5 Loyalty Program KPIs That Push Performance
Article Category: Loyalty program design
Published: June 4, 2024
Reading Time: 4 mins
Key Takeaways
- Simply launching a loyalty program doesn't guarantee its success
- What gets measured gets managed. It's key to identify KPIs that will push your program's performance forward
- Look for overarching themes in your analysis that identify risks to mitigate and opportunities to capitalize on
- You can't communicate currency balances and rewards available for redemption enough. Making this data the first thing your members see when they log in to their profiles is perhaps the most powerful driver of program engagement
Introduction
Loyalty programs are a big lift in resources to launch and manage. Do you have a plan to measure their performance and return on investment? While it's important to recognize that determining the correct KPI measurement varies based on industry and purchase cycle, the key areas of focus are the same.
The 5 Critical KPIs for Loyalty Program Success
1. Member Acquisition
Definition: How many new members are joining your program over a defined period of time.
Why It Matters: Hitting your membership target is directly tied to the program's financial goals.
Common Issues and Solutions
If your program is struggling to meet member acquisition targets, it could be for one of these reasons:
Poor acquisition strategy:
- Develop a comprehensive plan that attracts members into the program at every touchpoint
- Leverage paid media, in-store signage, strategic partnerships, checkout/POS integrations, and product mentions
Overly difficult to join:
- Joining a loyalty program should be as simple as possible
- Any sticking points could mean the loss of a potential member
- Maximize enrollment numbers by keeping requested data points to the bare minimum your program requires to onboard and communicate with members
2. Member Lift in Spend
Definition: The percent increase in spend for active members versus non-members.
Key Metrics to Track
Lift in Average Frequency:
- Measured in how many more transactions your loyalty members make compared to your non-loyalty members
Average Transaction Size:
- How much your members are spending per transaction versus your non-members
Components of Transaction Size:
- Usage – members start buying on an ideal cadence based on product or service purchase cycle
- Cross-sell – members start buying in additional categories within your brand portfolio
- Upsell – members purchase higher value or margin products and/or services within a specific category
Why It Matters
Your loyalty program should increase overall member spend by driving incremental revenue and increasing profits.
Common Issues and Solutions
If you're missing your lift in spend metrics, it could be due to one of these factors:
Ineffective communications:
- You might be causing your members to tune you out by sending out campaigns too frequently
- You could be turning them off by failing to meet their expectations for personalization
- Focus on recommending products when you know your customer needs it, versus when you've scheduled a campaign for them to receive it
Barriers to buying:
- Don't let your desire to collect data get in the way of a completed purchase process
- Implement autofilled forms from browser data so members can purchase without having to complete the tedious task of inputting their information
- Embrace and push communications to drive frequency
- Make sure your products and services are readily available and in stock
3. Reward Redemption Rate
Definition: The percent of your currency earned that is being redeemed (i.e. points, vouchers, etc.)
Why It Matters: Members who are engaged and actively redeeming within a loyalty program are more likely to spend more with you and have a lower churn rate.
Common Issues and Solutions
If you're not hitting your target redemption rate, it may be an indicator you've got trouble in one or more of these areas:
Members can't achieve the reward:
- If reward values are too high, it makes it difficult for members to redeem
- Consider implementing a mix of low value rewards that are easy for new members to earn redemption for with higher-value rewards that members with longer tenure are inspired to work towards over time
Members don't know they have a reward:
- If members have earned a reward, but haven't redeemed yet, you might need to remind them they've earned it
- You cannot communicate this value to them enough, so make it the first thing they see in every communication you send them
- A great way to help members see the value and utility of your program is to place a currency tracker on the member home screen online and in your app so they know the exact actions they need to take to reach their next redemption milestone
Members don't want the reward you're offering them:
- If your reward inventory isn't valuable to your members, your redemption rates will be low
- Invest in customer research to better understand what types of rewards your members would like to see in the program
- Leverage co-branded campaign and partner marketplaces to ensure you're meeting their needs within your budget envelope and brand values
Members don't have time to use the reward:
- If rewards expire before members use them, they may feel frustration with the loss of that opportunity
- Examine and then align your expiration policy with standard redemption rates to adjust for timing issues
- Don't forget, expirations can also be used to drive engagement. It's all about finding the right balance between excitement and urgency or, the FOMO effect
4. Churn Rate
Definition: The percentage of your members that are at risk of leaving the program and, potentially your brand.
