Is Your Customer Loyalty Program Working?

Customer loyalty program tips

Let’s first consider two important facts. First, it costs a business a staggering 5-25 times more to acquire a new customer than it does to appeal/sell to an existing customer. Secondly, existing customers spend about 67 percent more than new ones. With this information at hand, the importance of a customer loyalty program is incredibly clear. If this is a weak area in your own business, let’s strengthen it right now.

The Ins And Outs Of Loyalty

In her HubSpot article “Customer Loyalty: The Ultimate Guide,” Sophia Bernazzani dives deep into the world of existing customers, especially critical to understand when reportedly 82 percent of U.S. adults say they’re loyal to brands. In order to tap into this massive opportunity, consider the article information summarized and generalized below.

Customer loyalty, the product of a customer’s desire to work with or buy from a brand repeatedly from positive past experiences, can help a business grow more effectively and efficiently than sales and marketing alone. Loyal customers spend more with preferred brands (about 40 percent of online shopping revenue here in the U.S. originates from repeat customers even though they are only 8 percent of the total site visitors), and they are the “man on the street” ambassadors that spread the word to potential new customers in a trustworthy way.

Since every company wants these loyal and valuable customers, they need to work for it. Customer loyalty programs are the vehicles of success to get there. What exactly are these programs? They are essentially rewards centers for customers that make frequent purchases with a company. The Loyalty Report 2017 states that while the average consumer is involved in 14 loyalty programs, they only have the ability to engage with seven, which means you need to keep your customers engaged for this program to work. Some ideas, explored in the article, are outlined below.

Construct a point system: If your business is built on frequent and short-term purchases, a point system may be just right for you and your customer. With every purchase made, customers earn points that can later be redeemed for a reward ranging from free product/service, discount, or other incentive.

Implement a tier system: Instead of focusing on short-term, this tier system has a long-range approach. It begins with a small reward for joining, and the rewards get bigger and better as the customer moves up the “loyalty ladder.” This system is more effective with high-ticket items that require more intense commitment, such as airlines or hotels.

Charge for VIP access: It seems counter-intuitive, but sometimes an upfront fee (one-time or annual) can be a good thing. Amazon Prime is a great example of this. After customers pay for this access, the speedy and cheap shipping far outweighs the initial sign-up cost in terms of value and ongoing convenience.

Incorporate customers’ values into your value: Since customers are often more loyal to “beliefs” over brands, think about what is important to your audience. If there is a way to make part of his or her purchases go to a good cause (that they believe in), it may be a win-win for everyone.

Partner up: To best understand a great company to partner with, you need to fully get in the mind of your customer. What does your product/service go hand-in-hand with? Is there a way to form a coalition program that makes you (with your partner resources) more of a one-stop shop for their needs? If so, make that value clear with all-inclusive offers.

Make it all a game: Games (in the form of contests and sweepstakes) can be incredibly fun and effective if you do it right. Make the “buy-in” manageable and ensure the odds aren’t lower than 25% to win to keep the trust and goodwill of your participants in tact. (One more bonus tip: Make sure your legal department is up to speed on the game logistics before you put it out to the masses).

Don’t have a program: What? How can this be? If you are a company with a totally unique product or service, a loyalty program may not be applicable. Since customers will likely be loyal by nature (due to the lack of other similar options), make sure to communicate your appreciation of them at every touch point with exclusive offers and benefits.

Measuring Your Customer Loyalty Program Efforts

The only way to know if your loyalty program is working is to look at the measurements. While analytics may be specific to individual organizations, here are common metrics outlined in the article below.

Customer Retention Rate: This is how long customers stay with your company. As more people join your loyalty program, this number should also increase. According to Fred Reichheld, author of the Loyalty Effect, “a 5% increase in customer retention can lead to a 25-100% increase in profit for your company.”

Negative Churn: While “customer churn” measures the rate of customers that leave your company, negative churn looks at the opposite side of spectrum in which customers buy additional services or select an upgrade. This negative churn is important to look at its impact of offsetting the natural churn that is inevitable in most businesses.

Net Promoter Score: With a scale of 1-10 in customer satisfaction, this looks at just how much other people would recommend your business to other people. A good score means you have more promoters than detractors.

Customer Effort Score: This measures how easy/difficult it is for customers to solve problems with your company. Why is this so critical? A Harvard Business Review study “found that 48% of customers who had negative experiences with a company told 10 or more people.” Clearly, it’s incredibly important to have a loyalty program that solves issues right away without bad experiences going viral.

How Loyal Are Your Customers?

What does your customer loyalty program look like? How is it working for you?


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