How Do You Know If Your Rewards Program Is Working?

October 26, 2017
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Although rewards programs are the best answer to a wide variety of customer retention issues, that doesn’t mean they don’t spark a few questions of their own. A lot of these questions are pretty straightforward like “How often should I be calculating my metrics?” or “How do I get my brand ready for the holidays?”, but sometimes they require a little bit more effort and analysis to answer.

That’s where we come in!  As the world’s largest rewards program provider we’ve worked with thousands of brands running amazing programs, and these experiences have helped us answer questions that can usually only be guessed at. We’re excited to be launching a blog series that will pair our experience building rewards programs with thousands of datapoints from merchants we work with to find precise answers to some of these questions. The best part? It starts today!

We've conducted a study of more than 2,000 brands and 50,000,000 customers to help you answer the tough questions about your rewards program. 

Using data from more than 2,000 of our amazing brands and 51,000,000 customers, we’re going to answer one of the most nebulous questions you can ask about a rewards program: 

How do you know if your rewards program is working?

When you invest in a rewards program, you want to know that the effort you’re putting into it is paying off. In fact, figuring out how much you’re getting out of your investment is the entire basis of the ROI calculation - one of the foundational metrics of commerce. So the next time you’re asked to quantify the impact of your rewards program you’ll be ready to turn some heads with your program’s participation and redemption rates (and how they compare to studied averages).

Additionally, tracking the success of your program is the the first step to actually improving it. One of my favourite quotes explains that  “you can’t manage what you don’t measure.” and with two easy but insightful rewards program metrics in your pocket, you’ll be much better equipped to manage your rewards program like a pro.

  

An Effective Rewards Program Has a 40% Participation Rate

Your participation rate is one of the easiest metrics to calculate and can provide valuable insights into how visible, accessible, and desirable your rewards program is. 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 participating in your rewards program. 

How to calculate your participation rate
Your rewards program participation rate is calculated by dividing the number of program members you have by the number of total customers.

I could rhyme off a long list of stats about how profitable repeat customers are, but you’re probably already familiar with the idea. 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, there’s a catch: a rewards program can’t do it’s job if customers don’t join it. This is what makes your participation rate so important.

The average rewards program has a 40% participation rate.
Our study found an average participation rate of 40% among successful rewards programs.

In our study of more than 2,000 of our successful rewards programs, we found that the average participation rate was close to 40%. That means that for the average brand we looked at, almost half of their customers are participating in their rewards programs. That’s a pretty good conversion rate, if we do say so ourselves! 

What You Can Learn From Your Participation Rate

A 40% participation rate tells us a couple of important things about the rewards program in question. First, it demonstrates that the rewards program is easy  to find and equally simple to join, with a relatively frictionless adoption process.

High participation rates mean your program is easy to find and use
A high participation rate is a good sign that your rewards program is both accessible and desirable to your customers.

Secondly, a high participation rate tells us that the rewards program offers a genuinely valuable proposition for the brand’s customers. If customers weren’t interested in the rewards a brand was offering, they wouldn’t be joining. It’s as simple as that. 

How to Improve Your Participation Rate

So what do you do if you find yourself on the lower side of the participation scale?  Alternatively,  maybe you’re just looking to improve your participation rate in general. Don’t worry! With a few easy adjustments, you can turn more of your customers into happy rewards program members.

  • Promote your rewards program prominetly in a number of places on your website.  This could include your homepage, navigation bar, and a dedicated explainer page. Customers can’t join a program they can’t find it, so make sure you have an amazing 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 and direct your customers to more information on your store’s website.

 

An Effective Rewards Program Has A 13% Points Redemption Rate (75% for Rewards)

Your redemption rate is one of the most important statistics you can use to get a sense for how your rewards program is performing. It works well because it acts as a great proxy (or estimation) for customer engagement, which is often hard to asses.

While 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 have been issued.

How to calculate your redemption rate
Your program's redemption rate is calculated by diving the number of points/rewards your customers have redeemed by the total number you have issued.

Knowing your program’s redemption 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. As we’ve previously reported, effective customer engagement can be responsible for up to two thirds of a brand’s profits, so 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. Additionally, not every rewards program is points based, so by splitting our analysis we’re able to provide insights for every rewards program - no matter how it is structured.

Examing ecommerce redemption rates
Examining Reward Program Redemption Rates
There's a lot more you can learn about ecommerce redemption rates and we've built a guide to walk you through it!

As you might expect, 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.

rewards program working redemption rate data

The average brand we studied sees a points redemption rate of almost exactly 13%, while the top quarter of studied brands saw redemption rates of up to 32%. Redemption rates in this range are a clear indication that customers are engaged with the rewards program on an ongoing basis and are actually using the points that they receive for completing valuable actions.

a high redemption rate is a signal of high customer engagement
A high redemption rate is an indication that customers are finding ongoing value in your rewards program.

To asses rewards redemption rates, we examined the usage rate of one of the most popular brand rewards: the dollars off coupon. In our study, approximately 75% of the dollars off rewards that were issued by brands were redeemed by their customers. In other words, only a quarter of rewards went unredeemed.

What You Can Learn From Your Redemption Rate

The results from our study serve as a great benchmark for taking stock of your own rewards program. If redemption rates fluctuate too far away from these benchmark values, that’s a sign that your program might be in trouble. 

Low redemption rates mean you need to take action
If your redemption rates start to fall, take action! Low redemption rates lead to program member churn which leads to customer churn.

If you find yourself with a points redemption rate below 5% or a rewards redemption rate below 50%, you’ll want to critically assess your rewards program in order to steer those stats in a better direction. 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 Can You Improve Your Redemption Rate?

So how do you actually improve your redemption rates? I’m glad you asked!

  • Last year we released a guide that examines ecommerce reward redemption rates and how brands can improve them. This guide explains how offering more ways to earn and redeem points can boost redemption and explores the impact social actions can have.
  • The psychology of customer motivation plays an important role in how customers earn and redeem rewards. Brush up on Rewards Psychology 101 to make sure your rewards program is leveraging the power of psychology to keep customers engaged.
Understanding your customers is the first step to retaining them
Reward psychology 101
Understanding how your customers think is key to building a rewards program with high redemption and engagement rates.

 

Get Your Rewards Program Working Overtime

A rewards program is an integral part of a retention strategy that works around the clock to 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 some successful rewards programs and get your program working overtime! So what are you waiting for? Your rewards program is working - why aren’t you?