on August 14, 2019 Loyalty Loyalty Strategy

Measure Your Program Utilization With This Key Metric

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The effort and time a company puts into building and launching a loyalty platform makes the time after launch seem like smooth sailing. Right?

Not quite! After launch, you’ll find there are numerous methods for evaluating your loyalty program and discovering opportunities to fine-tune your processes.

Once you’ve been operating long enough to gather some data (6 months to 1 year is a good timeframe) there are different metrics you can use to gauge the success of your program. One area to focus on is the rewards and redemptions: how are your customers utilizing the platform?


Calculating Redemption Rates

The rate at which customers turn points into rewards reveals several informative points about your loyalty platform. Redemption rate is the proportion of all points awarded, and then redeemed. To get this number, divide the number of points customers spend on rewards by the total number of points issued.

There are different ways you can assign a value to your reward points when calculating redemption rate. In this example here, Nerdwallet uses cents per point in their breakdown of frequent flyer programs redemption values. Companies who heavily feature coupons divide the number of coupons issued by the number of coupons redeemed to calculate their redemption rates. Another example is credit card programs which assign one point per dollar spent.

Take the time to calculate your redemption rate when you know your point values.

What Is A Good Redemption Rate?

Generally, you’re looking for anything in the double digits – 10%-30% is a good range. 20% is considered the sweet spot for most major retailers. Single-digit redemption rates are a sign you might need to revisit your available rewards or focus more on marketing your rewards program.

Don’t fall for the idea that a higher level of redemption is a bad sign. A high redemption rate is a great thing! It shows your platform is working – your customers are engaging with your loyalty program. They’re earning points and redeeming them for rewards. Customers view your program as valuable and your rewards are worth their time and efforts to accumulate points.

What If Redemption Rates Are Too High?

As a reminder, you should never aim to have a 0% or close to 0% redemption rate. Even if a low redemption rate is more cost-effective, it doesn't make your loyalty program sustainable long-term. Customers won’t take part in a rewards program that doesn’t actually bring them any rewards.

That being said, there are cases when a high rate of redemption can be detrimental to program success. The cost of redeeming rewards may start affecting your bottom line when your redemption rate is far above the average 10-30%.  You may need to reevaluate how generous you’re being when distributing points to customers, or analyze point values of rewards that are redeemed too quickly or easily.

How To Get To An Ideal Redemption Rate

There are methods for raising or lowering your redemption rate depending on your needs.

For lower redemption rates, the focus on engaging your customers. Design email newsletters reminding them of their points accumulated and the different rewards available. Study their accumulated points and past redemption history. If you run a tiered rewards program then provide suggestions for ways they could collect more points to reach the next tier level.

If your redemption rate is so high that it’s cutting into your revenue, you need to determine how to adjust your rewards points value. Consider removing or replacing certain rewards items from your catalog. Another option is to raise the number of points required to redeem.

You need to do so carefully – if your redemption rate is at a good level then your customers like what they see. Any significant changes could result in a downturn in redemptions and a loss of engagement with your customers.

Have more questions on loyalty program utilization? Reach out today to learn how we can help set your loyalty program up for success!