Banking CRM: Are You Using These 4 Critical Metrics to Measure Customer Loyalty?

A micro-financing firm in Asia, having recently got a banking license, was looking to enter the sector in a big way. Their current operations were going smoothly and their balance sheet looked firm. However, this was not a cause for cheer. The firm had no idea how loyal their current customers where. Searching for the correct metrics for guidance, they found that it's a wild west when it comes to measuring customer loyalty in the financial industry. Different 'experts' had different notions as to what the perfect metrics were. No wonder the firm was struggling to get a direction.

As the competition in the world of finances continues to rise, the pressure to increase profits while meeting ever-evolving customer demands has been growing stronger. Banks of all sizes are challenged with the need to build customer loyalty, recognizing that increased customer retention rates can boost profits.

Are you loyal? Show me!
Customers typically demonstrate their loyalty to a business or product in two important ways; either referring that brand or product to others or making additional purchases or both. Measuring such metrics can often at times prove to be challenging for many banks and other financial institutions. This is particularly true as online and mobile banking has become the new reality for most financial institutions. 

Below, we take a look at four key metrics (tried and tested) that can be used for measuring customer loyalty in banks. 

Metric #1 Net Promoter Score
This is a relatively simple method for measuring customer loyalty. The result tells you how likely a customer would be to recommend your bank to a friend. Given that loyal customers have a greater tendency to make a referral; this method is generally a good indicator of the loyalty of your bank’s customer base. 

The net promoter score is determined by subtracting the percentage of detractors from the percentage of promoters. The result is the net promoter score. This information can be obtained by conducting a survey and simply asking a customer how likely he or she is to refer your bank to friends, using a scale of 1-10. Those customers respond with a 9 or 10 are considered promoters, while customers responding with a score of 6 or lower are considered detractors. With the help of CRM in Banking, you can take NPS scores quickly without having to enter any data.

Metric #2 Customer Acquisition Rate through Referrals
Measuring just customer acquisition does not reflect loyalty. An effective method will be to determine the percentage of customers growing the number of accounts with your bank. After all, just because a customer sticks around with your bank does not always mean that customer is loyal. An old account that is not really growing will not contribute much toward the bottom line for your bank or your brand growth.

Customer satisfaction should never be confused with customer loyalty, particularly in the banking industry. Just because a customer says he or she is satisfied, this does not necessarily mean that customer could refer their bank to others. Given that it is far less expensive to keep customers happy and loyal than to replace those customers with new ones, it is certainly in the best interest of any bank to learn to accurately measure customer loyalty metrics. Doing so can provide a positive return on investment as well as long-term benefits for a bank’s brand.

Metric #3 Customer Retention Rate
Retention rates show that your existing clientele has a strong foundation and are not going to switch boats soon. It is calculated by measuring how many customers you have retained over a period of time (can be annual, monthly or weekly) versus the attrition (customers who left) rate. Expressed in a formula, it is...

If you keep on focusing on acquisition without caring about retention, all bets are off on your profits. Who will you nurture? Who will you cross sell? What will you use your banking CRM software for? Remember, it is five to seven times more expensive to acquire a customer than to retain one. Also, loyal customers are worth 10 times as much as new ones.

Metric #4 Customer Effort Score

Source: Harvard Business Review;

Customer effort score or CES gives you a picture as to how much efforts customers are actually put in engaging with your service teams. CES takes into account repeat calls, transfers and medium switches. This is important as there is active involvement of the customers. According to a recent study conducted by Harvard, it would seem that out of the customers who reported low CES scores, 94% strongly signaled willingness to apply for new products.

After getting the metrics right, the newly minted bank, with the help of CRM, is ready to make a mark in the sector. By using all of the metrics above, your organization will be able to get a clear picture about how your loyalty program is faring now or in future.

Want to get the latest CRM insights? Stay tuned to our CRM blog.

request demo