How to Measure Your Loyalty Program
Are you thinking about implementing a loyalty program? Or do you already have one in place? Chances are you do: After all, according to the research group Colloquy, there are 2.65 billion loyalty program memberships in the U.S. alone, and companies spend $2 billion on loyalty programs every year.
Assuming you’ve established one of those loyalty programs, have you given a thought to how it’s working?
Simply having a loyalty program doesn’t mean having a successful loyalty program. Many organizations don’t measure how a loyalty program influences growth and goals. They just create one to offer value to their customers, and aren’t certain how to ensure it’s having impact.
So what are some ways you can measure your loyalty program’s success?
Participation rate Let’s start with the basics. It’s easy to learn the rate of participation in your program: Simply divide your total number of customers by the number of loyalty program members.
An average participation rate is about 23 percent. While that may seem low at first, to have a quarter of your customers participate in your loyalty program is a great start. Participation rate gives you a sense of how many of your customers are willing and able to join your program, and how much of a potential value they see it as.
You may also be able to delve further and assess your loyalty program’s active members versus your lapsed members: What’s it going to take to bring them back into the fold?
Redemption rate Here’s another relatively simple one. To get redemption rate, divide the number of customers who’ve redeemed their rewards by the number of customers who’ve earned them.
If this rate is less than 20 percent, you may want to reconsider what you’re offering.
An engaging and effective rewards program rallies customers to earn and spend rewards; if they’re accumulating them but not doing much once they have them, they may not actually be loyal customers.
Active engagement rate This metric can show how many customers are getting involved with your business through points earned and redeemed. It’s measured by any customer who earns or spends points in a certain time period. This gives you an idea of who’s engaging with your brand—and, maybe, why.
So, why does that matter? Because many loyalty programs suffer from low engagement. In 2015, U.S. consumers participated in just half of the loyalty programs they belonged to.
A well-designed loyalty program can deepen customers’ activity with the brand through increased consideration, recommendation, sales and spending frequency. For example, 76 percent of consumers will shop more with the brand if they are engaged with your loyalty program.
Repeat purchase rate This metric assesses the percentage of your customers who come back to your business to make another purchase. To get this number, take your total number of customers and divide it by the number of repeat customers (e.g., customers who have returned more than once in a year). Multiply it by 100 to get a percentage.
Usually about a 20-40 percent rate is considered strong.
It may not speak specifically to a loyalty program, per se, but it does speak to loyal customers. Loyal customers come back for more. How can you extend your appreciation for their loyalty in a way that benefits them as well as your bottom line?
Why Metrics Matter Studies have shown that bringing in new customers is between five to 25 times more expensive than retaining new ones. And on average, repeat customers spend 67 percent more than new customers. That said, the more you expand your customer base, the better. And one way that can be done is by having a loyalty program that fosters a positive experience.
Overall, there’s no single metric that’s the be-all-end-all of ROI. What you can think about, however, are the overall goals of your business and how a loyalty program can help you meet them. How are you bringing in and keeping your customers? Is your loyalty program integrated into your business offering—or just an afterthought?