Loyalty programs deliver positive results for businesses big and small. The importance of customer loyalty is widely known, but not all marketers and business owners know what to measure to ensure they receive all the benefits.
If you pay attention to the right numbers and think strategically about how you can use your loyalty program to help your company, you will see incredible results. Here are a few metrics that can help you determine whether your loyalty program is successful, and how to optimize them.
1. Member Enrollment
The first metric of your loyalty program that you should set out to track is your enrollment rate. Great initial enrollment rates depend on being able to communicate the value of the program in a way that’s enticing to your customer base. When you roll out your loyalty program to your existing customers, the benefits must be clear!
There are a few factors that will help improve your enrollment rate. The first is how enticing the benefits of membership are the second is the ease of signing up. If it’s a long and cumbersome process, that will deter people from joining. People should be able to sign up quickly and easily with enthusiasm because they know and desire the benefits that are waiting for them inside.
Another key factor will be your employees’ ability to describe the benefits of your loyalty program and motivate your customers to join. New members must be able to understand the benefits of your program and be eager to start participating. As time goes on, new potential customers will start discovering your loyalty program through your marketing efforts.
More than 11 million households participate in the AIR MILES Reward Program – that is 2/3 of all Canadians.
AIR MILES allows Collectors to choose from a huge selection of rewards, including travel, merchandise, attractions and entertainment, AIR MILES Cash, and more.
2. Activation/Engagement Rate
Beyond enrollment rate, the next and very critical metric to measure is the activation rate. The benefits might be enticing, and the signup process a breeze, but are members actually engaged in the? That is a true test of the perceived value of the program.
Many new loyalty program members start off keen to participate but don’t activate or stay engaged after the first transaction. According to Clarce Commerce, consumers belong to an average of 14.8 loyalty programs but are active in only 6.7 programs. Without long-term engagement, your loyalty program won’t be making much of an impact on your customers or your business. It takes a consistent effort to design program offers and new program rewards to keep people interested in loyalty programs long term.
A recent article in LinkedIn Pulse stated, “If your participation rate is below 15%, your program requires urgent attention. Once you hit a 20-25% participation rate, you can be confident that your program is here to stay and drive frequency and spend. Anything above it is excellent.”
To drive engagement rates, you must consistently offer a great long-term experience that demonstrates its value and stays interesting. A good loyalty program must ensure your program doesn’t just reward members at the start but continues to offer value into the future. Consistent offers on each sale, bonus offers on special products and services, and annual perks are great strategies to achieve long-term engagement.
AIR MILES cards are swiped over 1,000 times a minute
A reward is redeemed every 2 seconds
In August 2021, AIR MILES awarded its 100th Billionth Mile
3. Repeat Purchase Rate
The third metric we recommend tracking is repeat purchase rate. Each business will have a different sense of what constitutes a purchase. It could be a new product or service sold, or a regularly occurring monthly fee. To ensure you gauge repeat purchase rate properly, look at this number before implementing a loyalty program and use that as a baseline to track success going forward.
What constitutes a good repeat purchase rate is dependent on the industry. High-quality, long-lasting items will not have the same repeat purchase frequency as low-cost commodities. A high repeat purchase rate indicates that your loyalty program is effective and customers see value for their money.
Compare your repeat purchase rate of your loyalty program customers to those that do not participate, and you should see more frequent purchases from members. In one case study, one retailer noted that the number of transactions by their loyalty program members grew by 118% after implementing the program.
4. Average Spend Per Member
Another very important metric to follow closely is the average spending of your loyalty program members. Not only will members come back and purchase more often, but if your loyalty program is structured correctly, they will spend more per purchase. With the right tiered purchase incentives, every time they visit you, loyalty program members will spend more money on average than non-program members.
This model assumes that you have a conversion-based loyalty program that rewards on each purchase. Also, you must be able to track the average spend per loyalty member and compare it to the average spend per non-members.
The longer someone is a member of your loyalty program, the more they should want to spend, as long as they are enjoying the incentives and perks you offer. The increase in average spending per member can grow even more if you offer special deals, which should also be more popular with program members!
In one case study, a retail business noted their loyalty program helped them achieve year-over-year growth in basket size, number of transactions, and gross sales overall. Their average member transaction size grew by 59% and total gross sales by members grew by 88%. Not to mention, the program members spend 24% more on average than non-members!
One RV dealer implemented a loyalty program and noted that during a two-month promotional period, program members increased their purchases by 66% YOY compared to non-members.
Yet another study found that one retailer’s loyalty program members spent 87% more than non-members. Plus, they also spent an additional 75% during promotional periods!
