07.15.2010

What Can Small Business Loyalty Programs Cost and Deliver?

You can expect a loyalty program to increase repeat purchases while giving you access to a community of people interested in interacting with and promoting your small business. For example, if you visit coffee shops regularly there’s a good chance you’ve encountered the paper punch card.

The idea of a punch card is to encourage repeat purchases with the promise of a free drink or discount once every space on the card has been punched. If you were to choose between the coffee shop you have a card with and one without, you’d pick the one with so you could get your card punched and move closer to the prize. Once your punch card is complete, you might fill out a quick survey to double your reward.

By offering a reward for your repeat business, the coffee shop becomes a part of your lifestyle and gains access to your thoughts on how to improve your experience.

Program costs can be separated into three categories:

1. Initial cost: The initial hard costs of a loyalty program can range from a free basic email list to thousands of dollars for plastic cards that integrate with your payment system. The time it takes you to build and implement the program is also a very real cost. The amount you invest depends entirely on your commitment to the program and how much you hope to get in return over time.
2. Promotion: The costs of promoting your loyalty program will typically be more in the way of time than money. Expect to spend a few hours training your employees on how the system works and ways they should encourage your customers to interact with the program. You may want to create a contest among your employees to help them get excited about building the program.
3. Maintenance: The biggest cost of maintaining most loyalty programs is time. The more organized you are at the start, the less time it will take to manage your program as it expands. As you consider your options, keep in mind that you want your program to scale as your business grows. 

Measuring success

 Tracking is at the heart of any loyalty program. To continue the coffee shop example, let’s say you’ve filled out the survey and explained how much you’d like it if the coffee shop offered chocolate biscotti. After compiling all the responses the shop owner learns that 317 customers who visit the shop multiple times per month would gladly buy chocolate biscotti if it were available. The biscotti is purchased, another revenue stream is generated, and the customers are delighted. Most would consider that a success!

Some things to track through your loyalty program to maximize returns on your investment:

• How many customers sign up for the program
• How many customers participate consistently
• Ideas your customers have to improve your business
• How your sales are affected as the program grows
• How much time you’re investing in the program

— by Seth Simonds