You’ve decided to run a loyalty program and you already have great ideas for every aspect of the customer experience, from rewards to gamification and members-only events. But one critical question that you have is: How much will the loyalty program cost overall?
If you’re feeling like cost is a grey area, don’t worry. Though it’s impossible to give an all-inclusive checklist — as no two loyalty programs are alike — this guide is meant to be a detailed breakdown of all the plannable (and less-plannable) aspects through five in-depth steps.
So, do you wish to know what’s the most cost-effective type of loyalty technology or what kind of costs you will incur post-launch? Grab a notepad and a pencil, and let’s get calculating!
Table of Contents
Many insights regarding loyalty program costs have come from Antavo’s Global Customer Loyalty Report 2023. Make sure to download it for detailed context!
Budgeting Step #1: Picking the Loyalty Program Technology
It may sound strange to start the budgeting conversation with technology, but think about it this way: the way you approach the development and management of your loyalty platform will determine the length of the implementation, the type of employees you need to hire, and, of course, the price of the software (or service) itself. There are three ways to approach technology.
- In-house development
When you develop a loyalty program in-house, you have full control over the whole process, which guarantees that the end product will reflect your vision. On the other hand, realizing a loyalty program on your own could take a significant amount of time—even years—as you’ll need to figure out everything about designing and running a loyalty program from scratch.
- Even if you go the DIY route, you still need to hire or work with loyalty and CRM experts, strategists and technology advisors to oversee the concept and implementation.
- You have to dedicate a large portion of your IT resources to full-time frontend and backend duties.
- Unless you frequently develop in-house projects, assembling a team for this job comes at a rather large cost.
- Custom development by an agency
Working with a third-party agency is similar to working with your in-house team, except you’re outsourcing the work to a company that already has the manpower. However, keep in mind that asking them to do the whole project is the most expensive route.
- You can either work with a marketing agency that has experience building loyalty programs or hire a development agency that has the technical project management and developer talent needed for the task.
- Agencies either build the loyalty program in-house or partner with a loyalty software provider. They are experts in design and UX, too.
- Asking an agency to manage everything often costs 200-400% more than licensing a third-party technology. Tech agencies are more affordable, but they usually don’t offer consultancy.
- Implementing a loyalty software
The main benefit of SaaS loyalty software is that the company behind it has both the knowledge and technology to help you set up and run your loyalty program faster than either of the previous solutions. Since the backend is already set up and ready, you only need to take care of the concept and the frontend.
- Even if you opt for out-of-the-box loyalty technology from a third-party vendor, it doesn’t mean you can sit back and relax. You will still need to oversee the implementation process.
- Make sure to choose a loyalty technology that integrates well with your tech stack, because out-of-scope developments will require additional time and money.
- Choosing the right vendor should be a careful process. The best way to conduct a search is to send RFPs to potential candidates, which clarify your exact requirements.
Budgeting Step #2: Calculating Predictable Costs
This section is meant to cover expenses that can be mapped with relative ease. For example, how many employees do you plan on dedicating to loyalty program management? How big should the launch campaign be? If you’re opting for a SaaS solution, you can also anticipate how much the subscription fee will be in the upcoming years.
- HR costs – Because everyone needs a team
This represents the total manpower working behind the loyalty program, This includes management tasks, progress measurement, and occasional help from the IT team if your technology demands it.
The findings from GCLR 2023 indicate that the average team size managing a loyalty program includes 16 employees — either from a single department or multiple departments.
Generally, you’ll need to employ the following team to run the loyalty program:
- A loyalty program manager.
- A CMO, who coordinates with the loyalty program manager.
- A marketing automation manager.
- An analyst who tracks the program’s performance.
- For occasional, high-priority marketing activities, such as a holiday reward campaign, you may also need to involve graphic designers, copywriters, or even a technical project manager.
- If your program runs in physical stores, you will also need to involve your Head of Retail and an operational team. You’ll also need to train in-store staff.
- Marketing costs – Spreading the news far and wide
The marketing budget should cover any form of advertisement, especially during the weeks surrounding the launch of your program. Once the program is launched, spare no costs to promote the loyalty program on every channel. Ensure it is visible on your website and make sure to promote it as part of your value offering through ads, social media, and videos.
Launching a loyalty program is a serious financial commitment. According to the responses summarized in the Global Customer Loyalty Report 2023, companies have invested or plan to invest $375,000 USD in the launch or revamp of their loyalty programs, on average.
Here’s a checklist of what you should dedicate time, money and effort to:
- Soft-launch the program with a small segment (like your top spenders or influencers) before going fully live
- Arrange an omnichannel marketing campaign
- Launch with a bang, and spare no expenses on the welcome reward, because you need as many early adopters as possible
- Have your team on standby for last-minute support or debugging
- Software cost – Without tech, dreams won’t come true
The most straightforward of the three predictable costs, technology costs represent all the money you spend on the loyalty program’s backend. If you choose to develop the program itself, this cost can become unpredictable. However, if you choose to go with a SaaS loyalty management platform, there will most likely be a fixed or scalable recurring fee.
Naturally, companies want to equip their marketing team with the right software to make their job easier and to reduce dependency on the IT team. Going “no-code” is the most straightforward way to do so. With this approach, setting up a loyalty campaign or offer can be done without coding knowledge and without any support from the IT team. Using a no-code platform also comes with a lower maintenance cost, and has a lower implementation cost overall.
- Implementation cost – The cost that’s often overlooked
One cost that businesses tend to either overlook or underestimate the importance of is the various expenses that come with implementation. Moving back the expected launch date because of delays in implementation means that you will have to keep paying all parties involved, including managers, system integrators, loyalty specialists, etc.
