THE CLARUS Blog

The 9 Most Important Loyalty Program KPIs

Tracking your loyalty program KPIs and optimizing your program over time to keep it fresh and relevant is crucial to its long-term success.

After all, launching a loyalty program is a huge feat in itself, but you can’t stop there.

That’s just the beginning.

For example, how often is it being used? What benefits are members using most and how often? Are your members actually engaging with your brand more?

These nine loyalty program KPIs will help you keep a pulse on your program and provide insights to inform your future optimization efforts.

 

1. Member Acquisition

New members are the lifeblood of any loyalty program, so acquiring them is critical.

While this loyalty program KPI is simply the number of new members that join your program during a certain period, what it tells you goes much deeper. It can give you clues as to how consumers perceive your program.

If this number starts to fall or is low from the get-go, ask yourself:

  • Is my program easy to understand?
  • Does the marketing around my program resonate?
  • Do my customers find it easy to sign up?
  • Are my in-store associates educated about the program and are they getting customers excited about it?
  • And in a premium loyalty program that customers are paying to be in, does the value proposition make sense?

You can have the best loyalty program in the world, but it doesn’t do any good if no one knows about it.

Make sure your program and the value it brings are visible by implementing a comprehensive marketing plan.

Your program should be highly visible on your website, social media pages, email newsletters, in-store displays, and all other channels.

Just as importantly, make sure in-store associates understand the program and can get your customers excited about it. You can have the greatest loyalty program in the world, but if your associates never offer and explain it at check-out, your customers may never know about it.

And once your customers have decided to sign up, make sure it’s easy to join.

A lot of programs out there are confusing and feel like they require a spreadsheet to figure out. The more you can simplify tiers, eligible products, and the rewards schedule, the better.

To positively impact member acquisition, make sure your program is visible, easy to sign up for, and easy to understand.

 

2. Retention Rate

The only thing more important than converting customers into members is retaining them in the program. The retention rate is the length of time members stay with a loyalty program.

In a traditional free loyalty program, members will simply stop using the program if they aren’t getting value from it. In a premium loyalty program that members are paying for, they will cancel or choose not to renew.

If your retention rate is low, ask yourself:

  • Does our program have a clear value proposition?
  • Do consumers have any incentive to remain members after they join?
  • Am I truly listening to the needs of my customers?

In order to keep your retention rate up, you need to continually offer a lot of value.

Create targeted campaigns using customer data around a special event, holiday, etc. Offer instant benefits and try to reward members every time they shop. Give them a reason to stay engaged with your program.

Make your rewards easy to attain. If not, you will lose members.

 

3. Churn Rate

Churn is simply the number of members leaving your loyalty program over a specific period.

It can cost five times as much to attract a new customer than to retain an existing one, so churn rate is a loyalty program KPI that you don’t want to increase. It’s the opposite of retention.

As mentioned above, most traditional loyalty program members will simply stop using the program rather than cancel their membership. This can make determining a true churn rate tricky.

But in a premium loyalty program, where members are paying a recurring fee in exchange for enhanced benefits, a high churn rate means members are canceling and that you need to act now.

If this number is increasing, ask:

  • Are my members not getting value out of the program?
  • Are they getting the wrong types of benefits?
  • Are they getting enough personalized communications?

If this KPI is high, you should survey your members and look closely at your data to see what benefits they’re using and where they feel more value could be added.

It’s critical to continue adding to and optimizing your loyalty program to keep up with changing consumer expectations to ensure a low churn rate.

 

4. Reward Redemption Rate

This KPI is critical for any traditional or premium loyalty program. If members aren’t engaged, they won’t use your program often or ever.

This KPI shows which program benefits your members are using and how fast they’re using them.

A high figure shows that members are enjoying the program’s benefits thoroughly.

If the rate is low, it’s time to re-evaluate.

  • Do members even want the rewards you’re offering?
  • Are there certain benefits that can be cut and replaced with others?
  • Do members feel they’re not getting enough value of out the program? Is it taking too long to earn rewards?
  • Are the rewards values too high so that members can’t ever achieve them?
  • Do members have enough time to use the rewards?

Always let your members know about their point status on any given day at any given time. Make it easy for them to see it, so they don’t have to search for it.

Ask customers about your rewards to find out if they are valuable, or you need to offer different ones.

Think about your expiration policy because if rewards expire before members can use them, that’s not good for anybody.

You want your members to engage with your program and use the benefits. The more engaged they are, and the more meaningful benefits they receive, the longer they will extend their brand loyalty to you.

 

5. Purchase Frequency

Successful loyalty programs result in your members spending more as they shop more.

As members use the program more and earn rewards more often, they are more likely to shop more frequently.

For example, that’s why Amazon Prime members spend more than twice as much on average than non-Prime members.

And when members invest in joining a premium loyalty program, they become your best customers and want to make sure they’re getting the most out of it.

But what if your loyalty program members don’t purchase frequently enough for your business?

