You already know that the key to a successful business is a loyal customer base. But, how do you estimate and track customer loyalty? It might seem that there are a million different metrics out there causing confusion on what to measure, and how often. In this article, we’ll introduce you to one of the simplest - and most effective - proxies for customer loyalty: purchase frequency. Read on to learn what it is, how to measure it, how you can use it to segment customers based on their actions and behaviors, and crucially, how to improve it. And, if this still sounds too complicated, leave it up to us: our purpose built marketing solution can help you find out how frequently customers are purchasing your product in just a flash.
Purchase frequency describes the number of times that your customers make a purchase from you within a specified period of time. This information is crucial in helping you to understand your customer retention rate, your customers’ buying behaviors, and even the degree to which they’re satisfied.
For some goods, like dishwashing liquid or milk, the frequency of purchases is relatively fixed. For example, customers might buy a cup of coffee every day, or toothpaste monthly. For products that are intended to last a long time, like mattresses or refrigerators, purchase frequency might be intentionally low (if customers have to buy a new refrigerator every week, there’s probably a problem!). However, other products and services, like fashion accessories or vacations, can be bought more or less frequently - and more or less frequently from you, instead of the competition.
It makes sense that purchase frequency is one of the most common metrics tracked by businesses - the more frequently a customer buys from you, the greater the number of opportunities you have to satisfy that customer and turn them into a loyal following. And, we know from research on habitual buying behavior that loyal customers are lucrative customers. Because they come back time and time again, loyal customers are more likely to try a new product you’ve launched and are more likely to increase their spend with you - making them a crucial contributor to your revenues. In fact, it has been estimated that increasing customer retention by just 5% can boost your profits by 25% to 95%. If you know how frequently customers are coming back to make purchases, you’ll have a good understanding of your success at converting customers into repeat clients, helping you to make decisions about your customer retention strategy.
There are four main reasons why it’s important to measure purchase frequency:
There are two main approaches you can use to measure purchase frequency. If you already have access to your existing customers, you can capture valuable insight from their past purchasing behavior. Alternatively, using our tailored SurveyMonkey Audience solution, you can quickly administer a survey to a specially targeted market to find out how often they buy products just like yours. Let's take a deeper look at both approaches.
Using the historical purchasing behavior of your existing customers, you can estimate buying frequency fairly simply. The basic formula for calculating purchase frequency is as follows:
Customer purchase frequency = Number of orders ÷ Number of unique customers
Essentially, you measure purchase frequency by calculating the average number of orders per customer. This means you first need to know the total number of processed purchase orders for your company. This information should be easy to come by using invoice or receipt numbers over a specified period of time, but what time period should you use? That will depend on the specifics of your business (if you run a football club, there is little point in trying to measure the number of sales in the off-season period), but for most businesses, it makes sense to capture the total number of orders in a 12 month period. This allows you to take account of the impact of promotions, holidays and seasonality, while also allowing enough time for customers to make multiple purchases. For most businesses, it makes little sense to try to analyze the total number of orders made in less than one quarter of the year. However, note that the longer the time frame that you use, the higher your purchase frequency will tend to be.
The next step is to measure the number of unique customers that you served within that same time frame. It's important to only estimate unique customers to avoid overestimating the total number of customers that have purchased from you in that time frame. If you’re an ecommerce site, data on customers’ IP addresses or physical addresses will be helpful. Finally, by dividing the number of orders by the number of unique customers, you’ll get to an average purchase frequency figure. That figure will always be at least 1 (if, for example, you had 1000 orders from 1000 unique customers), but ideally much higher.
Another useful metric you can easily capture from your existing customers is the repeat purchase rate. Purchase frequency is what marketing professionals call a “laggy metric” because customers often make frequent purchases over a longer time lag. This means that it is usually more accurate to measure purchase frequency over longer time periods, up to 12 months. In contrast, the repeat purchase rate, which shows you the proportion of your customers that have purchased from you at least twice, can be tracked more regularly, such as weekly or even daily. If you notice your repeat purchase rate increasing, that’s great news: it shows that customer retention is improving, which indicates that you’re providing your customers with great value.
