Which loyalty card reward costs you least

There are four kinds of reward and they are not interchangeable. They differ by a factor of four in what they cost you, they feel roughly the same to a customer, and they pay for completely different behaviour. Choosing the wrong one is the most expensive decision in setting up a programme.

What each one costs you

The rule that matters: a free item costs you its cost price, and money off costs you its face value. On anything you make yourself or mark up heavily, that is a very large difference.

Four rewards a customer would rate about equally, on a product sold at £3.40
Reward	What it costs you	What the customer thinks it is worth	What it pays for
A free one	your cost price, perhaps 75p	£3.40	coming back a set number of times
£3 off the bill	£3.00	£3.00	coming back, and spending
10 per cent off everything	10 per cent of everything, forever	feels small each time	nothing in particular
300 points, worth £3	£3.00 when spent, later or never	£3.00	accumulating, which is not a visit

The percentage discount is the one to avoid

A standing percentage off is the worst of the four for a small shop, and it is the most common. It costs you on every sale including the ones that were going to happen anyway, it is invisible at the moment of decision, and it is almost impossible to withdraw later without it reading as a price rise.

It also trains the wrong habit. A customer who has ten per cent off does not come more often. They just pay less.

Points are a promise, not a cost, until they are spent

Points are the most flexible and the most misunderstood. They suit a shop where baskets vary a lot, because they scale with spend. The catch is that they become a liability on your books the moment you issue them, and a programme where nobody redeems is not saving you money, it is quietly accumulating an obligation.

If you use points, publish what they are worth. A customer who cannot work out what a point is has been given nothing.

How to choose in one line

You sell one thing repeatedly at a high mark up, like coffee: a free item on a visit count.
Baskets vary a lot, like a salon or a hardware shop: points per pound, with a reward that expires.
You want to move a specific line or a specific day: a temporary multiplier on that category, not a change to the core reward.
You want to look generous without the cost: a free item is worth four times what it costs you. Use that rather than a discount.

And one thing to decide before you launch

Whether the reward expires. Expiry protects your books and annoys your customers, and doing it quietly is how shops lose trust in a loyalty scheme. If you set expiry, say so in the app, and tell people before it happens rather than after.

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.