While having a loyalty program is the best way to build a strong customer base and grow the business, knowing whether it’s delivering the results as expected is vital to get the optimal outcome. Understanding the relationship between key metrics for loyalty programs helps you determine how engaging and financially sustainable your program really is.

Let’s check these below numbers to see if your program is doing its best.

Participation rate

What does it mean?

The program can’t work if no one joins in. The participation rate calculates how popular and easy to use your program is.

A suggested average rate for a reward program is 23%, which means almost a quarter of the customers participate in the program. The number may vary depending on the industry you are operating on and your goals, but it sets as a good starting point.

Why is the participation rate important?

Besides indicating how easy and simple to join the program as stated above, this rate also tells how valuable the customers perceive it to be. If they’re not fond of the rewards offered, they simply won’t join.

How to improve it

• Offer attractive and valuable rewards: Once the customers see value in your rewards, they become motivated to earn it.
• Simplify the program: Low participation rate sometimes results from the joining struggle that people don’t understand how it works, so make sure to have an explanation page and include it on visible sites.
• Promote the program on websites and social channels: Encourage people to register and take part in the program through direct links on social media and promotional emails.

Redemption rate

What does it mean?

It is one of the key factors in assessing program performance. It shows customer engagement, product satisfaction and has a huge impact on sales.

The average loyalty redemption rate is 13%. If your program’s rate is less than 13%, it is underperforming.

Why is the redemption rate is important?

The redemption rate shows how worthy customers perceive the program to be. While a high participation rate is a win itself, it’s still far from the finish line. Low redemption rate demonstrates losing interest in the customers which leads to losing customers and losing sales.

How to improve it?

• Set expiration dates for your rewards
• Offer multiple ways to earn points
• Send reminder notification

For more detailed solutions, check out our post on how to enhance a redemption rate.

ROI

What does it mean?

A Return On Investment (ROI) tells if you’re making profits as a result of offering loyalty rewards.

(Revenue generated: Total of all purchases made by any customer that is attributed to the program

Rewards earned: Total of all rewards members have earned, but not redeemed yet)

If your ROI is greater than 1, your program is profitable. For digital service providers, the suggested number is 3.

Why is ROI important?

If the rate is negative, your program is not financially sustainable. While you’re acquiring new customers, you’re ultimately losing money by offering rewards that are either too expensive or too easy to obtain. It could work for the goal of expanding the market where the growth is more important than profit situation, but it can’t ensure life-long development.

How to improve it

• Know how much you can offer: A proposed strategy on the financial situation is needed before starting a reward program and several weeks later to re-evaluate its accuracy.
• Include ‘alternative currencies’ (free shipping, early access, limited content) in the program: The best rewards aren’t always the most expensive ones.

A loyalty program cannot grow by itself. Keeping track of these 3 metrics gives you a clear picture of your program performance and shed light on problems.

Source: https://www.saasquatch.com/blog/how-to-tell-if-your-loyalty-program-is-working/