Customer loyalty 101: a practical guide for small businesses

When launching and running a business, you might focus primarily on how to get clients. But just as important (and considerably more lucrative) is turning new customers into loyal ones.

Customer loyalty is essential for driving repeat business, maintaining a steady cash flow, and building a positive reputation through word-of-mouth marketing. 

Fostering customer loyalty is one of the most important aspects of running a successful business. And, unlike marketing and new customer acquisition, you don’t need to spend loads of money to yield great results. 

In this guide, we’ll show you how to build customer loyalty and nurture it consistently over time. 

We’ll cover everything from what customer loyalty is, how it benefits your business, and the key factors that drive it, right through to practical strategies you can implement right away.

What is customer loyalty? 

When customers repeatedly return to your business or brand and favour you over competitors, they’re demonstrating customer loyalty.

Consider a coffee shop regular who visits the same café every morning on their way to work, preferring it over other options nearby — or a keen gardener who buys their supplies from the same shop each time, accepting their slightly higher prices because they trust their quality and expertise. That’s the very definition of customer loyalty in action. 

Customer loyalty is built gradually over time, based on a series of consistently positive interactions with your company. It stems from customer satisfaction, trust, and an all-round high-quality customer experience.

At the very least, customer loyalty drives repeat business. And, when customer loyalty is particularly strong, it may evolve into brand advocacy, resulting in positive reviews, referrals, and word-of-mouth marketing. 

From the very first moment a customer uses your service or buys one of your products, you have the opportunity to start winning their loyalty. We’ll show you how to nurture customer loyalty later on in this guide — but first, let’s consider why customer loyalty matters. 

Why is customer loyalty important? 

Customer loyalty is a great measure of how effectively you’re meeting your customers’ needs. Loyal customers are happy customers — and you need happy customers to drive revenue, keep your business afloat, and ensure long-term success. 

5 key benefits of customer loyalty 

1. Customer loyalty drives revenue and cuts costs

Customer loyalty offers huge financial benefits. Not only are loyal customers more likely to make a repeat purchase; they also tend to spend more than new customers.

At the same time, customer loyalty is synonymous with customer retention, which is famously much cheaper than new customer acquisition. 

Consider these compelling customer loyalty statistics:

• 65% of a company’s business comes from loyal customers

• You have a 60-70% chance of selling to an existing customer versus just a 5-20% chance of selling to a new customer 

• A company’s top 10% most loyal customers spend, on average, 3x more per purchase than the remaining 90% of customers

• Acquiring new customers can cost 6-7x more than retaining existing ones

In short: customer loyalty is a high-yield investment, crucial for driving revenue and keeping a healthy bottom line.

2. Customer loyalty boosts referrals and word-of-mouth marketing

You don’t get customer loyalty without high customer satisfaction, and satisfied customers make for great brand ambassadors. 

Happy, loyal customers are more likely to spread the word about your business and promote you to others — be it through positive reviews, glowing praise on social media, or recommending you to family and friends. 

This kind of social proof is incredibly powerful, helping you attract new customers at no extra cost. That’s a free and highly effective marketing strategy right there!

3. Customer loyalty enhances your brand reputation

Another great benefit of customer loyalty and all the free word-of-mouth marketing that comes with it? Your brand reputation gets an almighty boost. 

As your loyal customers share their positive experiences and recommendations, your business will become known for its quality products, excellent service, and overall commitment to customer satisfaction. 

Soon enough, you’ve built a positive brand reputation that sets you apart from your competitors. This gives you a strong edge in your market, increasing your chances of long-term success. 

4. Customer loyalty fosters stability and resilience 

As consumers grapple with the rising cost of living and think more carefully about where and how they spend their money, building customer loyalty is more important than ever.

We mentioned earlier that loyal customers account for the large majority of a company’s sales, and that it’s much easier (and cheaper) to sell to existing customers than it is to acquire new ones.

With a loyal customer base, you’ll be much better equipped to weather times of uncertainty and maintain a steady cash flow.

This is especially important for small businesses who are still finding their feet and working towards profitability. Given that just over a third of UK startups make it past the five-year mark, customer loyalty can prove crucial for making it out of the gates and reducing your risk of folding.

5. Customer loyalty propels organic growth

Focus on building customer loyalty and, when the time comes for you to start thinking about how to scale your business, you’ll find yourself in a great position.