It's simple to calculate the repeat purchase rate using the following formula:
Repeat Purchase Rate = Number of customers who have purchased more than once in a year ÷ Total number of customers in a year
There’s no hard and fast rule to determine whether your repeat purchase rate is a good one. That depends on your industry. If you sell low-cost consumables, you’ll probably have a higher repeat purchase rate than a firm that sells high value items intended to last. But, even if your products are expensive, you should still aim for a reasonable repeat purchase rate for your sector.
If you don’t have access to historical purchasing data, don’t worry: you can still measure purchase frequency using a survey. This is especially useful if you’re a new business, or just planning to launch a new product. Probably the best way is to survey a market that looks like yours to find out how often people purchase a particular item. For example, you might ask a question like this:
Using SurveyMonkey’s wide variety of question types, answers can be captured in a range of ways. For example, your respondents might enter a figure of their own choosing, or be given the option to select from a prepared multiple choice list. Another approach might be to ask hypothetical questions to predict the frequency of a future product your company is thinking about launching. For example:
This information can be used to predict whether your customers are likely to be frequent buyers, which can help you design targeted marketing strategies and activities around their habits. Need inspiration for developing a survey to capture customer purchase frequency? Take a look at our example here, or let us do the legwork for you with our ready-made solution.
Up to now, we’ve focused on the importance of measuring frequency of purchase and exactly how to do it. What happens when you’ve gathered your data and purchase frequency seems to be low? Now, it's time to take action. There are some tried-and-tested methods you can use to increase purchase frequency.
Almost all of us are a member of least one loyalty or reward program. There’s a good reason for their popularity: they’re a win-win for customers and retailers alike. Customers are driven to join loyalty membership programs because of the opportunity to access rewards and incentives. Retailers, in turn, can cultivate those much sought after long-term customer relationships, and information about the customer collected via the loyalty card supports individualized marketing strategies and techniques, with positive returns. From the perspective of purchasing frequency, loyalty programs are one of the most successful strategies you can use. A customer will think twice about going somewhere else for their coffee if buying one from your store will contribute to a discount in the future. But, before developing a loyalty program, you need to make sure it's what your customer wants. Using our fully customizable survey solution, you can capture all the data you need to inform the development of a program that works for your market.
Also known as retargeting, remarketing is a highly effective technique that can be integrated into a broader marketing campaign to increase purchase frequency. Remarketing helps you reach customers who have previously purchased from you or visited your store or website. By showing customers relevant ads or reconnecting them with similar products to those they’ve already purchased, remarketing campaigns can convert one-time buyers into repeat purchasers. How does it work? Imagine you sold an art print to a customer through your ecommerce site. You might email that customer with images of similar pieces, and perhaps even include a discount code to entice them to buy again. By focusing on products you know they’ll like, you can be assured that your marketing efforts are not wasted, which puts you in a great position to increase your average customer repeat rate.
Customer retention marketing is all about keeping in touch with your existing customers. Like remarketing campaigns, customer retention marketing can be used to directly drive sales. For example, the winback email is an email marketing technique used to contact a customer who hasn’t made a purchase for a certain amount of time, in order to tell them about a new deal, remind them of the brand and win them back. However, you don’t even need to try to encourage a sale using customer retention marketing. You might, for instance, send a newsletter or a blog to your existing customers to try to build up a relationship with them.
Once you know how many unique customers you have, and some background information about them and their historical sales, you’re in a good position to develop some personalized marketing campaigns. Even calling customers by their first names helps build up trust. Another common method is to make recommendations for future purchases based on what you know they like. By also offering an incentive to buy, you can provide the type of one-of-a-kind customer experience that customers love, and that keeps them coming back for more.
Ready to measure purchase frequency and get started on your customer retention journey? Try our specialist market research solutions today.