How to Assess and Improve the ROI of Your Loyalty Program

A rewards program can be a powerful tool, but how do you determine whether you're getting the best possible ROI?

loyalty program

A rewards program can be a powerful tool for your small business. After all, it's less expensive to make money from an existing customer than to acquire a new one. Pulling in new customers can be anywhere from five to 25 times as costly as simply retaining existing ones, according to the Harvard Business Review.

It can be tricky to objectively assess the ROI of a loyalty program: Are customers buying more because they're members, or because they were already fans of your products when they joined? Still, there are some useful guidelines for looking at your program's performance and finding ways to make it even more successful.

Crunching the Numbers

How you analyze your ROI begins with the type of data you've collected on your program. If you work with a data-driven loyalty card program, you can crunch statistics such as total spending, purchase frequency and order size. How much are customers buying each year? How often are they shopping? How much are they spending each time? Whenever possible, also quantify the buying patterns of nonmembers so you can make comparisons. A survey from consulting firm Accenture suggests that members of loyalty programs spend from 12 percent to 18 percent more than nonmembers, but your results may vary depending on your business size and industry.

Other small businesses don't have the data to run that kind of analysis, but can still sketch out how well their loyalty programs are faring. If your loyalty program is a simple punch-card system, for instance, ask your employees to tally how many punch cards they distribute during a given day, how many punches they give out (indicating how many customers have returned with card in hand) and how many times they've given out the freebie reward after however many punches. Starting with this data, you can then tinker with your program to see whether a different setup resonates more.

Planning for Improvement

No matter how well your program is doing, there is likely room for improvement. To refine your program, consider the following ideas.

  • Collect more data: The more info you have, the better you can tailor your program to appeal to your audience. Do you know what time of day or month people are buying? Perhaps you can entice your cafe's early morning coffee drinkers back in for an afternoon snack with the right promotion.
  • Train (or retrain) your staff: Make sure any employees who interact with customers know details about the program, so they can highlight potential savings and answer customer questions.
  • Simplify: Assess your loyalty program to find any complications that might dissuade people from signing up. Is it easy for your customers to see how many points they have? Do they translate easily into clearly communicated and attractive benefits? Rewards that are dependent on certain days, products or combinations of purchases can seem like more hassle than they're worth.
  • Maximize membership: Your job doesn't stop once a customer enrolls. Keep your brand at the top of their mind by communicating with them regularly, so they know what rewards they have and what promotions are coming.

Once you form your conclusions about this year and lay your plans for next year, don't stop looking for ways to improve. The key to a successful loyalty program is continuous assessment and refinement.