Customer loyalty drives a stable revenue stream, builds a positive brand reputation, and boosts word-of-mouth referrals — all of which contribute to steady organic growth. Organic growth is both low-cost and low-risk, making it one of the most effective and accessible business growth strategies for small, early-stage companies.

5 factors that influence customer loyalty 

There are multiple factors that impact customer loyalty:

1. Quality

2. Price and value for money

3. Customer service

4. Trust and brand reputation

5. Ease and convenience 

Let’s explore each of these factors in turn and consider how they help to build customer loyalty. 

1. Quality

Customers are more likely to stay loyal to companies that consistently deliver high quality products and services. 

Imagine a small family-run bakery that uses locally sourced ingredients and bakes their bread and pastries fresh each morning. They’re more expensive than their competitors, but they are by far the most delicious. Their quality sets them apart and keeps loyal customers coming back. 

2. Price and value for money

Some customers are price-loyal; they’ll keep returning as long as you offer the cheapest products or services. But often more important than price is perceived value for money. 

You might not be the cheapest option on the market, but you can still gain loyal customers if you’re seen to be offering a good deal.

A local Italian restaurant might run a lunchtime special, offering a homemade pizza or pasta dish, a side salad, and a hot drink for a set price. Not only do their customers get a hearty meal — they also get to enjoy it in the cosy ambience of the restaurant. 

So, even though there are cheaper pizzas available from fast food venues in the area, customers feel like they’re getting more for their money with the restaurant. 

3. Customer service

Good customer service has a pivotal role to play in fostering customer loyalty. If you provide efficient and friendly support, offer personalised customer service, and generally go above and beyond to meet your customers’ needs, you’ll encourage existing customers to return and stay loyal. 

It’s something we can all relate to. You’d much rather go to the friendly hair stylist who always greets you warmly and offers styling advice tailored to your unique hair type than the impersonal salon where they rush through your appointment. 

Good customer service ensures that your customers feel valued and appreciated, meaning they’re more likely to return and recommend you to others. 

4. Trust and brand reputation

Customers are more likely to stay loyal to companies they trust, as well as those whose core values and practices align with their own. 

If you have a reputation for consistently meeting your customers’ needs, you’ll naturally build trust and loyalty. At the same time, customers might favour businesses who are committed to causes they care about or who give back in some way.

Customers might stick with a particular sandwich shop, for example, because they regularly donate surplus food to food banks and local shelters. Similarly, customers might choose to shop at a particular store because they know that the owner sponsors an annual community fundraiser. 

5. Ease and convenience 

Customers value seamless, hassle-free experiences — whether it’s being able to book online, making it easy for customers to find what they’re looking for in-store, or ensuring a quick and efficient checkout process. 

The easier it is for customers to engage with your business and access your products and services, the more inclined they’ll be to return. 

Imagine you want to grab a coffee on your way to work. You’ve got two options near the station, and they both offer good value for money and a tasty brew. However, the last few times you visited Coffee Shop A, they had issues with their card machine and you almost missed your train. 

Coffee Shop B, on the other hand, has consistently provided a quick, convenient experience — so that’s who gains your customer loyalty.

The 5 stages of customer loyalty 

Building customer loyalty takes time — and it begins from the moment a customer first encounters your business. 

From that point on, each interaction with your customers is an opportunity to gain their loyalty or strengthen your existing relationship, depending on where the customer is at in their ‘loyalty journey.’

You can think of the loyalty journey as a series of stages the customer goes through, with their loyalty increasing at each step. 

1. The awareness stage: the customer discovers your business

This is when the customer first becomes aware of your business. They might have noticed your storefront on the high street, heard about you from a friend, or discovered you online when searching for a particular product or service. 

They’re not a customer just yet, and they don’t have any loyalty towards you — but you’re on their radar. 

2. The consideration stage: the customer weighs you up for a potential purchase

At this stage, the potential customer evaluates the products or services you offer and thinks about making a purchase. 

They might peer into the window of your café to see if it looks nice for lunch, or quickly scan your menu to evaluate the prices. If you’re providing a service such as beauty treatments or hair styling, they might scroll through Instagram to see examples of your work and check Google for reviews.

They’re inching closer to becoming a customer, but they still haven’t made the move. At this stage, your goal is to get them through the door and start building a connection — a first step towards gaining their loyalty.

3. The trial stage: the customer makes their first purchase

Impressed with what they’ve seen and heard so far, the customer makes their first transaction with your company — be it purchasing a product or booking a service. 

