How do I know my loyalty program is working? Redemption rate.
I get asked a question about loyalty… probably weekly at this point. How do I know if my loyalty program is working? The tough thing about loyalty is it’s not a quick win. It is a tactic and strategy that you need to commit to for a while to truly see results. But, that doesn’t mean there aren’t some powerful leading indicators to look for along the way.
The best way to evaluate if your program is working is to look at your points redemption rate.
Loyalty Point Redemption Rate
Loyalty point redemption is a leading indicator that shows how healthy your program is. By healthy I mean whether your members are seeing enough value to participate actively or not.
If members see value in your program they will be both earning and spending points on rewards. After all, a member does not fully understand the value of your program until they turn their points into rewards and get that dopamine release.
This metric is also straightforward to calculate, and many loyalty apps will actually calculate it for you.
Calculation:
Redemption Rate = # of points redeemed on a reward / # of total issued points
What's The Average Redemption Rate for Ecommerce Loyalty Programs?
When I was at Smile.io we dug into the points redemption data we had for tens of thousands of online brands and discovered that the average redemption rate for ecommerce brands was 13.67%.
The average redemption rate in ecommere is 13.67%
While 13% was average we also found that the best programs had redemption rates above 30%. In general, when I am building a program I am looking for a loyalty redemption rate of 20% or greater. It shows that members are seeing enough value.
Factors That Influence Redemption Rate That You Don’t Control
Before I go into a couple of tips that will help you boost your redemption rate, it's important to call out a few things that influence your redemption rate that isn’t exactly within your control.
Age of Your Program
The age of your program has a huge influence on how high your redemption rates are. Members need time to earn points, engage with your program, and spend those points on a reward.
Redemption rates will be inflated when you first start a program as people rush to earn rewards. After that most programs see a lull in the next couple of months before returning to what you should expect to see at the 6-month mark.
If your program is brand new be weary of high redemption rates, they will likely stabilize. If your program is less than 6 months old I recommend waiting before doing anything too drastic to your program.
Where You Sell
Where shoppers live also has an impact on loyalty point redemption rates. Where I’m from in the great white north (aka Canada) has some of the highest redemption rates while Indonesia, Hong Kong, and other Asian countries are lower.
4 Tips to Increase Your Loyalty Point Redemption Rate
1. Offer More Ways to Earn Than Just Purchases
Points for every dollar spent. Those types of loyalty programs have been around for centuries, they are boring but effective. In order to make a program more exciting, you need to pair the points you give for spending with other types of earning actions.
A single purchase and a couple of other earning actions like following on Pinterest, sharing on Twitter, or subscribing to a blog should give the member enough points for a basic reward. This allows them to see value in your program quickly, which creates a switching barrier and makes them more likely to redeem.
2. Be Purposeful With How You Set Your First Reward
Your program members see value in your program when they redeem their points not when they earn them. It’s important to make your first rewards obtainable quickly. You want a member to be able to get that reward without just giving it away.
Your first reward should be worth about 25% of your AOV and obtainable after one purchase plus a few other actions.
That first reward should be worth about 25% of your AOV and a member should be able to redeem their points for it after a single purchase and a few other earning actions like the ones mentioned above.
If your points aren’t seen as valuable no one will spend points or even continue to earn them.
3. Create a Variety of Reward Options
If you want members to turn points into rewards you need to make sure that your rewards are appealing to them. Dollar-off discounts are a staple in almost every loyalty program but they are far from the only, or best type of reward.
Experiential rewards and access to exclusive products or early access to promotions are some of my favorite types of rewards. Creating a diverse catalog of rewards gives you more chances at providing something your members want to strive for. That desire to achieve the reward is what keeps program engagement high.
4. Communicate Both On-site and Off-site
Your loyalty program is just like any other marketing campaign you run. Would you run a big Valentine’s day event and just launch it and hope that people pay attention? Of course, you wouldn’t so why would you just launch a loyalty program and hope people pay attention.
The best programs provide a mix of both onsite and offsite cues and communication. They encourage customers to join the program with prompts on the homepage and across the site. This way members are always reminded of the benefits when they are actively shopping the site. If they claim a reward they are likely to use it right away.
But … if you only provide program communication while a member is on the site you are missing out on a TON of the benefits that a points-based loyalty program provides.
When a member is holding on to a points balance it presents a switching barrier that they need to give up to choose a competitor. You should be reminding them of that. I like to recommend that you include a member’s points balance in the header or footer of all email communication. This makes sure they are aware without rubbing it in their face.
It’s also important to build off-site communication that lets members know WHEN they should spend their points on a reward. I like to do this with an automated email that triggers once a member has a points balance that allows them to claim a reward. If you let them know they can claim a reward and they accept, it leads to a purchase.
The last type of off-site communication I recommend is bonus point events. In the same way that a sale generates demand, so too can a points event for your members. These are weekends or weeks when they are either earning bonus points or their points are worth more. If you are struggling with a low loyalty point redemption rate, a double point value weekend can help. Instead of each point being worth a dollar, make them all worth $2 for the weekend to get members to claim a reward and see real value in your program.
Increasing Your Loyalty Point Redemption Rate
I hope that these tips have given you the inspiration you need to go out there and make a more compelling loyalty program. If you need help evaluating your current loyalty setup or want some help designing your future loyalty program, please contact me. Loyalty design is one of my favorite projects.
I go over redemption rate and a few other retention topics in my most recent podcast with Cart Overflow if you prefer to just listen.
Key Takeaways
The above was a lot, I get it! That is why I always include the key takeaways for you to grab at a glimpse.
Loyalty point redemption rate is one of the best ways to evaluate the effectiveness of your program at driving greater customer retention
The age of your program and who you sell to will have a big impact on your rate
A variety of ways to earn points will help members get to a reward faster
Make sure you set your first reward at an obtainable amount of points
Make sure you are communicating your program on and off-site