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Loyalty Program and measuring effectiveness

Once you implement a loyalty program, these three metrics will help you measure the effectiveness of your loyalty program. Measure them and tweak to improve the effectiveness.

Redemption Rate

How many people are actually redeeming the rewards you’re offering? This is your redemption rate or burn rate. For example, if you issue coupons in your loyalty program, your redemption rate is number of coupons redeemed divided by number of coupons issued.

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We had a client who had a loyalty program for many years. They were quite happy about it and the reason was not many people really redeemed the reward they offered. They thought this was saving them money but they did not realize that people were not actively involving themselves in the program they offered defeating the purpose of a loyalty program. So having a high redemption rate is actually a great sign of success of your loyalty program.

Providing a great customer experience with a well-planned loyalty program can give your business the upper hand against larger competitors, turning customers into loyal customers and loyal customers into promoters.

On average, 13.67% of all points issued through reward programs are actually turned into a reward. If you have a redemption rate of 15% or above, you are doing a great job. However, you should aim to have your redemption rate higher than 20%.

If your redemption rate is sub-par, consider getting people active in the program by offering points for social media shares and referrals. Offering birthday rewards has the potential to 
increase redemption rates by 14.13%. Offering multiple ways to reward such as free products, free shipping, store credits and discounts can 
increase your redemption rate by up to 30%.

Active Engagement Rate

Another great way to measure the success of your loyalty program is to measure your active engagement rate which can be calculated by dividing the number of people who are “actively engaged” with your loyalty program by your total number of customers. Active engagement means how many are actively engaged through points earned and redeemed. Engagement rates cannot be increased with predictable, one-dimensional model that rewards customers with points and discounts.

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You should also focus on customer behavior to improve the engagement rates. Is your customer browsing certain reward categories frequently? Are they visiting certain areas of your site more than others? You can use this information and develop targeted offers by using a powerful email program like Klaviyo which can nudge your customer to buy or redeem.

Participation Rate

To calculate customer participation rate all you need to do is divide the total number of customers by the number of program members you currently have. The higher the percentage is the better.

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Customer loyalty is paramount in the overall success of a company. That’s why, whether your business is big or small, it’s important to think how you can strengthen relationships with your customers and inspire their loyalty and boost growth, reputation, and sales.

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