When launching the Loyalty program, it's essential to consider the discount/point value and make sure it's profitable for both parties, you and your customers. Choosing the discount value for a rewards program requires a careful balance between providing attractive rewards to customers while also ensuring that the program remains profitable for the business. Below are a few factors to consider:
Cost: Before choosing a discount or point value, it is important to know how much profit your business makes on each sale. Determine the cost of the reward, including any shipping or handling charges, to ensure that the discount value doesn't exceed the profit margin for the product or service. For that first, determine the minimum acceptable margin you require to cover your costs and make a reasonable profit. For example, if your minimum acceptable margin is 30%, you would aim for a gross margin of at least 30% on all sales.
Competitor Analysis: Look at the rewards offered by competitors in the same industry and make sure your rewards program is competitive.
Customer Value: Understand your target audience and their buying habits to determine what type of discount or reward will appeal to them. Consider the perceived value of the rewards to your customers. If the rewards are not attractive enough, customers may not participate in the program.
Customer Segments: Different customer segments may value different types of rewards. Consider offering a variety of rewards to appeal to a broader audience.
Set the discount rate: Based on the factors above, determine the maximum discount rate that you can offer while still maintaining an acceptable margin.
1. How to Determine the Dollar Value of a Rewardable Action?
To determine the dollar value of a rewardable action, you should consider the following factors:
Action type: Determine the type of action that you want to reward, such as making a purchase, completing a survey, or referring a friend.
Reward value: Choose the dollar value of the reward that you want to offer for the action. For instance, you would spend $1 for a hundred impressions from a promoted Facebook post, so you should be willing to offer your customers $1 worth of reward for a share on their page.
Adjust for Profit Margin: Consider the profitability of the action and adjust the point value accordingly to ensure that the program remains profitable for the business.
Not sure how much of a discount is right for your company’s average margin? We recommend using the table below as a handy guide:
2. Convert Dollar Value to Point Value
Now that you have defined how much an action or purchase is worth, you can convert that dollar value into points. For that you can use this formula:
$Value of Reward/Points Value (in $) = Number of Points
$5/ $0.01 = 500
You can use the formula above to find the number the points you wish to offer for different rewardable activities with your program.
Points Value = is the “money value” your points hold.
$ Value of Reward/Number of Points Required to Redeem = Points Value
Ex: $5 reward / 500 points = so each point is worth $0.01
*** By multiplying your point value by the total number of outstanding points, you can see the value of all the points your customers currently have in their possession...
Overall, choosing the right discount value for a rewards program requires a careful balance between costs, customer value, program objectives, and understanding your minimum acceptable margin. It's important to regularly review and adjust the discount value to ensure the program remains relevant and effective ✨.