What a digital loyalty card costs a small business
Two costs, and shops usually only think about the first one. The software has a price you can read. The rewards come out of your margin, and that is the number that decides whether a scheme pays for itself.
The software is the small number
UK loyalty platforms sold to shops charge per location, per month, and tills are free within it. We keep a dated table of what each one publishes, but for a single shop the range is roughly fifteen to sixty five pounds a month, and about a hundred and fifty upwards if you buy a hospitality marketing suite with loyalty attached.
Call it forty pounds a month for a single shop. That is your floor, and it is knowable.
The rewards are the real cost, and they come out of margin
A scheme that gives a pound back for every twenty spent is a five per cent discount on the sales that earn it. On a forty per cent gross margin, five per cent of revenue is twelve and a half per cent of your gross profit on those sales. That is the sum worth doing before you choose an earn rate.
| Reward rate | Cost of rewards | As a share of gross profit at 40% margin | At 20% margin |
|---|---|---|---|
| 1 per cent | £100 | 2.5 per cent | 5 per cent |
| 2.5 per cent | £250 | 6.3 per cent | 12.5 per cent |
| 5 per cent | £500 | 12.5 per cent | 25 per cent |
| 10 per cent | £1,000 | 25 per cent | 50 per cent |
A convenience store on twenty per cent margins and a coffee shop on seventy are not playing the same game. The same five per cent scheme costs the convenience store a quarter of its gross profit on those sales and the coffee shop about seven per cent.
But only some of that cost is real
Two things soften it, and both are measurable rather than hopeful.
- Not every reward is claimed. Unclaimed rewards cost nothing, and a well run scheme knows its redemption rate rather than guessing it.
- Rewards are usually spent on a visit that includes other things. A five pound reward redeemed inside a fourteen pound basket is not a five pound loss, it is a discount on a sale you might not have had.
That is why the number to watch is not the cost of the scheme. It is whether the customers in it come more often than the ones who are not.
A sensible way to set the rate
Start at the low end and raise it if nobody notices. One per cent is invisible to a customer. Five per cent is generous and felt. Somewhere between two and three per cent is where most schemes that survive end up, and it is easier to raise a rate than to cut one.
Whatever you choose, write down the sum first: your average basket, your gross margin, and how many of your customers you expect to join. A scheme is a marketing budget with a mechanism, and it deserves the same arithmetic as any other.
Related
- How generous should a loyalty card reward be?
- What unspent loyalty card points are worth on your books
Written for shopkeepers rather than for a search engine. The arithmetic here is yours to check, and if a figure looks wrong for your trade, tell us and we will correct it.