A loyalty program should work for its members as well as your company. It’s a balancing act. And to measure how good of a balance you’re striking, you need to track a variety of key performance indicators.
With Oracle CrowdTwist clients, we measure many metrics, each of which tells us something unique and important about how a loyalty program is doing. These metrics generally fall into two buckets: health KPIs that measure the appeal of and engagement with a loyalty program, and performance KPIs that measure the direct financial impact of a program.
Some of our clients have loyalty programs that don’t include commerce components. In such cases, we only focus on health KPIs. So, let’s begin by discussing those.
Loyalty Program Health KPIs
Here are the most common KPIs for the health of a loyalty program, along with their definitions, why they’re important, and how to use them.
Enrollment: This is the number of new loyalty program members over a period of time—typically reviewed on a monthly and annual basis. Your enrollment indicates the success of your program marketing, the ease of your enrollment experience, and the attractiveness of your program’s value proposition. So, month-over-month and year-over-year comparisons can indicate the success or failure of recent changes.
One and done rate: This is the percentage of members who sign up but quickly disengage. It can help you identify weaknesses when measured across acquisition sources. Knowing that, you can change the messaging or cost structure of an acquisition source, or divert resources to more productive acquisition sources.
Active rate: This is the percentage of your loyalty program members that have engaged. Active rate helps measure the value of your program and its offerings. It’s a member-centric metric that helps you look beyond the performance of individual campaigns. Focusing on activity is one of several major loyalty program trends.
Each brand will need to define what constitutes an active member, whether it’s consuming loyalty content, making purchases, redeeming points, logging into their loyalty account, or taking some other action or set of actions. Most brands will find it useful to track active rates over multiple time periods as well as across important audience segments.
Redemption participation: This is the percentage of your loyalty program members that have redeemed points. While redeemers are usually considered active members, the reverse isn’t necessarily true. It’s not enough for members to engage. A healthy loyalty program involves members redeeming rewards, which are what truly generate loyalty and keep members coming back. Redemption participation is one of the indicators of a program’s value to members being realized.
Redemption rate: A key metric for calculating your loyalty program’s liabilities, this also measures the value that members receive from a program. It’s determined by looking at the percentage of program points that are redeemed out of all the points that are issued.
Looking at redemption rates across customer segments helps you understand member behaviors. Looking at it across campaign periods helps you understand campaign performance. And looking at it over time helps you understand how valuable and accessible members find your mix of rewards.
Tier distribution: This is the percentage of members within each tier of your program, if yours has tiers. The distribution indicates the accessibility of each tier and the attractiveness of each tier’s benefits. Depending on the benefits available, it may also help measure costs, since higher tiers may have pricier benefits. As your program matures, it will be helpful to measure migration between tiers to gauge retention and customer lifetime value.
Sentiment: This is a measure of member satisfaction, which is typically measured through a net promoter score (NPS). Sentiment measures the emotional impact of your program and the likelihood of members evangelizing the program.
In sum, program health KPIs like these are leading indicators of where your program performance is likely headed. For programs with commerce components, you’ll also want to measure that performance using entirely different KPIs. Let’s talk about those next.
Loyalty Program Performance KPIs
Here are the most common KPIs for the performance of a loyalty program, along with their definitions, why they’re important, and how to use them.
Purchase vs. engagement ratio: This is the percentage of points earned from spend activities compared to the points earned from non-spend activities, such as completing surveys and reading articles. This ratio can help you measure the effectiveness of engagement activities, while also helping you avoid a mix that’s too heavily weighted toward engagement, which can reduce profits from purchases.
Spend per member: This is the average spend per purchasing member as determined by purchase frequency and order value. When compared to similar segments of non-members, it helps you measure the incremental lift attributable to your loyalty program. When compared between member segments, it can reveal opportunities for targeted promotions or measure campaign performance. If your program seeks to specifically increase purchase frequency or average order value, then you might break those out and track them separately from spend per member.
Sales penetration: This is the share of sales from program members. High loyalty capture implies optimal program performance since customers purchase through loyalty programs that they find valuable. Relative to the cost of discounts and offers, it can also help you identify diminishing marginal returns. Best-in-class loyalty programs see 80% or more sales penetration.
Return on investment: This is the financial results of firmly established loyalty programs. Calculate annually to confirm that your program is meeting your business goals and budgets. For some brands, this is the ultimate measure of program success, although others might focus on increasing margin, the value of first-party records, and other benefits of rewards programs.
Of course, every loyalty program and business is unique, so there may be additional KPIs you want to monitor. For example, we have clients that track member referrals, the open and click rates of loyalty program campaigns, and site and app engagement.
Whatever metrics you track, you’ll want to measure them over a variety of timeframes, with monthly, quarterly, and annually being the most popular. You’ll also want to pay close attention to how each of your metrics is changing over time and within key member segments. All of those different perspectives will allow you to determine when you’re on the right track and when course corrections are needed to achieve your program and business goals.
A Deeper Dive + Reckitt’s Story
For a full discussion of loyalty program KPIs, as well as to hear from Reckitt about their Enfamil Family Beginnings loyalty program, watch this 22-minute on-demand webinar.
We hope you enjoyed our “Loyalty Success Metrics & Program Optimization” webinar. Some of our other on-demand webinars include:
Need help maximizing the performance of your loyalty program? Oracle Marketing Consulting has more than 500 of the leading marketing minds ready to help you to achieve more with the leading marketing cloud, including Oracle CrowdTwist experts and a Loyalty Program Services team that can help you optimize your loyalty program strategy.
Now updated, this blog post was originally published on July 15, 2022 by Carly Mathews.
Carly Mathews is a Senior Strategist for Oracle CrowdTwist, joining Oracle with the acquisition of CrowdTwist in 2019. Her background includes 8 years of consultative experience, including 3 years dedicated to marketing strategy and execution. Her experience advising clients on strategic business transformations enables her to bring an analytical, data-driven mindset to loyalty marketing initiatives.