  • Are members getting value from the loyalty program every time they shop?
  • Are they being offered perks like free shipping without a threshold to discourage waiting to load up their shopping carts more?
  • Is there enough communication between your brand and your loyalty program members?

Try launching a retention email campaign. These campaigns can make a positive impact on your member repeat purchase rates. Re-engage current or lapsed members through win-back emails that include “we miss you” messages.

If possible, use information from a member’s last purchase.

Urgency is another email strategy used to entice customers to buy. Encourage members to spend points to redeem rewards. This can help increase purchase frequency.

Take advantage of special occasions throughout the year (Black Friday, Prime Day, Christmas, Valentine’s Day, Mother’s Day) to re-engage your customers via email, text, or social media.

Consider offering a premium loyalty tier where your members can opt-in to receive instant benefits and free shipping every time they shop, not just after a threshold or a certain number of points.

Giving members value every time they shop is a powerful strategy.

 

6. Average Order Value

One of the biggest benefits loyalty programs can bring retailers is an increase in average order value.

The higher your AOV is, the more revenue you can earn from the same number of loyalty members. That’s a big deal because it means you can increase revenue without additional marketing costs.

When members earn rewards from your brand for engaging with your program, it is proven that they will spend above and beyond the reward dollar amount and above a retailer’s current AOV.

This KPI certainly is critical to judge the overall success of any loyalty program.

  • What’s the AOV of program members compared to non-members?
  • Are members spending more per order after new loyalty program updates?
  • Does it look like the program is bringing more dollars to your bottom line?

If your AOV declines, consider using first-party data collected from your program to see what types of products your loyalty members like – and then offer personalized related products, recommended products, etc.

Consider that premium loyalty members are 4x more valuable than non-premium loyalty members.

 

7. Customer Lifetime Value (CLTV)

Simply put, customer lifetime value measures how much a customer will spend with your brand over time.

From a premium loyalty perspective, Customer Lifetime Value, or CLTV, is a comprehensive metric that shows the projected value of members in your program.

It’s important to ask:

  • Will the revenue this person generates over that lifetime be enough to cover the expense of my loyalty program?
  • How much does AOV need to increase per customer to make the program financially feasible?
  • Is the CLTV higher for members than it is for non-members?

If the math isn’t adding up, it might be time to take a look at the benefits construct of the program. In a free program, the cost of the benefits might be too high to justify.

In that case, it’s time to either source less expensive benefits, or think about a premium loyalty program where the subscription revenue can help to offset the benefits costs.

Either way, it’s important to understand how much each member is worth over the lifetime of his or her membership.

 

8. Incremental Margin

This KPI revolves around acquiring new customers.

It’s vital for the long-term health of any loyalty program because it focuses on the profitability of your loyalty program.

After all, if your loyalty program isn’t increasing profits, it isn’t going to be sustainable for the long haul. If your loyalty program is in the red, ask yourself:

If your program doesn’t show a positive incremental margin by the end of its second year, you might not be driving enough top-line revenue, and/or your program costs are too high.

If this is the case, you need to find ways to lower your program costs and/or revamp your program so that members engage more.

For a program to be profitable and sustainable, your members must contribute more dollars than the company invests in funding the program.

Take a hard look at the benefits you’re offering. Look at your reward redemption rate to see what members are using most. Survey your members – They want to talk to you!

The most profitable loyalty programs invest more in their best customers and this point speaks directly to premium loyalty programs.

Premium loyalty programs provide an incremental revenue source from Day 1.

Not only does this revenue help with your bottom line, but it can be reinvested back into the program to provide top-notch benefits that will encourage your best customers to engage even more.

A premium loyalty program can even help offset the costs of a free program.

Offer customers content that is relevant and engaging to them, attach strong incentives and a seamless experience, and you’ll acquire new customers and build loyalty.

 

9. Refunds

Like in all businesses, it is important to focus on refunds and make sure they are low.

This KPI is unique to premium loyalty because traditional loyalty programs are free for members.

Premium loyalty programs are designed to offer heightened value and instant benefits to members, so monitoring refunds help ensure that this is accomplished.

What questions should you ask if this number rises?

  • Am I giving my program members the type of benefits they truly want?
  • Does my overall program value keep members engaged and purchasing?
  • Is the cost of my program too high compared to the apparent value members see?

Listen to your customers.

Survey them, find out what they want, and give it to them in your program benefits.

Rethink your overall value proposition because if the numbers don’t compute for consumers, that won’t result in a successful premium loyalty program.

When you find that right benefits mix for your members, stay on top of your KPIs and continue optimizing the program over time. This includes adding or tweaking benefits and staying relevant to your members.

The “set it and forget it” approach won’t work.

 

Loyalty Program KPIs Measure Your Ability to Retain Customers

These loyalty program KPIs will be your ongoing guide to the health and sustainability of your loyalty program.

Each one is important and all of them are connected.

The most important thing to remember is that the work isn’t over once your loyalty program launches – It’s just beginning!

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