When it comes to arguing the value of customer loyalty initiatives, many marketers will be familiar with push back from neighbouring departments. However, there are tangible ways of proving the business case for delighting customers.

In order to measure the impact of handwritten notes on customer loyalty, brands need to look at two key areas; purchase behaviour & brand engagement.

This guide will introduce you to best practices for testing and tracking customer retention campaigns, exploring both short-term and long-term metrics.

Timeframes will differ from business to business, depending on the average time between consecutive orders made by each customer, but we will cover the most commonly used metrics.

 

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The Metrics

First up, let’s take a look at the hard numbers. Here are six key customer retention metrics and the formulas for how to calculate them (in orange) that will help you track the purchase behaviour off the back of your campaign.

Campaign ROI

The essential metric for all campaigns comes down to return on investment. Calculate revenue uplift and subtract associated campaign costs to find the ROI of sending handwritten notes to customers.

 

ROI =

Revenue – Cost of Campaign / Cost of Campaign X 100

 

Average Order Value

One strategy to increase overall Customer Lifetime Value is to increase the size per order, but how do you motivate customers to spend more money on every transaction? Well, sending handwritten notes has been proven to increase basket size simply by making customers feel special.

 

AOV =

Total Revenue / Total Number of Orders

 

Repeat Purchase Rate

While Average Order Value (AOV) focuses on the quality of each transaction, Repeat Purchase Rate (RPR) focuses on quantity. Returning customers that buy from you multiple times within a certain period will boost their overall Customer Lifetime Value.

 

RPR =

Number of Returning Customers / Number of Total Customers

 

Another way of tracking repeat purchases is through the use of redemption codes. To calculate the redemption rate…

 

RR =

Number of Redeemed Codes / Number of Codes Issued

 

A word of warning - this metric should be taken with a pinch of salt and analysed alongside Average Order Value. The most regular customers don’t necessarily achieve the best Customer Lifetime Value.

One client might use Inkpact to run a huge event once a year, but simply have no use for our service outside of this period. Meanwhile, another client might use Inkpact to send invites to intimate monthly roundtable events, requiring smaller order volumes on a much more frequent basis.

For this reason, look at overall Customer Lifetime Value which takes both AOV and RPR into account.

 

Customer Lifetime Value

Customer Lifetime Value (CLV) examines how much a single customer spends over time.

“Customer lifetime value is the metric that indicates the total revenue a business can reasonably expect from a single customer account. It considers a customer's revenue value, and compares that number to the company's predicted customer lifespan. Businesses use this metric to identify significant customer segments that are the most valuable to the company.” HubSpot

 

First, calculate Customer Value…

 

CV =

Average Order Value X Purchase Frequency

 

Now, look at a customer’s average lifespan to turn Customer Value into Customer Lifetime Value. This is the average number of years a customer remains active before they lapse and drop off. This varies hugely from sector to sector, but past data can help to determine a suitable average lifespan.

 

CLV =

Customer Value X Average customer lifespan

 

Customer retention rate

It’s important to track the percentage of customers who stay (or are active) versus those who leave (or have lapsed) over a period of time. Your customer retention rate sits in opposition to your churn rate - the speed at which you expect to lose customers.

This is clear cut for any business with a recurring revenue model (such as a monthly subscription) but can also be a valuable metric for pay-as-you-go businesses. For pay-as-you-go business, use Order Gap Analysis (OGA) to calculate the average time between consecutive orders placed by one purchaser. Once this period is defined, you can calculate the Customer Retention Rate.

 

CRR =

# Customers at end of period – # Acquired during period / # Customers at beginning of period

 

Net MRR Churn

For businesses using a recurring revenue model, net monthly recurring revenue (MRR) churn is an essential metric. Not only does it track the number of customers lost or retained, but it also notes the changing value of these customer accounts.

“If you’re consistently hitting <1% net MRR churn, you’re on the right track.”

