Successful loyalty programs have one thing in common: engaged customers. These customers purchase from your company, participate in your incentive programs, and are often vocal advocates of your brand. It should come as no surprise then, that highly engaged loyalty program members purchase 90% more often and spend 60% more per transaction than passive customers.

While the details of what constitutes a successful loyalty program may differ from one company to the next, one thing is certain: when it comes to measuring your loyalty program’s effectiveness, metrics matter. And when quantified properly, metrics can clearly illustrate the story behind your loyalty program’s success or failure.

Let’s take a look at a few key metrics:

Customer lifetime value

If there’s one metric you should be focusing on in your loyalty program, it’s customer lifetime value. Customer lifetime value (CLV) separates high value customers from low value customers.

Focus on optimizing the CLV of your high value customers. The more engaged they are, the more likely they will continue to be high value customers that participate in your loyalty program and therefore, your business.

High value customers can be identified with an effective machine learning analytics model. By leveraging these insights, data-driven decisions can be made to maximize the financial soundness of your loyalty program.

Customer retention rate

A universal law of marketing is this: it’s significantly more expensive to acquire a new customer than it is to retain an existing customer. In terms of loyalty programs, you want to retain your current customers to convert them into loyal, highly engaged members.

If you’re losing too many customers, there may be an issue with your program’s strategy.

Ultimate redemption rate

An engaging loyalty program will have customers redeeming coupons and rewards, and eagerly anticipating future benefits. This level of reward engagement is assessed through ultimate redemption rate (URR).  

Ultimate redemption rate measures what percentage of points are being used versus total program points. Enticing program incentives will realize a high redemption rate, while also increasing loyalty program liability. However, if customer lifetime value is increasing, higher redemption costs are justified.

Loyalty program ROI

A loyalty program exists to supplement and improve a company’s profitability through customer engagement and the enhancement of its brand experience.

Loyalty program return on investment (ROI) is a catch-all metric to assess program profitability.

This metric sums up the total value added through increased sales, customer retention, and referrals, and divides it by the total investment – including marketing, operational, and technology costs, in addition to the cost of reward redemptions.

All things considered, loyalty program ROI represents the quickest snapshot of loyalty program financial success.

Numbers tell the story

When measuring your program over time, these metrics should be within a favorable range or show consistent improvement. Together, they’ll help tell the story of a loyalty program that is making waves and improving member engagement, or one that is struggling to keep afloat.  

What are your loyalty program numbers telling you?