Co-written by Sarah Jarvis from Eagle Eye, and Hunter Murray and Anand Patel from Loyalty & Reward Co
In 2025, it’ll be 30 years since Tesco launched their Clubcard program in the UK, one of the pioneering retail loyalty schemes in the world. Clubcard has clearly stood the test of time, with “I Love My Tesco Clubcard” being one of the businesses’ key strategic pillars.
Since 1995, loyalty programs have exploded in popularity, with new propositions continuing to launch across sectors and geographies to this day, with businesses investing significantly to build, maintain and innovate these initiatives. Yet, as with any investment, it’s crucial to understand the return generated by these efforts so they can continue to be optimised, which is where loyalty Return On Investment (ROI) comes in.
Why is Loyalty Program ROI Important?
Measuring loyalty program ROI is critical for a number of reasons:
- It is the ultimate measure of a loyalty program’s commercial impact. Are the resources dedicated to engaging and retaining customers actually paying off?
- It provides the insights needed to refine and enhance loyalty. By understanding what’s working (and what’s not), businesses can make data-driven adjustments (e.g. increasing program benefits, adjusting point or tier structures, or even pivoting the proposition to better align with changing customer expectations) to ensure the program is delivering the maximum value
- It can help to educate and align stakeholders on the value of loyalty, ensuring everyone understands how loyalty contributes to broader business goals
- It supports the continued justification for investing in loyalty as an essential, strategic part of the business
When should you measure Loyalty Program ROI?
Measuring loyalty ROI isn’t a “one and done”; it’s something that should be tracked throughout every stage of the loyalty lifecycle.
- Pre-launch: clearly you can’t calculate ROI before your program has gone live, but you will hopefully have built a solid business case including both known and expected costs, as well as expected uplifts, which you can start to validate as soon as your new offering is in the hands of your end customers
- Post-launch: it’s critical to evaluate early performance to understand how loyalty is impacting the business in its earliest stages. This is the time to collect new data points which you can track progress against as your scheme matures (e.g. # members, % active customers, % of spend and transactions linked to the loyalty program etc.)
For established programs, measuring ROI becomes part of an ongoing process, continuously monitoring the effectiveness of the overarching program and adjusting the measures as needed
How do you calculate Loyalty Program ROI?
The basic formula for Loyalty ROI is straightforward:
Essentially, ROI is defined as
However, capturing the full picture can often involve a more nuanced approach, including indirect revenue contributions such as NPS, increased brand affinity and customer advocacy. As a result, businesses will often report on the pure financial ROI alongside other KPIs – most often customer lifetime value (CLTV) – to offer a more complete view of loyalty program ROI.
The Case for Loyalty Program ROI: Building Lasting Customer Relationships
At its core, loyalty program ROI shouldn’t just be about tracking the financial and transactional, it should be about understanding the value of customer relationships. A strong, well-designed loyalty program should build trust, improve brand affinity, and turn customers into advocates who keep returning time and again.
¿Y ahora qué?
Understanding the ROI of loyalty and why it’s so important is just the first step. To learn more about how to measure loyalty ROI effectively, stay tuned for our next article, How to Measure Loyalty ROI, where we’ll dive deeper into the practical strategies for calculating the true value of loyalty.
Loyalty & Reward Co have a proven method for helping businesses calculate loyalty ROI. Connect with us to discuss how our LROI™ approach can help you.
Eagle Eye powers loyalty programs for retailers across the world and has personalization solutions proven to deliver a 7:1 ROI. To find out more about Eagle Eye, visit www.eagleeye.com.
