Four important factors that affect revenue earned from Loyalty Programs

According to Forbes magazine acquiring new customers costs 5x more than retaining existing ones. Moreover,  Markets and Markets forecasts the loyalty management market to grow from $6.8 billion in 2019 to $10.9 billion by 2024. Despite these figures, the importance of loyalty programs to the company bottom line and how they can generate revenue is not always clear especially since it is apparent over several years.

An efficient Loyalty Program must always deliver profitable revenues from the services it provides. Earning revenues from a loyalty program can depend on the following factors:

·  Personalization 

A rewards program can offer diverse opportunities for its customers to benefit. The more the merrier, however, customers are always interested in personalized offers that makes them feel understood and appreciated. Therefore, in order to increase revenue through customer retention loyalty programs need to be customizable rather than diverse. Being more personal and brining tailored redemption options, reward programs get a higher chance of retaining members, which is key to generating incremental revenue. 

·   Data Validation

When it comes to loyalty programs, efficient data collection is everything! This is not limited only to personal data. Information on the habits of points’ earning and redemption is vital to analyze how customers react to the points they earned. In general, marketers need to examine the number of points earned, points redeemed, and points expired each month to have an accurate forecast of the revenues.

·   Customer Segmentation

According to IC Group Inc loyal customers make up to 20% of a company’s customer base, furthermore, they are often actively involved in the program regardless of the offers. However, the challenge for marketers is allocating “Switchers” who are constantly moving between products depending on discounts and offers. These customers can highly affect the revenue from loyalty programs if they are provided by intriguing offers. Therefore, keeping a lookout on the needs of these customers who prefer not to commit themselves to one program is one strategy to increase revenue.  

·  Financial Modeling

Loyalty program liabilities and revenues are difficult to measure as they are based on member behavior and can be hard to predict or budget. However, in order to forecast revenue from these programs, a company must develop a financial model that takes into consideration all the factors initially required to evaluate the liability of a programs. Key factors include:

1.   Enrollment Levels

2.   Points Earned & Points Redeemed

3.   Program Costs

4.   Revenue from additional services such as membership fees or partnerships.

The point of this model is to estimate member growth, project the behavior of new members, and forecast the outcomes for current members.

It is important to understand the complexities of loyalty programs especially with the diverse options beyond simply earning and redeeming points. Airline loyalty programs are very different than those of banks for example, and as such these factors are among the many that could affect the profitability of a rewards program, especially since each industry vertical has its own metrics. Get in touch with PointCheckout to learn how our analytics can help determine your loyalty program profitability.