THE PATRONAGE RATIO
The patronage ratio works on the same lines as measuring 'share of wallet' (see Budget Ratio) except that it does not directly consider the amount of money spent by customers. It compares the number of stores available to the customer (in which to purchase specific product category goods during a specific period) with the number of stores (i.e. product category competitors) patronised by the customer during that period.
THE SWITCHING RATIO
This ratio describes the degree of 'switching' between shopping locations (suppliers) for each customer, with a maximum score of 1.0 representing the most loyal customers. It compares the number of successive purchases from one merchant with known purchases from other merchants. As before, the actual spend value is not measured, resulting in a ratio that describes the switching propensity of low- and high-value customers with equal accuracy and weight.
THE BUDGET RATIO
This ratio, which expresses 'share of wallet', arrives at a ratio where the maximum score of 1.0 represents a customer who shops exclusively with you. It works by comparing the proportion of a customer's total spend at your outlets with their total spend within your market sector. Unlike the patronage and switching ratios, the budget ratio has the disadvantage of taking the amount spent into account, meaning that an unusually high spend with one supplier can distort the final ratio.
THE ENIS-PAUL INDEX
This index is a composite measurement technique for any customer loyalty programme. Its assumed definition of customer loyalty is this: "The consumer's inclination to patronise a given store during a specified time period". The Enis-Paul Index combines the formulae of the patronage ratio, the budget ratio, and the switching ratio, resulting in a percentage-based index whereby 0% represents complete disloyalty (promiscuity) and 100% represents complete loyalty.
CUSTOMER RETENTION RATE
The retention rate provides a snap-shot idea of how many customers are staying loyal from year to year, by comparing the number of shoppers in year 1 with the number who still remained in year 2, and expressing the result as a percentage.
The customer lifetime calculation provides a simple extrapolated view of the retention rate, expressing the expected lifetime (in years) of the average customer.
CUSTOMER LIFETIME VALUE
The calculation of customer lifetime value (CLV) is, in principle, no different than the calculation of the net value of, say, an investment in shares. The company only invests in customers it thinks will be profitable due to future spend, advocacy, etc. The CLV calculation considers not only a customer's expected net profit in each period but also a 'rate of credit interest' to compensate for the anticipated value of that money over all periods (accounting for inflation, etc.) The customer's enture lifetime is calculated in this way, period by period, and the sum of those periods is the Customer Lifetime Value.
UPLIFT NEEDED TO PAY FOR REWARDS
This working model allows you to calculate the sales uplift required to produce the same profit experienced prior to a rewards programme.