5. Lifetime Value of Loyalty Program Members
The lifetime value of a customer who partages in your loyalty program is a great metric to measure success. We love this metric because increasing long-term loyalty is essential to reliable and steady business growth. To calculate the lifetime value of a loyalty program member, you must track how much people spend and how often they buy, as well as how long they stay engaged in the program. (Annual spending X number of years as a customer)
Customer lifetime value is important because the greater the number, the higher the profit. You see, spending money to acquire new customers and to retain existing ones is always necessary, but acquiring new customers costs five times as much as retaining them. The lifetime value of all customers is important, but loyalty programs will increase the value of each member.
One example exists with a B2B company that wanted to reactivate dormant customers and increase their overall spending. The results were impressive! With the implementation of a careful strategy, the client noted 30% year-over-year total revenue growth. Plus, their customer base and average revenue per user increased by 300%!
6. Organic Return Rates for Members or Organic Purchase Frequency
If your members are really excited about your program, the incentives and the benefits, they won’t need much convincing to come back. The organic member return rate is a metric based on the number of times a member returns without any help from marketing.
This metric is based solely on member engagement and the emotional tie they have with your business and loyalty program. These engaged loyalty program members will download your app, come back and visit your store or website often and search out your offers directly. They don’t need reminders and they don’t even do comparison shopping.
Now, this metric may be hard to track. Organic traffic versus traffic that was sent by marketing efforts may not be obvious. So, you may need to add codes to marketing efforts, and separate marketing-related sales from organic sales. Through careful tracking and comparison, you’ll soon see If your organic member return rate is improving.
7. Reduction in Discounting
Offering discounts is a normal part of boosting sales volume for most businesses, but discounts cut into profits and profit margins are key to business growth. Loyalty programs are known to help reduce discounts by offering a different type of incentive.
Some businesses have old inventory they need to move, others initially mark up prices to start, then lower them towards the end of a season, knowing the median price offers the profit margin they wish to maintain. However, loyalty programs are a great way to reduce those discounts.
One case study that demonstrates this metric is from a mid-frequency retailer that offered the choice of two purchase incentives: 3x loyalty program currency or a 15% cash discount. The loyalty program was responsible for selling 30% more merchandise at less than 50% of the cost of the cash discount!
8. Advocacy or Referral Rates
The next measure that’s extremely important to keep track of is your referral rate. Happy customers who receive great experiences want to share their experiences with friends and family. They rave about the businesses they love and loyalty programs are known to turn happy customers into raving fans.
To build your loyalty program successfully, you should also factor in incentives for referrals. You can offer incentives to loyalty program members for each new customer they send your way. Whether you are B2B or B2C, referrals start off new relationships with credibility because someone has already vouched for you
In the B2B space, referrals are some of the most valuable leads you can get. These statistics from Social Media Today showcase the value of referral programs.
- 78% of B2B marketers say that referral programs generate good or excellent leads
- 60% of marketers say that referral programs generate a high volume of leads
- 54% say that referral programs have a lower cost-per-lead than other channels
- Marketers rate referrals as the 2nd-highest source of quality leads
Leads through referral programs are highly qualified. When you think about it, referrals from happy clients typically come from friends in the same industry, with similar challenges, and the person who referred them knows that your product or service will be a good fit for them.
9. Success of Related Marketing Efforts
The final metric that we recommend you track is the effect that your loyalty program will have on all your other marketing efforts. A loyalty program does not replace your marketing strategy, but it can be one simple addition that improves all areas of marketing for small to medium businesses. Your loyalty program and incentive offers can be easily integrated into all your marketing messages, in all your marketing channels, and they can help during all stages of the buyers’ journey.
Loyalty programs provide a reason to send marketing emails to your clients and they can give you an angle for endless promotional campaigns, without cutting prices! With the right strategies, a loyalty program helps businesses attract new customers, encourages them to spend a little more, improves their experience and encourages them to refer friends and family.
For example, in one case study, a specialty retailer wanted to use its loyalty program to increase the frequency of shopper visits. They sent various loyalty program offers to their clients over seven months through direct mail and email campaigns. The results were awesome: the retailer noticed a 34% increase in visits to their store during the promotion period.
In another case study, a hearing aid business conducted an A/B testing email campaign, in which they sent some emails featuring their loyalty program and others did not. Remarkably, the email with the loyalty program in it saw a 178% higher click through rate than the email without.
Take note of the metrics of your marketing campaigns before and after implementing a loyalty program. Then, take note of the campaigns that involve loyalty program offers and the ones that do not. You should see a big difference in each.
Customer loyalty should be a focus for a business of any size and measuring the impact on your business is critical to its success. Leveraging all aspects of your program and continuous optimization are key.
Tracking the metrics we’ve outlined here will ensure that you are on track to achieve your objectives and you are getting the most out of your loyalty program.
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