This is a crucial moment in the customer journey, and your first real opportunity to start nurturing customer loyalty. The quality of this initial interaction will determine whether or not the customer returns, so it’s essential that you make a great impression. 

If the customer receives quick and efficient service, gets good value for money, and has an all-round positive experience, they’re on their way to becoming a loyal customer. However, if their first encounter with your business falls flat, they may choose not to return. 

4. The return stage: satisfied, the customer makes a repeat purchase

After their first purchase, happy customers may return to buy more products or use your service again. This marks their transition from satisfied new patron to loyal customer. 

From this point, the goal is to strengthen your existing relationship with the customer and build further trust and loyalty. You can do this by providing an increasingly personalised service, finding opportunities to offer additional value, and rewarding their loyalty (which we’ll explore in more detail with our customer loyalty strategies). 

5. The advocacy stage: the (now loyal) customer recommends you to others

When customers enter the phase of brand advocacy, they’ve reached the pinnacle of customer loyalty. 

By this point, you’ve built a strong relationship with the customer, won them over with your consistently high-quality products or services, and firmly gained their trust. This is when loyal customers are most likely to recommend you to friends and family and leave positive reviews.

7 strategies for building customer loyalty

We’ve explored the five main factors that influence customer loyalty. Now let’s consider some practical strategies you can apply to keep your customers happy, encourage them to return, and maybe even turn them into brand ambassadors. 

1. Double down on what makes you unique 

When you were brainstorming small business ideas, you’ll have thought carefully about how to create a USP for your business.  

This is the unique value you offer to your customers; the ‘X’ factor that sets you apart. And now, with your business up and running, it’s important to double down on that value to nurture customer loyalty. 

This is the unique value you offer to your customers; the ‘X’ factor that sets you apart. And now, with your business up and running, it’s important to double down on that value to nurture customer loyalty. 

Perhaps you pride yourself on using locally sourced ingredients, or on being a family-owned business with centuries of artisanal expertise behind you. Maybe all your products are made from recyclable materials, or you’re the only business of its kind that’s open on weekends. 

Whatever your unique selling point:

1. Communicate it clearly to your customers so they know why they should choose you (this goes hand-in-hand with developing a strong marketing strategy for your small business);

2. Deliver that value consistently, giving your customers every reason to return.

2. Build trust

Trust is the cornerstone of customer loyalty. If your customers can trust you to meet their expectations and provide great value, they’ll feel confident about purchasing from you time and time again.

So how can you build trust to foster customer loyalty?

First and foremost: be consistent. Your customers come to you for a specific reason — whether it’s because they love that your produce is always fresh, or because they know that you’re eco-friendly. Whatever you promise in terms of goods and services, deliver it consistently every time. 

Second: be transparent. Communicate openly and honestly about your ingredients, materials, techniques, manufacturing processes, pricing, opening hours, appointment wait times, and delivery windows — anything that relates to how a customer experiences your business. 

This helps with managing client expectations, building credibility, and establishing a trustworthy reputation — a strong foundation for customer loyalty. 

3. Provide outstanding customer service

You might sell the sweetest cookies on the block or run the most intriguing gift store for miles — but, if your customer service is bad, you’ll struggle to win loyal customers. 

Good customer service contributes to a positive experience with your business. It helps customers get the most out of your products or services, anticipates and resolves their problems, and makes sure that your customers feel valued and appreciated. 

Here are some practical steps you can take to deliver first-class customer service:

• Identify the most relevant channels for your audience and strive to be as responsive as possible, whether that’s online, over the phone, or in person.

• Personalise your customer service to foster meaningful relationships. As you get to know your customers on a personal level, look for opportunities to tailor your service — greeting them by name, for example, or sending an additional reminder if you know they have a tendency to forget their appointments.

• Handle complaints and issues with accountability and action. Apologise when things go wrong, find and deliver solutions quickly and efficiently, and compensate your customers for a negative experience — with a gift voucher, for example, or an extra product or service on the house.

By boosting customer satisfaction through excellent customer service, you can nurture customer loyalty and increase your chances of good reviews and referrals.

4. Deliver a seamless experience

If you want customers to return, be sure to deliver a smooth, hassle-free experience — from the moment they discover your business to the point of purchase and beyond.

Think about all the different touchpoints a customer encounters and optimise for ease, speed, and convenience. 

Consider:

• Your company website: Is it easy to use and navigate? Does it provide customers with relevant and useful information? Can they quickly locate key details such as your business address or phone number?

