Retention

How Do You Know If Your Rewards Program Is Working?8 min read

Building a brand community with a rewards program is by far the best retention strategy to grow your business and create lasting customer relationships. However, knowing whether your program is delivering the results you’re looking for is key to optimizing its performance and getting the most out of it.

As the world’s largest rewards program provider, we’ve worked with tens of thousands of brands running amazing programs. This means we can look at the data behind their success to help make your own program as effective as possible.

One of my favorite quotes explains that “you can’t manage what you don’t measure.” With two easy but insightful rewards program metric benchmarks in your pocket, you’ll be much better equipped to manage your rewards program like a pro.

Participation rate shows how easy and appealing your program is to join

Since repeat shoppers are your most valuable customers, knowing how effective your program is at capturing them is significant.  At the end of the day, converting a site visitor into a customer and that customer into a repeat purchaser are two of the most important conversions a brand can make. They also happen to be two conversions that rewards programs specialize in. However, a rewards program can’t do its job if customers aren’t joining it.

This is what makes your participation rate so important. It’s one of the easiest metrics to calculate and can provide valuable insights into how easy to join, motivating engage with, and delightful to share your program appears to your customers from the outside.

Participation Rate = Number of program members/Number of total customer

To calculate your participation rate, all you need to do is take the total number of rewards program members you have and divide that by your total number of customers. The resulting fraction tells you what percentage of your customer base is actively participating in your rewards program.

The average rewards program has a participation rate of 23%.

In our analysis of thousands of merchants running reward programs, we found that the average participation rate was approximately 23%. That means that for the average brand we looked at, almost a quarter of their customers are participating in their rewards programs. While this number will vary depending on your goals, it’s a great starting point as you optimize and promote your own rewards program.

What you can learn from your participation rate

A 23% participation rate tells us a couple of important things about your rewards program. First, it demonstrates that your rewards program is easy to find and equally simple to join, with a relatively frictionless adoption process.

An above average participation rate is a good sign that your program is easy and valuable to join.

Secondly, a high participation rate tells us that your program offers a genuinely valuable proposition for your customers. If customers weren’t interested in the rewards you’re offering, they simply wouldn’t be joining.

How to improve your participation rate

So what do you do if you find yourself on the lower side of the participation scale or just want to improve your participation rate in general?  With a few easy adjustments, you can turn more of your customers into happy rewards program members that keep coming back to your store:

  • Make sure that you are offering rewards that your customers actually want. The best reward programs thrive because they know what their customers find valuable, and then motivate them to earn it.
  • Promote your rewards program in a number of highly visible places on your website. This could include your homepage, navigation bar, and a dedicated program page. Customers will struggle to join a program if they don’t understand how it works, so make sure you have a straightforward explainer page.
  • Design an email campaign that introduces new and existing customers to your rewards program.  These messages should describe the value your program has to offer, direct your customers to more information on your store’s website, and give them a simple way to join!

Redemption rates are the pulse for how engaging your program is

Your redemption rate is one of the most important metrics you can use to get a sense for how your rewards program is performing.  Members will only have enough points to spend if they’re interacting with your program, linking your redemption rate to customer engagement — something that can be hard to assess on its own.

While the redemption rate might sound complicated, it’s actually another extremely easy metric to calculate. To figure out your program’s redemption rate, all you need to do is divide the total number of points or rewards your customers have redeemed by the total number that has been issued.

Redemption rate = number of points or rewards redeemed/total number issued

Knowing your program’s redemption rate allows you to keep your finger on the pulse of how well it’s performing.  While a customer joining your rewards program is a win in itself, it’s far from the finish line. Once they join, their behaviors within the program will tell you a lot about how much value they’re getting from it and how likely they are to remain engaged. If they aren’t seeing value you run the risk of members leaving your rewards program and churning from your brand community altogether.

As we’ve previously reported, effective customer engagement can be responsible for up to two thirds of a brand’s profits, so the redemption rate is one metric you won’t want to sleep on.

When conducting our merchant research, we split our redemption rate analysis into two branches: points redemption and rewards redemption. We made this choice because customers view and value points and actual rewards very differently.

As a result, points redemption rates tend to be much lower than rewards redemption rates. This is because points only represent the potential for a future reward, while a reward is a tangible offer that is ready to be redeemed.

A high redemption rate is an indication that customers are finding ongoing value in your rewards program.

The average brand sees a points redemption rate of almost exactly 13 %. Redemption rates close to or above this number are a clear indication that customers are engaged with the rewards program on an ongoing basis and are redeeming the points they earn for completing valuable actions. In other words, it confirms that the rewards you’re offering are valuable and that the earning actions to get them are easy enough to be performed on a regular basis.

If your points redemption rate indicates how motivated customers are to earn points, your rewards redemption rate tells you how excited they are to actually use them. When members see the value of your rewards and take the opportunity to use them, your rewards have the opportunity to help form the emotional relationships that create long-term, true loyalty with your brand.

Successful reward programs motivate members to earn points as well as spend them

In our study, approximately 66% of the rewards that were issued by brands were redeemed by their customers. In other words, only a third of rewards went unredeemed! This shows that successful reward programs motivate customers to both accumulate points and spend those points on the valuable rewards they’ve earned.

What you can learn from your redemption rates

The results from our merchant successes serve as a great benchmark for taking stock of your own rewards program.

Low redemption rates lead to member and customer churn, so don’t let them go unchecked.

If you find yourself with a points redemption rate significantly below 13% or a rewards redemption rate well below 66%, you need to critically assess how motivating your rewards actually are and how motivating your earning actions are to achieve them. Low redemption rates are a leading indicator that your customers are losing interest in your program, and losing interest leads to losing members which leads to losing sales.

How to improve your redemption rates

While low redemption rates can be worrisome, luckily there are a number of different ways you can have an impact on the member experience to help give them a lift:

Get your rewards program working overtime

A rewards program is an integral part of a retention strategy that works around the clock to strengthen your brand community and keep your customers coming back to your brand. By paying attention to key metrics like participation and redemption rates, you can benchmark your performance against successful rewards programs and get your program working overtime!

So what are you waiting for? Your rewards program is working – why aren’t you?

This article was originally published by our friends at Smile.io.

About the author

Steve Hutt

Obsessed with ecommerce, entrepreneurship, and Shopify. If you have the desire to learn and implement what's working for brands today, I'm stoked you're here! This blog and podcast is my digital brain where my guests and I share cutting-edge marketing strategy, must have Shopify apps, and marketing platforms that will help you grow and scale. To do this, I'm on the Merchant Success Team at Shopify Plus and host of the eCommerce Fastlane Podcast.