Using KPIs to check the health of a loyalty program

Although acquiring new members and earning and burning points are the main goals of a loyalty program, there is one more thing to keep in mind: Key Performance Indicators (KPIs). They help you showcase how your loyalty program is working and if it is delivering a solid return on your marketing investment.

Without a clear assessment of the main KPIs and measurement of their values on an ongoing basis, becoming successful is impossible. To succeed, the program operator should follow three main steps:

1. Choose the right KPIs to measure

2. Determine industry benchmarks

3. Continuously measure and react

When it comes to choosing the appropriate KPIs and their expected values, it’s important to align this with the business and specific industry. The real secret of a successful loyalty program is hidden in the three figures we list below. Even if there is no one universal expected value, the below suggestions are a good place to start and generally describe the market tendencies quite well.

Churn Rate

A certain percentage of members always leave, but the key is to reduce this number as much as possible. Measuring the churn rate helps to track and manage the loss of customers in the loyalty program. If you want more precise (and insightful) results, you need to dig deeper and use customer segmentation. Instead of looking at all of your customers, take a look at customers with a specific trait. This method is a lot more precise than throwing everything together.

CR = # of members lost in a period / # of members at the beginning of a period

• Acceptable level 20%
• Good level 10%
• Excellent level 5%

Redemption Rate

The redemption rate reflects the health of the loyalty program. It describes if and how the members are willing to spend their points. The higher the value, the better. If your customers are earning loyalty points but are not redeeming them, there could be a problem. If the rate is low, it may be a symptom of one of the following issues: lack of program awareness among members, difficulties with the redemption process, or overall perceived value of the rewards.

RR = # points redeemed / # all points issued

• Acceptable level 25%
• Good level 75%
• Excellent level 90%

Active Engagement Rate

To check the loyalty program members' engagement, calculate the active participants' ratio. It shows you how many program members are engaging with and redeeming rewards. When the number is low, think about different ways you can remind people that they are members of your loyalty program. Prepare dedicated campaigns, send personalized promo offers with bonus points, or create time-limited redemption discounts. 

AER = # active members / # all loyalty program members

• Acceptable level 40%
• Good level 50%
• Excellent level 70%

These 3 KPIs are excellent ways to measure your loyalty strategy performance. Remember that goals vary by industry and brand. Knowing the values of the KPIs and the overall health of your loyalty program can help measure its success. They indicate whether or not your incentive program is accomplishing what it was designed to do.

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