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Loyalty Program ROI Calculator

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What is loyalty program ROI?

Loyalty program ROI measures the effectiveness of your customer loyalty program in generating revenue relative to its costs. Keeping track of this metric can help you understand how your program is affecting your customer acquisition and retention strategies and make necessary adjustments.

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How to use this loyalty program ROI calculator

To calculate your loyalty program’s ROI, enter the number of existing customers who joined the program, their additional spending, the number of new customers, and their average spending. Then enter your program’s costs, including rewards, marketing, and operations. The tool will instantly provide you with the overall ROI for your loyalty program.

Loyalty program ROI formula

An image showing loyalty program ROI formula

Loyalty Program ROI = (Total Revenue from Loyalty Program – Total Costs of Loyalty Program) / Total Costs of Loyalty Program × 100

Here the total revenue is estimated as follows:

Total Revenue from Loyalty Program = Additional Revenue from Existing Customers + Total Revenue from New Customers

Additional Revenue from Existing Customers = Average Additional Spend × Existing Customers Who Joined the Program

Total Revenue from New Customers = Average Spend of New Customers × Number of New Customers

The total cost of the program can be calculated as follows:

Total Costs = Reward Costs + Marketing Costs + Operational Costs

Understanding the loyalty program ROI result

The ideal loyalty program ROI will depend on factors such as the nature and scale of the programs, your industry, product, etc. In general,

  • A high loyalty program ROI indicates that your loyalty program effectively drives customer engagement and spending, justifying its costs.

  • A low or negative loyalty program ROI suggests that the program's costs may outweigh the benefits, potentially requiring a review or optimization.

When to calculate loyalty program ROI

  • After implementing a new loyalty program to assess its impact

  • Before launching a loyalty program to estimate potential financial returns

  • Periodically during the program’s operation to monitor its performance and make adjustments

How to calculate loyalty program ROI (with example)

Let’s say your launched a loyalty program with the following data:

Existing Customers Who Joined the Program: 500

Average Additional Spend (By Existing Customers): $150

Number of New Customers: 300

Average Spend of New Customers: $200

Reward Costs: $10,000

Marketing Costs: $5,000

Operational Costs: $2,500

Your loyalty program ROI can be calculated as follows:

Loyalty Program ROI = (Total Revenue from Loyalty Program – Total Costs of Loyalty Program) / Total Costs of Loyalty Program × 100

Additional Revenue from Existing Customers = 150 × 500 = $75,000

Total Revenue from New Customers = 200 × 300 = $60,000

Total Revenue from Loyalty Program = 75,000 + 60,000 = $135,000

Total Costs of Loyalty Program = 10,000 + 5,000 + 2,500 = $17,500

Loyalty Program ROI = (135,000 – 17,500) / 17,500 × 100 = 671.43%

In this example, your loyalty program ROI is 671.43%, meaning for every dollar spent on the loyalty program, your business gained over six dollars in return.

How to improve your loyalty program ROI

  • Encourage more customers to join the loyalty program by offering attractive incentives or personalized rewards.

  • Increase the visibility of your program through marketing campaigns with the right target audience.

  • Optimize the reward structure to enhance perceived value without significantly increasing costs.

  • Regularly analyze customer spending patterns to tailor rewards that drive higher purchases.

  • Streamline operational costs by automating program management and reducing manual efforts.

Relevant channels: Customer loyalty programs, retail and eCommerce, subscription services, hospitality rewards programs, and any business that relies on repeat customer purchases.

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