Why It Matters: It's critical to track this indicator because it has an exponentially negative effect on your company's financial performance through the combination of two unfortunate truths:
- Lost customers mean lost future revenue which, in turn, requires you to attract new customers to your program to replace them
- Acquiring a new customer can cost 5X more than retaining an existing customer, so ensure your retention strategies are optimized based on predictive behavior, and aren't reactive
Mitigation Strategy
Successful loyalty programs reduce customer churn rates by:
- Closely monitoring this indicator
- Ensuring they have a churn strategy in place to help mitigate the loss of at-risk members
- Building churn models and member segments using predictive analytics
- Applying a communication strategy that is tailored specifically to the declining members before they're at risk
- Considering campaigns around the perks and benefits of being a member or sunk cost triggers for losing the currency they've earned if you have an expiration policy
5. Incremental Margin
Definition: An increase or decrease in profit based on the margin achieved minus program costs.
Why It Matters: This KPI is a powerful indicator of the overall health of your program. If your program is seeing negative returns, it's not healthy enough to sustain itself in the long run.
Important Context
It's important to recognize that incremental margin is something that builds over time:
- Typically, year one of a loyalty program will likely indicate negative returns due to initial investments in start-up costs
- However, each year the program is in operation should generate an increase in its profit
Common Issues and Solutions
If you're not seeing a positive incremental margin from your program by the end of year two, it could be the result of one or a combination of these elements:
You may not be driving enough top-line revenue:
- This could be that your members aren't spending or behaving the way that you'd like them to
- Or you aren't retaining them for as long as you predicted in the business cycle
Your program cost is too high:
- The amount you're investing in rewards, tools or campaigns may be more costly than your customer base can return
- Boost incremental margin by lowering program operating costs, such as the cost of rewards fulfillment, benefits, and marketing costs
Your product or service margin is too low:
- Healthy margins are achieved when all inputs are accounted for, including your loyalty program operating costs
- This variable is difficult to course correct and may be an indicator that a loyalty program isn't the right strategy for your business model
- If you believe a loyalty program supports your overall business strategy, consider designing one that provides members with value outside of monetary rewards or leverages fixed assets that would otherwise go unused as program inventory
Bonus KPI: Acquisition Quality
Definition: Members who join your program and make their first purchase within their first purchase cycle have a high acquisition quality. Those who don't have a lower acquisition quality, and are more likely to lapse out of your program.
Why It Matters: You want your customers to get in the habit of engaging early and often with your program.
Common Issues and Solutions
If you're failing to attract members with a high acquisition quality, you could be struggling in the following areas:
Low understanding of your ideal member profile:
- Loyalty programs should attract your best and most valuable customers
- A high count in members won't necessarily lead to a profitable program long term
- Check your enrollment offer to make sure that it offers rewards and benefits your ideal customers want, and doesn't attract "gamers" who only enroll for the initial welcome gift or bonus
Onboarding:
- Develop onboarding and activation campaigns that welcome and educate members on program benefits and nurture purchase conversion
- Investing in education and demonstrating value are key in driving high member acquisition quality
- Secure their ongoing engagement by offering early earn opportunities and lower value rewards to deliver early value through a quick win
Conclusion
To ensure the overall financial health of your program, it's important to track and monitor these KPIs and develop corrective solutions. This will ensure that your program is revenue-generating, and is not perceived as a cost center.
Additional Resources
Download a detailed list of 20 loyalty KPIs to measure your program performance:
About Kognitiv Pulse
If you're struggling to report on these core customer KPIs, Kognitiv Pulse can help. Powered by a proprietary Kognition AI/ML engine, Kognitiv Pulse helps you understand your customers at an individual level and respond to changes in their behavior in real time, so your customers stay engaged and loyal to your brand.
Learn More:
Related Articles
Top 12 Loyalty Program Software Solutions for 2026: A Feature-by-Feature Comparison
Category: Loyalty Program Software, Customer Retention, Loyalty Program Design
Discover the 12 best customer loyalty software solutions across the globe for 2026!
Read Article
6 Best Loyalty Program Companies in the Philippines to Watch in 2025
Category: Loyalty, Loyalty Program Software
Discover 6 of the best loyalty program companies in the Philippines that are revolutionizing loyalty in 2025.
Read Article
Top 5 Loyalty Program Companies in Singapore Driving Customer Engagement
Category: Loyalty, Loyalty Program Software
The top 5 loyalty program companies in Singapore helping brands boost engagement and customer lifetime value.
Read Article