To calculate Net MRR Churn, you will need the following figures:

  • MRR Churn: Revenue lost from customers who churn
  • Contraction (downgrade): Revenue lost from paying customers who downgrade to a lower-paying plan or receive a discount. (Counter-intuitively, this often includes people who switch from a monthly to a yearly plan, since yearly plans are often discounted)
  • Expansion (upsell): Revenue gained from paying customers who upgrade to a higher-paying plan or whose previous discount expires.
  • Reactivation: Revenue gained from churned customers you’re able to win back.
  • MRR: Monthly recurring revenue at the beginning of a set period (whatever makes sense for your business)

 

Net MRR Churn =

(MRR Churn + Expansion / Contraction + Reactivation) / MRR at beginning of period

 

 

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Why Track Customer Engagement Metrics

 

Customer engagement is the softer aspect of customer retention. But it’s equally important to track engagement, because it indirectly leads to future purchases and new customers…

 

"Customer engagement is the ongoing interaction between company and customer, offered by the company, chosen by the customer." - Paul Greenberg, HubSpot

 

Digital customer engagement is the top strategic priority for C-level business executives. Why? Because engaged customers increase cross-sell and up-sell opportunities, and boost average order sizes too. In other words, high current engagement indicates high future engagement.

Customer engagement can be measured by behaviours such as:

  • Referrals – track the use of referral codes to calculate the redemption rate
  • Social sharing – include social media handles to encourage user-generated content

 

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The Benefits of A/B Testing

 

Digital marketers will be used to A/B split testing different landing pages, emails, banner ads and more. A/B testing your handwritten note campaigns can be just as useful, helping you find your sweet spot within this offline channel.

A/B split tests commonly compare handwritten notes to printed direct mail, email or other handwritten campaigns. Running a split test is straightforward, or at least should be, testing one variable at a time.

Simply split your recipient list in half. Track and measure your results based on the goal you’ve set for the campaign. Compare one group to the other. And voila!

Below are a few variations you can test to see which campaigns have the best ROI:

  • customer segments
  • stationery design
  • message copy
  • time of sending
  • calls to action
  • offers or gifts

You can even track offline to online conversions using the following:

  • Unique URLs
  • Unique redemption codes
  • Social media hashtags
  • QR codes

 

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Results you can expect

 

Being in the business of sending handwritten letters, we work with some of the UK’s most thoughtful fashion brands. These early adopters knew that being human and personal would transform their customer base into a community, even back when Inkpact was brand new and lacking case studies.

 

These forward-thinking marketers listened to their guts and worked with a small startup with a big mission to make the business world more thoughtful. Now, having worked together over the past few years, we’ve trialled and split tested all sorts of thoughtfulness campaigns, from delighting VIPs at random to sending seasonal wishes, welcoming new customers and thanking people for purchasing. Here are the results…

  

Repeat Purchase & Average Order Value

We helped a designer men’s swimwear brand to send thoughtful thank you notes to customers.

The goal: Welcome new customers and increase repeat purchases  

The brief:  Split test the impact of handwritten notes versus email when thanking new customers

The result: Looks like the added thoughtfulness really did make a difference...

30%

Basket size increase

From handwritten notes

58%

Repeat purchase increase

From handwritten notes

Social sharing:

We helped a well-known beauty brand distribute a mascara gifting campaign.

The goal: Engage customers and increase brand awareness through word of mouth

The brief: Split test the impact of a gift being delivered with a handwritten note versus a printed flyer

The result: uplift of social media activity observed when a printed flyer was sent vs the handwritten note...

0%

Social media activity

observed from printed flyers

100%

Social media activity

observed from handwritten notes

Redemption Rate

We helped a well-known apparel brand reach out to thousands of customers on Valentine's day.

The goal: Delight top tier clients and drive repeat purchases by offering them a discount code

The brief: Split test the impact of handwritten mail versus printed mail. The same message was sent to every recipient, half receiving a handwritten card and half receiving a printed card.

The result: The group who received a printed card had a redemption rate vs those who received a handwritten card...

7%

Redemption rate

from printed cards

49%

Redemption rate

from Inkpact handwritten cards

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