How to Calculate Loyalty Program Return

Loyalty programs can generate strong financial returns by engaging guests by creating powerful incentives that encourage an increase in the frequency of visits, spending, and advocacy. But before you set out to develop a loyalty program that will help you improve your incentive program customer spending and visit frequency rate, you need to ask yourself several questions:

How will the benefits offset the program costs?

What costs and revenue do I include when calculating my return?

Revenue

More units bought
More visits
Promotions

Costs

Loyalty management technology
Services of a loyalty program provider
Product costs
Reward costs

Once you find the correct balance between your cost structure and your customer’s preferences, you can achieve success and improve upon your program’s return and only then will you be able to understand how to manage your program indicators, including the applicable costs and revenues. Understanding the indicators involved in the return aspect of your loyalty program ROI will assist you in creating a plan to maximize that return.

A well-designed loyalty program will motivate customers to visit frequently and spend more with you during each visit. In addition to revenue generated from a core program, with the data collected, you will be able to deliver relevant, targeted promotions to your loyalty program customers, resulting in an additional source of revenue.

The benefits of increased customer spending and visits offset the costs of incremental product costs, labor, rewards, and program administration; program returns are then realized, creating a positive loyalty program return. To understand the relationship between program costs and loyalty program return working with a knowledgeable loyalty service provider is a must. Inquire whether they will use a loyalty management platform used to get the maximum data points to calculate your loyalty programs ROI.

Planning and launching a loyalty program is the easy part, managing it over its lifetime is where it gets a bit complicated. It is essential to know how the interactions between costs and revenue in a calculation of return can impact your bottom line. Once you have a clear understanding of how your loyalty programs produce revenue and related expenses you can adjust program components until they align a profitable relationship between incremental revenues and incremental costs. An understanding of this information and decisions regarding the value of reward levels and subsequent promotional offers can be justified with quantified results.

To better understand loyalty program, return on investment, and much more call the experts at All Digital Rewards at 866-415-7703 or click the “Schedule A Demo” button at the button of the page to learn more!