from your frontline staff to your C-Suite.
Set goals for the speed of closing the loop. Ideally, you’ll close the loop with all customers within 48 hours.
3. Identify and engage absence of signal. Often, not all customers will respond to your customer surveys (although it’s possible!). Tracking other engagement metrics, such as product usage, support requests, and CRM activity will give you a sense of how customers are engaging with your brand.
Top tip. If they’re not engaging, reach out to ask them why. It can be the difference between a churned customer and a retained one.
4. Introduce a loyalty program. Research shows that almost 80% of customers are more likely to stay loyal to a brand if it has a loyalty program in place. Purchase incentives and unique content for dedicated customers are just the start. Check out some B2B loyalty programs for inspiration.
5. Invest in customer loyalty and retention software. Tools like CustomerGauge’s Account Experience (AX) enable you to track customer sentiment and other key engagement metrics, build an effective referral program, and drive your growth.
For example, the corporate catering company, Alchemista, achieved a 100% retention rate thanks to AX. Back in 2019, they lost their biggest customer to churn — a customer worth 20% of their revenue.
But with AX, they went from what Alchemista’s Christine Marcus called “the biggest mistake I’ve ever made as a CEO” to immediate action on customer feedback.
As Christine said when she appeared at CustomerGauge’s Monetize! conference,
"Onboarding CustomerGauge has had the highest ROI of anything I've ever done at my company."
Boost Loyalty and Retention With CustomerGauge
At CustomerGauge, we’ll help you boost loyalty and retention while powering bottom-line growth. Our customer loyalty software enables you to get a 360-degree view of your customers through customer satisfaction surveys, engagement metrics, and account value.