You’ve decided to run a loyalty program and you already have great ideas for every aspect of the customer experience, from rewards to in-store events. But one critical question that all companies face is: How much will the loyalty program cost?
Many of our clients ask our team what kind of costs to expect in a loyalty program so they can better plan according to their budget.
If you’re feeling like cost is a grey area, don’t worry. We’re here for you.
Here is a checklist (with a worksheet, an ebook and a video among other things) to help you begin calculating loyalty-related costs. It’s not all-inclusive, since no two loyalty programs are alike, but it’s a great place to start. I’ll also share some tips for making your plan budget-friendly.
So grab a notepad and a pencil, and let’s get calculating!
#1. [Worksheet] Planning the reward system
Let’s start out with a very important point. Having a great loyalty program requires a solid reward system. This includes:
- Coupons and discounts: There are two types of coupons: those that need to be redeemed using points or other types of loyalty currency, and those which are granted automatically, like a welcome gift, a birthday reward or a tier-up bonus.
- Services: While planning your loyalty program, take into account the kinds of services you offer already. Making your extended warranty into a members-only benefit gives you a powerful incentive, at no additional cost to you, while heavily boosting your enrollment rates.
- Events: Events come in all shapes and sizes, ranging from in-store community gatherings to huge anniversary celebrations filled with influencers and special guests. For this reason, it’s difficult to put an exact price tag on them.
- Early access: Very few know it, but early access is a golden opportunity among rewards. This not only has zero cost on your part, but those members who have this privilege tend to go out of their way to capitalize on this opportunity, thus increasing their lifetime value.
- Content: These can be members-only blog posts or videos featuring tips and advice about a topic you’re an expert on. These are ideal entry-level rewards for tiered or perks programs that have the power to boost your enrollment rate.
Since one of the most important elements of a loyalty program is the rewards (which can include both monetary and experiential rewards), we included a template here, which can help you design your loyalty program reward system. Download it here.
#2. Technical implementation
Technology costs represent all the money you spend on the loyalty program’s backend. To give you a better understanding, here are some service fees that may apply when launching a loyalty program with a loyalty management platform:
- Licensing fee – covers unlimited use of the loyalty platform
- Implementation – covers the concept finalization and the introduction of relevant technologies
- Integration – helps you connect the loyalty program with your existing ecommerce platform, POS, CRM, marketing automation, and other tools
- Technical support and maintenance – introducing new features or re-configuring existing features may cost additional money, depending on the time required for the development
- Loyalty concept consulting – experienced loyalty strategists can help you to develop the concept and business case, share relevant business trends with you, and more
- Frontend development – ensures the design of the loyalty program membership page fits seamlessly into your website
- Training – relevant for larger organizations, especially those that have plans for in-store promotions, training introduces this new program to all relevant staff members
#3. Promotion and HR costs
The HR cost represents the total manpower working behind the loyalty program, including maintaining it and running new campaigns.
The good thing about working with a loyalty software provider, however, is that the platform they offer is made with accessibility in mind. Managing a SaaS product takes, at minimum:
- A loyalty program manager, usually with a marketing or CRM background
- The CMO, who supports the loyalty program manager
- A marketing automation manager, who handles outgoing emails, newsletters, segmentation, etc.
Also, having a loyalty program is one thing, but making it a success story is another. That’s why your advertising budget should also be considered from the very beginning.
- Arrangements: Come up with design elements and slogans that align with your brand (e.g. visualize customer levels, rewards or activities, and use language that creates a feeling of exclusivity).
- Campaign launch: Announce your loyalty program launch in a newsletter, run Facebook ads, use retargeting, Google Adwords, or even create a promo video to drive signups.
- Lifetime management: Send follow-up emails, continue your promotions (advertise new rewards and program additions), run contests, and organize special events, which focus on increasing member engagement.
#4. Program management
After launching your loyalty program, the manager of the loyalty program will have daily and weekly tasks with the loyalty program, and need to think on a longer-term strategy (an area we help clients every 3 months).
- Run campaigns in the program: If rewards or activities run out or get boring, you’ll need to create new ones based on customer preferences.
- Analyze the results: Work with your finance team or your loyalty provider’s consultants to understand the results. From there, you can adjust program elements and communication to optimize those results. Antavo’s Customer Success team would help you understand both.
- Customer support: Answer customer questions and treat your most loyal customers with extra-special care. This principle explains why many fashion brands provide an exclusive customer service line for top-tier customers.
#5. [Video] Loyalty program ROI
Despite careful preparation, many companies worry about whether they will see a return on their investment. When asked about the topic, I always point out that loyalty programs – when done right – will help your business grow.
Still, ROI is a deep and complicated subject, which is why we decided to discuss it with Jörn Roegler, VP of Strategy & Insight at Antavo, in an episode of Customer Loyalty Minutes. In the episode Jörn pointed out that loyalty programs generate money in several ways: by using loyalty points as a currency, by changing customer behavior, and by teaching you more about your customers. Here are some other highlights from the video:
Knowing the theory behind loyalty program costs is half the victory, but I wanted to give you some practical advice too. And no one’s more knowledgeable about this topic than our brilliant in-house loyalty strategist, Timi Garai.
“Many companies are uneasy when it comes to setting up a loyalty program, as they fear customers will start exploiting the system to pile up free coupons. But if you’ve already distributed free discount vouchers, which didn’t even require customers to make a purchase, then loyalty program discounts are actually an improvement. So let me give you a few pointers on how to avoid the pitfalls many companies fall into.”
Senior Loyalty Strategist at Antavo
Here are some more tips that Timi shared with us.
- Create coupons with a minimum spend limit to ensure that loyalty discounts don’t hurt your margins. This value should depend on your margins and product pricing.
- It’s better to start off strict and adjust the details later, as customers would see it as a sign of good grace on your part.
- Involve other brands that provide a different product or service as reward providers in your program. It’s free advertisement for them and helps you provide relevant rewards to your customers.
- Avoid showing open favoritism towards top-tier customers at store locations. Practices such as providing VIP cash registers can brew anger and dissatisfaction among other shoppers.
- Sweepstakes are alluring and capable of mobilizing every participant within the program, though you only need to give the prize for a handful of lucky winners.
- Points, credits, or whatever currency you use in your loyalty program are considered to be the most optimal reward for a sweepstake, because customers can spend them on anything their heart desires.
- Always plan your strategy with care and foresight, as cancelling a fan-favorite loyalty program can lead to backlash from your audience, and your sales will drop, too.
Now everything is under control
Those are the basic costs you should consider when planning your loyalty program. If you would like to consult with an expert on loyalty program budgeting, ROI and optimization, our team is here to help. Book a demo with us to learn more.
If you would like to dig deeper, and learn more about Budget Planning, download our “Budget Planning 101 for Loyalty Programs” ebook.