If you’ve decided to add a loyalty program to your ecommerce store, chances are you have a lot of questions about your program configuration.
What should you offer points for? What rewards should you offer? How many points should your first reward be valued at?
In this post, we’ll help you answer some of those questions when it comes to loyalty program configuration. We’ll cover point valuation, optimal reward values, average order values, and more. We’ve got a lot to cover so let’s dive in!
In order to determine how many points your first reward should be valued at, we first need to break down two things–the value of your points and how customers can earn them.
In this section, we’ll cover a technique for determining an optimal point valuation, popular points earning actions you can set up, and guidelines for how many points you should offer for each action.
Determine an optimal point valuation
The key to finding an appropriate point valuation is ensuring that there is a fair trade off between you and your customers. In other words, you have to ensure you’re giving your customers enough points to redeem valuable rewards but you shouldn’t have to sacrifice your profit margins to do so.
As a rule of thumb, we recommend giving 3-10% back in points for every dollar spent.
If you have high value products and healthy margins, you can aim closer to 10%. For example—let’s assume you offer $1 in rewards for every 100 points earned. When it comes to earning points, you’re going to want to offer 3 – 10 points for every dollar spent. This is because 3 points earned divided by 100 points needed for a dollar off = 3%.
Set up earning actions with appropriate point values
The next step in determining an appropriate rewards redemption rate is figuring out how many points you will offer for each earning action. We’re going to run through some of the most common points earning actions and our recommendations for point values assuming 100 points = $1 in rewards.
- Sign up bonus—it’s best practice to offer a generous incentive to motivate customers to create an account, but don’t offer enough points to redeem your first reward. This will ensure customers use their account instead of creating a new account every time they shop with you to receive that discount. A good rule of thumb is to offer about half of the amount of points needed for your first reward. So if you offer $5 off for 500 points, then a 250 sign up bonus is great!
- Social media—offering points for following you on Instagram, TikTok, or liking your Facebook page are great ways to build your community off your website and promote your loyalty program. The total points value from all your social actions and sign up bonus should not exceed the points required to cash in that first reward. For example, if we maintain that your first reward is 500 points = $5 off and your sign-up bonus is 250 points, you can offer 50 points for each social media follow. As long as you don’t offer more than 5 social media earning actions, you’ll still be under that first reward threshold.
- Birthday bonus—make your customers feel special on their special day! Since this can only be earned once a year, you can be generous and offer more points than you would for social media actions or sign up bonuses. For birthday points, you can offer up to the same amount of points needed for your first reward. And don’t worry, customers need to enter their birthday into their account at least 30 days before redeeming that birthday bonus so you won’t have customers coming around on their birthday and leaving the next day.
- Reviews—it’s a great idea to reward your customers for leaving a product review either on your website or social media. Since you know your customers have already shopped with you once, you can be generous with these rewards. We recommend about half the points needed to cash in that first reward, similar to a sign-up bonus! Turkish leather goods brand, Galen Leather offers 200 points for customer reviews using the Smile.io and Judge.me integration.
Now that we’ve covered how many points you should offer for each earning action, it’s time for the other piece of the puzzle—redeeming points. A good goal is for your store to have its first loyalty redemption within 30 days of a customer signing up for your program.
You need to ensure that customers have to make a purchase before being able to redeem a reward. This ensures that they are actually incentivized to shop from your store at least twice. But you don’t want your customers to lose motivation either. We recommend that you make sure that a customer needs to purchase at least once, but no more than 3 times. Consider your customer purchase frequency and make the rewards attainable.
Picking your reward types and their values
Something you’ll need to figure out before setting up your rewards and their values is your average order value. This is the typical amount of money a single customer will spend on a single transaction. This is going to help determine how many points your first reward should be valued at, specially when doing percentage off discounts.
You can calculate your AOV manually if you know your total annual revenue and total number of orders using the formula above. But you can also take advantage of the analytics offered in your ecommerce platform and let them do the math for you.
Here’s how you can quickly find your AOV in Shopify, Wix, and BigCommerce in a matter of clicks.
Once you have the analytics you need from your store, you can choose from a variety of different reward types:
- Percentage discount—These types of rewards have the potential to be very high value because it varies depending on how much the customer spends. This is where your AOV comes into play. For example, if you have an AOV of $100 and you want to offer 20% off, you should value that reward at 2000 points because that would be a dollar value of $20 if 100 points = $1 in rewards. But, if your AOV was $50 and you wanted to offer 20% off, you could value that reward at 1000 points since 20% of $50 is a $10 value.
- Amount discount—You can choose between fixed or incremental amount discounts with monetary amount rewards. Fixed rewards are predetermined amount discounts available for predetermined point values. For example, $5 off for 500 points or $10 off for 1000 points. Incremental amount discounts are when you assign a dollar value to your points and let customers determine how much they want to redeem. For example, if 100 points = $1 in rewards, customers could redeem 577 points for $5.77 off. The most important thing to remember with incremental points is to set a minimum so that customers need to make a purchase before redeeming a discount.
- Free shipping—If you don’t already offer free shipping on your orders, this makes a great reward! Who doesn’t love free shipping? The key here is to determine your average shipping cost and value your reward accordingly. If you pay an average of $15 on shipping for every order, you can value your reward at 1500 points when 100 points = $1 in rewards. Be sure to set a maximum value for this reward because you don’t want to lose money on expensive international shipping cost orders.
- Free products—Another great reward option is free products. You can offer products that you are trying to clear out of your inventory or offer new products exclusively as a reward to build excitement around it. Once again though, ensure you are offering it at a fair value to both customers and you. If you sell a product for $30, you’d want to offer it for 3000 points when 100 points = $1 in rewards.
A points program example in action
Now that we’ve covered all the basics, let’s put our learnings into action with an example of a loyalty program.
If you offer 3 points for every dollar spent, and have an AOV of $65, then your average points per purchase are 195 (3 points x $65 = 195 points). For non-purchase related actions, this example offers points for signing up, and social media actions, giving a total of 300 available points before a purchase.
Now when we look at the rewards, we can see the value of rewards, the points needed to redeem them, and the number of purchases until redemption based on the average points per purchase. This is a healthy example because the first reward requires at least 1 purchase and the more valuable rewards require multiple purchases to ensure the customers remain loyal over time.
If we stick with our golden rule of 3 – 10% back for every dollar spent, your first reward should be valued at just over the amount of points a customer can earn without making a purchase. This is all the points they accumulate from social media actions and a sign-up bonus. This ensures they have to make at least one purchase before redeeming a reward.
Your first reward should be valued at just over the amount of points a customer can earn without making a purchase.
The actual dollar value of your first reward depends on your average order value. Keep your first reward within that 3-10% range! If your AOV is $300 and your first reward is $5, that’s not very motivating with a cashback percentage of just over 1.5%. But if you increase that first reward to $15 off, then you’re giving 5% back to your customers.
So while we can’t give you an actual number of points (that’s dependent on your specific store and margins), we can tell you to make sure that first reward meets the following criteria:
- Don’t give away enough points to redeem a reward before a purchase is made.
- Ensure customers need to make 1-3 purchases before redeeming the first reward.
- Give 3-10% back to customers in points for every dollar spent.
- Set your first reward just above the amount of points customers can earn without making a purchase.