Naturally, the bigger your tech stack, the more complicated the implementation process will be. One critical error that businesses make is skimping on the testing to try and get back on track. Bugs have to be ironed out one way or another, but if you wait and do it post-launch, you will also have to compensate customers for the poor experience.
We’ve mapped out the implementation steps for both loyalty program revamps and new program launches in our definitive guide, but here’s a short summary:
- Fail-proof the concept
- Fully scope the project
- Take care of integrations with other platforms
- Configure the rules, rewards and campaigns on your loyalty program platform
- Perform User Acceptance Testing (UAT)
- Push the big, red button and launch the program!
Budgeting Step #3: Estimating the Less Predictable Costs
Contrary to expenses related to marketing and technology, it is more difficult to come up with a bottom line for your reward system, because incentives tend to fluctuate a lot. Based on customer feedback, you will need to make adjustments, such as removing unpopular rewards or introducing new rewards for holidays or special occasions.
Despite their ever-changing nature, here are some facts about loyalty program rewards.
- Coupons and discounts – The basics
In terms of redemption, there are two types of coupons: redeemable coupons and automatically distributed coupons. When customers need to use their points to get a coupon, they’re basically ‘paying’ for it, which is more beneficial for your business. Discounts that are given to members as a welcome gift, a birthday reward, or a tier-up bonus have a bigger usage rate and generate more interest, but are riskier simply because they come at a higher cost.
- Services – The cornerstone of long-term engagement
While planning your loyalty program, take into account the kinds of services you already offer. Turning your extended warranty into a members-only benefit gives you a powerful incentive at no additional cost to you, and has the power to heavily boost your enrollment rates.
Another approach is to lower the cost of certain services, e.g. express shipping, for those who sign up for the program. If you have tiers, the size of the discount can depend on the member’s current tier.
- Events – An impression that can last forever
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. To ensure community building doesn’t cut too deeply into your profit margins, lavish events like cocktail parties should come at a cost that only your highest-ranking members can afford, whereas movie nights and store openings should be accessible to everyone.
- Early Access – Everyone’s secret favorite
Very few know it, but early access is a golden opportunity among rewards. In brief, all you need to do is give a select number of customers the opportunity to purchase upcoming products before the general public. This is not only a zero-cost benefit for your organization, but members who have this privilege tend to go out of their way to capitalize on the opportunity, thus increasing their lifetime value. Early access should always be a top-tier or VIP benefit, so other members will have a clear motivation to climb the ranks.
- Content – Easy, yet engaging
Offer members-only blog posts or videos featuring tips and advice about a topic you have expertise in. Content is an ideal entry-level reward for tiered or perks programs that has the power to boost your enrollment rate. Content creation can either be outsourced or made in-house by your staff. Nevertheless, you can calculate the production’s overall cost, based on how much content you wish to publish each year.
Budgeting Step #4: Setting Benchmarks to Track the Results
Investing wisely in loyalty programs goes beyond simply setting a budget. If you wish to bring out the true potential of your program, you need to set reasonable expectations. For instance, most loyalty programs don’t have positive ROI during their first year. That’s not because they don’t work, but because loyalty program members need time to accumulate points and may only start redeeming the rewards during the second year.
Here are some facts about the performance and results a successful loyalty program can deliver, based on our GCLR2023 report:
- 4.9X more revenue than cost is reported by the vast majority (80%) of companies who measured a positive ROI of their loyalty program.
- 44.8% of sales are made by loyalty program members.
- The average lifetime spend of members who redeemed their points at least once is 6.3X higher than the spend of those who have never redeemed.
- The average annual spend of members who redeem personalized offers is 4.5X higher than that of members who have never taken advantage of such offers.
- The average annual spend of members who redeem partner offers is 3.4X higher than that of members who have never redeemed partner offers.
Bonus Step #5: Best Practices to Avoid Common Mistakes
As a parting gift, here’s a list of best practices that will help you avoid common pitfalls when planning your loyalty program.
- 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 will see it as a sign of good grace on your part. Making points, benefits, and rewards harder to obtain when the program is already live can cause hard feelings.
- Involve partner brands to provide different products and services in your program. It’s free advertisement for them and helps you provide relevant, varied rewards to your customers.
- Showing open favoritism towards top-tier customers is a double-edged sword. Practices such as providing VIP cash registers can brew anger and dissatisfaction among other shoppers, but your most loyal buyers will undoubtedly appreciate them.
- Sweepstakes are alluring and capable of mobilizing every participant within the program, though you only need to give the prize to a handful of lucky winners.
If you want to hear more about common loyalty program mistakes that can have a negative effect on your loyalty program’s success, check out this episode of Mission: Loyalty.
- Points, credits, or whatever currency you use in your loyalty program are 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 canceling a fan-favorite loyalty program can lead to backlash from your audience — sales will drop, too.
- If you use badges or challenges to shape customer behavior, make sure that the badges don’t solely reward actions that customers would do otherwise (like making a purchase) because it will be hard to measure whether a customer bought something because the challenge compelled them, or because they would have bought it anyway.
- Even if some rewards cannot be finalized in time for the launch (due to manufacturing or shipping issues), you should still display them on your website — just make sure you add a note that they will be available soon.
Now Everything Is Under Control
Now you’ve reviewed the basic loyalty program costs to 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 about our technology, or send us an RFP.
And don’t forget to download Antavo’s Customer Loyalty Report, an in-depth report that showcases dozens of statistics, as well as future industry trends to help you navigate the world of next-gen loyalty programs.