• Your checkout process (both online and in-store): Is the process as simple and straightforward as possible? Are there any unnecessary steps you could eliminate to make it more efficient? Do you have reliable point of sale (POS) technology in place to ensure speedy transactions and keep queues down?

• Payment options: Do you offer multiple payment options to accommodate different preferences and needs? Make sure you can accept a variety of payment types, including credit cards, debit cards, and mobile payments. Even if you’re on the go — a mobile hairdresser, for example, or a market trader — you can still take card payments with a portable card machine. 

• Returns and exchanges: Is it easy for customers to return unwanted items and get a refund? Establish a clear, uncomplicated returns policy, and be as flexible as possible in how you accept and process returns.

• Self-service: Where possible, empower customers to help themselves. You might implement online booking or appointment scheduling, or set up a refill station with jugs of cold water and glasses in your café or restaurant so customers can help themselves. You could even set up a self-service kiosk solution to streamline the ordering process, or place QR codes on each table so that customers can scan and pay at their convenience — no queuing involved.

5. Establish an emotional connection with your customers

When customers feel emotionally connected to your brand, their loyalty goes beyond practical considerations such as price or convenience. It’s much more deep-seated, based on trust, shared values, and a sense of belonging. 

Building an emotional connection takes time — but, as a small business with close proximity to your customers, it may be easier than you think. 

Here are some simple yet effective techniques you can use to connect with your customers:

• Share your story. Tell customers who you are, share the unique origins of your business and the inspiration behind it, and communicate your core values. Ultimately, what did you set out to achieve when you were thinking about how to start a business? If possible, include personal anecdotes and memorable moments relating to your company history. You can share your story on your website ‘About’ page, on social media, inside your restaurant menu, or on product packaging — anywhere that will catch your customers’ attention.

• Celebrate milestones. This is a great way to create shared experiences and foster a sense of belonging. Whether it’s sending your customers a special gift on their birthday or inviting them to join you in celebrating your business anniversary, find opportunities to connect beyond the transactional relationship.

• Engage with genuine care and empathy. Go above and beyond to meet customers’ needs, make each interaction as personal as possible, listen attentively, and communicate in a warm, friendly manner at all times (not only when thinking about how to deal with difficult clients).

6. Give something back 

If you’ve got the time and resources, get involved in the local community or support a cause you care about. This is a great way to put your values into practice and stand out as a socially responsible, community-oriented business. 

You might host an annual fundraiser, sponsor local events and initiatives, donate surplus stock, or offer pro bono services or discounts to non-profit organisations or individuals in need. 

Customers who share your values and care deeply about the causes you support will have yet another reason to stay loyal to your company — knowing that, when they buy from you or use your services, they’re contributing to positive change. 

7. Reward your best customers 

Customer loyalty is incredibly valuable for your business — and it deserves to be rewarded. 

Show appreciation for your most loyal customers by offering perks and benefits. You might do this informally on an ad-hoc basis; giving your regular customers a free coffee every now and again, for example, throwing in some free samples with their purchase, or applying a special discount just because. 

If you’re using email marketing for your small business, you might offer special rewards and discounts for email subscribers. This is a great way to keep your customers engaged and encourage repeat purchases. 

For a more structured approach to customer loyalty, consider setting up an official customer loyalty scheme. Many businesses offer customer loyalty cards, with a freebie or discount awarded after a certain number of stamps. 

Interested in setting up your own customer loyalty program? Then keep reading — we’ll show you how in the next section. 

What are customer loyalty programs? (And how to set one up for your small business) 

A customer loyalty program is a structured scheme designed to both incentivise customers to spend money with your business and to reward them for their loyalty. 

Imagine a customer has been to your nail salon or frequented your coffee shop a few times. They’ve had a good experience so far and they’re happy to return. If you can get them into your official loyalty program, you’ll give them yet another incentive to come back — because they know there’s a reward up for grabs once they’ve collected a certain number of stamps or spent a certain amount of money.

In addition to encouraging repeat business and boosting your net cash flow, customer loyalty programs can foster a sense of exclusivity and belonging. By giving loyal customers exclusive access to special offers and discounts, you make them feel valued and appreciated. This strengthens their connection to your brand and further deepens their loyalty.

The most effective customer loyalty programs for small businesses (with examples)

There are many different types of customer loyalty programs. But, when it comes to setting one up for your small business, we recommend keeping things simple. You want a loyalty scheme that’s easy to use, understand, and manage. 

