Zsuzsa Kecsmar is the Chief Strategy Officer of Antavo Enterprise Loyalty Cloud, a top loyalty technology vendor.
Loyalty programs have been helping organizations retain customers, encourage repeat purchases and promote brand advocacy for decades. However, some organizations still shy away from measuring return on investment (ROI), often because they perceive it as too complex.
Measuring ROI, however, is just one of many metrics that help you see what’s working and how to optimize your program over time. To help you start measuring loyalty program efficacy, here are some of the most widely used key performance indicators (KPIs) and metrics employed by businesses today.
1. Return On Investment
ROI is one of the most fundamental metrics used to evaluate the success of a loyalty program. Sound obvious? Not everyone does it. 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 pinpoint when you need to make improvements or consider revamping your program. Although most programs will not create returns in the first year of activity, it’s still worth tracking from the very start of your program so you can see year-on-year progress.
2. Repeat Purchases
A loyalty program should motivate customers to make critical second and third purchases. That’s why this list wouldn’t be complete without the repeat purchase KPI. By measuring the ratio of members who have made more than one purchase over a set period of time to the total member base, you should have better insight into customer spending habits.
Keep in mind, however, that products with higher and lower purchase industries 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 increased purchase values, are also indicators of brand trust. According to recent research by Deloitte Digital, 1 in 5 consumers spend at least 50% more money with 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 lets you know how much people are actually engaging with and making the most of your program. A higher redemption rate means that customers find value in your rewards, which leads to increased customer satisfaction and retention.
A low redemption rate, however, may indicate that your members don’t think that your rewards are compelling or relevant. It could also mean that they find the process of redeeming rewards too cumbersome. My advice for improving your redemption rate is straightforward: Consider offering a wider variety of rewards, some of which are easier to obtain than others. You can also tailor the reward experience to customer preferences, if you have personalization tools at your disposal.
4. Incremental Sales
Another indicator of loyalty program performance is the amount of additional revenue the program generates. Whereas 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 nonmembers. Certainly, one could argue that this is simply because members are naturally more engaged. However, tracking the incremental sales KPI lets you understand precisely how much additional increased spend the loyalty program is driving.
Tracking this number consistently can let you know when the loyalty program is working well and when it might be wise to introduce new benefits or promotions for members that will encourage them to spend more. For even more insight, you can measure this metric among different customer groups in order to understand how promotions are working for different types of customers.
5. Reduced Churn
According to the Global Customer Loyalty Report 2023 findings, just 65.1% of respondents that have a loyalty program measure churn reduction. We also know, from the same report, that companies are reducing investment in customer acquisition and leaning more heavily into retention.
Understanding customer churn, or the rate at which customers stop doing business with you, is critical for any successful loyalty program. Companies can use their loyalty programs to foster long-term relationships and make an effort to increase customer satisfaction both inside and outside of the rewards program. To gain insight into the impact of your rewards program on customer churn, compare the churn rates of loyalty program members versus nonmembers. A lower churn rate among loyalty program members indicates that your program is effectively doing its job: retaining customers.
Conclusion
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, starting with the key metrics above is, in my experience, always a safe bet. By investing time into setting up and tracking core loyalty program KPIs, you’ll be able to make data-driven decisions that can help you optimize your program and ensure customers are engaging … which is the main reason most companies launch their loyalty programs in the first place!
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