Zsuzsa Kecsmar is the Chief Strategy Officer of Antavo Enterprise Loyalty Clouda leading provider of loyalty technology.
Loyalty programs have been helping organizations retain customers, encourage repeat business, and promote brand awareness for decades. However, some organizations still shy away from measuring return on investment (ROI), often because they find it too complex.
However, measuring ROI is just one of many metrics that help you see what’s working and how to optimize your program over time. To help you measure the effectiveness of loyalty programs, here are some of the most common key performance indicators (KPIs) and metrics used by businesses today.
1. Return on investment
ROI is one of the most fundamental metrics used to evaluate the success of a loyalty program. Sounds clear? Not everyone does. According to my company’s research in our 2023 Global Customer Loyalty Report, 80% of companies measure the ROI of their loyalty programs.
I recommend tracking ROI consistently to understand trends and identify when you need to make improvements or renew your program. While most programs don’t pay off in the first year of operation, it’s still worth tracking your program from the very beginning so you can see progress from year to year.
2. Repeat purchases
A loyalty program should motivate customers to make critical second and third purchases. Therefore, this list would not be complete without the repeat purchase KPI. Measuring the ratio of members who have made more than one purchase over a period of time to the total membership base should give you a better understanding of customer spending patterns.
However, keep in mind that products with higher and lower purchases should measure this KPI over different time frames, to ensure a fair assessment of repeat purchases among members. This metric is important because repeat purchases, along with higher purchase values, are also indicators of brand confidence. According to recent research by Deloitte Digital1 in 5 consumers spend at least 50% more money on the brands they trust.
3. Redemption Rates
The redemption rate measures the percentage of customers who redeem their loyalty rewards. Understanding the redemption rate of points, cashback, and rewards will help you know how many people are actually participating in and getting the most out of your program. A higher redemption rate means customers find value in your rewards, leading to increased customer satisfaction and retention.
However, a low redemption rate may indicate that your members do not find your rewards attractive or relevant. It could also mean that they find the process of redeeming rewards too cumbersome. My advice for improving your redemption rate is simple: consider offering a wider variety of rewards, some of which are easier to get than others. You can also tailor the rewards experience to customer preferences if you have personalization tools.
4. Incremental sales
Another indicator of loyalty program performance is the amount of additional revenue the program generates. While ROI measures the overall profitability of your loyalty program, incremental sales give you an idea of the increase in sales volume that the rewards program has helped achieve. In my experience, members usually spend more than non-members. You could certainly argue that this is simply because members are naturally more engaged. However, by tracking the incremental sales KPI, you can understand exactly how much additional extra spend the loyalty program generates.
By consistently tracking this number, you can know when the loyalty program is working well and when it’s wise to introduce new benefits or promotions for members that will encourage them to spend more. For even more insight, measure this metric across different customer groups to understand how promotions work for different types of customers.
5. Less customer churn
According to the findings of the Global Customer Loyalty Report 2023, only 65.1% of respondents with a loyalty program measure customer churn. From the same report we also know that companies invest less in customer acquisition and more on retention.
Understand customer churn, or the rate at which customers Stop doing business with you is essential to any successful loyalty program. Companies can use their loyalty programs to build long-term relationships and make an effort to increase customer satisfaction both within and outside the rewards program. To understand the impact of your rewards program on customer churn, compare the churn rates of loyalty program members to non-members. Lower churn among loyalty program members indicates that your program is effectively doing its job: retaining customers.
Measuring the success of your loyalty program involves monitoring a variety of metrics, and not every company will track the same set of metrics. However, in my experience, it’s always a safe bet to start with the key stats above. Investing time in establishing and tracking core loyalty program KPIs will allow you to make data-driven decisions that can help you optimize your program and keep customers engaged… which is the main reason most companies outsource their loyalty programs launch in the first place!