With that in mind, here are three types of customer loyalty programs that work particularly well for small businesses. 

1. Stamp card loyalty programs

How it works:

Each customer receives a physical card that’s stamped every time they make a purchase or use your service. After a certain number of stamps, they get a reward such as a free product or a discount. 

Example:

A local coffee shop offers a free hot drink and pastry for every ten stamps collected.

2. Point-based customer loyalty programs

How it works:

A point-based customer loyalty scheme converts money spent into points. When they rack up a certain number of points, customers can redeem them for discounts, free products, or special rewards. 

This type of loyalty program works best for businesses that customers are likely to visit often — like a coffee shop, for example, as opposed to a bike repair shop where visits will be more sporadic. 

Example:

A local deli offers points for every pound a customer spends. When they accumulate 50 points, they get a 10% discount on their next purchase. 

3. Value-based loyalty schemes

How it works:

Value-based loyalty schemes encourage and reward customer loyalty not with rewards or discounts that benefit the customer, but with support for a cause they care about. 

Similar to stamp card and point-based programs, value-based loyalty schemes also track the customers’ purchases. In this case, however, stamps or points are converted into donations or contributions to a chosen cause or initiative. 

Example: 

A dog groomer issues a stamp for every client visit. On their 11th visit, 10% of the cost is donated to the local animal shelter. 

How to implement a customer loyalty program

1. Set clear goals

First and foremost, be clear on what you want to achieve with your customer loyalty program. Do you want to encourage repeat purchases, incentivise your customers to refer their friends, or demonstrate your commitment to social causes? This will determine the type of loyalty program you go for, as well as the rewards you offer. 

2. Decide on the type of loyalty program

With a clear objective in mind, choose a loyalty scheme that makes sense for your business. 

If you run a business that calls for frequent customer visits (like a coffee shop or café) a stamp card scheme could work well. But, if you only see your customers once a month or a few times a year, a points system based on the amount of money spent each time might make it easier for your customers to accumulate rewards. 

3. Determine what rewards and incentives you’ll offer

Next, consider how you’ll reward your customers as part of your loyalty scheme. Again, this will depend on the nature of your business and on the type of loyalty program you’re running. You might offer discounts, free products or services, exclusive access to sales and special offers, or the opportunity to donate to a good cause. 

4. Implement a tracking system

Make sure you’re able to track and manage your customer loyalty program. This can be as simple as a physical stamp card for each customer, or you might issue a scannable card that tracks points digitally. If you go for the latter, make sure your tracking system integrates seamlessly with your point of sale software.

5. Promote your loyalty program 

With your loyalty program up and running, there’s only one thing left to do: promote it and get your customers on board. 

Advertise the program in-store, leave loyalty cards on the counter for customers to pick up, and promote it via social media or email — whichever means and channels are most likely to have the most impact with your target audience.

Key takeaways and next steps 

Customer loyalty is critical for long-term success. Loyal customers purchase more frequently, spend more money per purchase, and yield a higher lifetime value than one-time customers. They’re also more likely to leave positive reviews and recommend your business to others. 

Invest in customer loyalty and you’ll increase your revenue stream, enhance your reputation, benefit from free word-of-mouth marketing, and prime your business for steady growth. 

So where to begin? Here’s how to get started with building and strengthening customer loyalty:

1. Review your business against the 5 main factors for customer loyalty. Earlier in our guide, we outlined the five key factors that influence customer loyalty: (1) quality, (2) price and value for money, (3) customer service, (4) trust and brand reputation, and (5) ease and convenience. Refer back to each factor and give yourself (your business) a score from 1-10 for each.

2. Total your scores to pinpoint one or two priority areas for improvement or optimisation. If you scored lowest on ease of convenience and customer service, for example, you’ll want to focus your efforts in those domains.

3. Implement the strategies from our guide that best align with the areas you’ve identified for improvement. Perhaps you’re confident that you offer excellent quality and value for money but need to work on gaining your customers’ trust and building your brand reputation. In that case, you might focus on better communicating your USP (strategy number 1: double down on your unique value) and building trust (strategy number 2: fostering trust through consistency and transparency). 

As you take steps to build customer loyalty, remember that your business is unique — and so are your customers. Prioritise strategies that make the most sense for your business and will resonate with your audience.

At the same time, focus not only on turning new customers into loyal ones, but also on continuously nurturing and strengthening those relationships. You want your customers to remain loyal for as long as possible, and that requires continuous effort on your part.