How to understand the ROI of your loyalty program

In this guest blog, Abby Healy, Director of Content at Glew.io, shares some important metrics you should keep an eye on when measuring the success of your loyalty program.

Brands invest in loyalty programs for one primary reason: to build and strengthen relationships with their existing customers. And there are numerous benefits to doing so: loyalty programs are proven to help you retain more customers, increase profit margins and drive revenue, not to mention, help you to create more personalised customer experiences.

But loyalty is a tricky thing to measure – and that means it can be hard to understand the return on investment you’re getting from your loyalty program. How can you tie something that seems qualitative – customer loyalty and satisfaction – to metrics like sales, retention and average order value? How do you know if what you’re doing is really working?

When you get down to it, though, it’s more simple than it seems. While “customer loyalty” is a qualitative concept, your loyalty program is made up of tons of data points – data points that, with the right analytics tools, you can use to effectively determine your loyalty ROI, understand whether your programs are performing the way you want them to, and find opportunities for optimization.

In this article, we’ll go over the best metrics for measuring your loyalty program ROI and how you can actually use them to create impactful loyalty program reports.

The seven best metrics for measuring your loyalty program

We mentioned that loyalty programs are great for boosting retention, revenue, profit and more. So it makes sense that to measure the success of your loyalty program, you’ll want to look at metrics that tell you whether or not your program is helping you reach those goals:

1️⃣ Point redemption

The most basic measure of your loyalty program’s success: are people actually using it? Measure your point redemption – among different customer segments, loyalty program tiers, and at different times of year – to understand whether your program is engaging users in a meaningful way.

2️⃣ Repeat customer rate

Repeat customer rate tells you a critical metric for loyalty success: what percentage of your customers are coming back to your store to make a subsequent purchase? (An easy way to calculate repeat customer rate: just take your total number of customers who have made two or more purchases, and divide that by your total number of customers who have made one or more purchases).

Picture 1

3️⃣ Purchase frequency

Repeat customers are important – but you also want to know how many purchases they’re making. Calculate purchase frequency to understand whether your loyalty program members are making more purchases with you over a period of time (you can calculate your yearly purchase frequency by dividing your total number of orders for the year by your total number of unique customers for the same year).

4️⃣ Average time between purchases

Another useful metric to measure customer retention? Average time between purchases. While this will vary depending on the business you’re in – a makeup company may have a significantly shorter time between purchases than a high-end electronics brand, for example – it’s still a good measure of whether your loyalty program customers are buying from you at the rate you expect.

5️⃣ Average order value

A major benefit of loyalty programs is that they can increase the amount your customers spend, driving your average order value up. But it’s important to measure average order value for your loyalty program members to validate that assumption – is your program actually encouraging them to spend more with you or buy higher-ticket items?

Picture 2

6️⃣ Lifetime value

Now we’re getting into the holy-grail metrics – the ones that really show you the value your loyalty program is adding to your bottom line. Lifetime value is the amount you can expect to earn from a customer over their entire lifetime as a customer. So ideally, you’d expect your loyalty customers to have a higher lifetime value than your non-loyalty customers.

7️⃣ Revenue, profit and margin

This part is relatively simple, but couldn’t be more important: how much revenue is your loyalty program customers bringing in? Is it more than your customers who aren’t part of your loyalty program? And on top of just revenue – what do your profit margins look like for your loyal customers? To get to this, you’ll need to be able to connect your loyalty data to your ecommerce cart and your product cost data.

How to track loyalty ROI accurately

You should be tracking key performance metrics like repeat customer rate, average order value, purchase frequency and lifetime value across your entire store. But the key to really understanding your loyalty program performance is the ability able to segment out and report on different groups, based on program enrollment, point redemption, loyalty tier and more, to see the impact your loyalty program is having.

Below are a few suggestions for reports to create to help you evaluate your loyalty program ROI:

Loyalty vs. non-loyalty status

The best, most simple way to see if your loyalty program is working? Create a report with the metrics above, segmenting out customers who are enrolled in your loyalty program vs. those who aren’t. Ideally, you’ll see higher performance in things like repeat customer rate, purchase frequency, average order value and lifetime value for your loyalty program-enrolled customers.

Performance by loyalty tier

If you want to go another level deeper, compare performance across your loyalty program tiers – are the people in your higher-level, VIP tiers contributing more to your bottom line than the people in your lower-level tiers? If not, why not?

Performance by point redemption

For a similar view, you can create reports that compare your loyalty program KPIs based on point redemption, using whatever segments make most sense for your company, compare your customers with higher point redemption vs. those with lower or no point redemption. What can you learn?

Custom loyalty segments

If you have a solid analytics platform and the ability to create custom segments and reports, the world is your oyster. You can segment out your customers by any metric you want to evaluate. This includes how long they’ve been enrolled in your program, their status, total points pending, approved or spent, revenue and more – not to mention, all the information you get about those same customers from your cart, marketing tools and other platforms. Sound complicated? It’s easy to do with an analytics platform like Glew.

Understand and optimize your ROI

If you don’t understand your ROI, you can’t understand what’s working and what’s not and that means you can’t make the smart decisions you need to keep your business growing.

Once you invest in a loyalty program, make sure you have the right processes and people in place to be able to report effectively on its performance, using the metrics and reports we’ve outlined here to ensure its success.

About Glew.io

Glew.io is a business intelligence platform designed for ecommerce and multichannel analytics. Glew helps merchants see all their data in one place and get meaningful insights to grow their business through prebuilt visualizations, scheduled and automated reports, alerts and more.

Subscribe to our newsletter

By signing up, you agree to our terms and conditions.

Ready to find out more?

Speak to a member of the team to find out how you could use LoyaltyLion to drive customer loyalty and engagement.

Book a demo