Joseph Edgar is the CEO of SnapAds, which helps local businesses find, keep and reward customers.
McDonald’s and Starbucks aren’t the only ones reaping the rewards of loyalty programs. As business leaders seek more cost-effective growth strategies, returning customers have become a strategic focus for many.
A 2021 study found “87% of consumers typically travel 15 minutes or less to make their everyday purchases.” Another study found that 60% of revenue comes from repeat customers. This underscores the importance of targeting and retaining customers within your local community.
What are the benefits of setting up a loyalty program?
Loyalty programs can boost customer loyalty and drive repeat business. As noted by the Harvard Business Review in 2014: “Depending on which study you believe, and what industry you’re in, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one.” That’s why focusing on converting local customers into regulars is so crucial.
I’ve noticed many small business owners believe marketing is their only path to increased revenue. However, a loyal customer can be a consistent revenue stream. While attracting new customers is essential, incentivizing them to return is equally important.
For example, consider a restaurant with an average ticket sale of $26. The average cost to acquire a new customer in the food and beverage space is between $30 and $80. Traditional digital marketing, which often lacks geographic targeting, could lead to lower conversion rates and higher costs. By targeting a narrower radius around the business, the owners can increase the likelihood of attracting loyal customers.
Once you’ve brought local customers in to try your offerings, you’re well on your way to building a loyal customer base. This is where a loyalty program can be a valuable tool.
Focus on long-term revenue and leverage rewards programs to lower costs for customers.
Returning customers are invaluable. They know what to expect, and you have their direct contact information. Loyalty programs are a cost-effective way to incentivize repeat visits.
Unlike email, text messages or mailers, loyalty programs offer a direct connection with customers. By rewarding them for their loyalty, you can increase store visits, boost revenue and improve customer lifetime value.
Consider this: A customer visits your store four times a year and spends $104 annually ($26 average ticket). With a loyalty program offering a $3 reward per visit, you may be able to incentivize them to visit six times, increasing net revenue to $138 annually. While rewards slightly decrease your average ticket size, the increased number of visits can boost your overall revenue. From a customer’s perspective, this $18 reward after six visits can be seen as a valuable bonus.
This is the power of loyalty programs. Many large companies invest billions in these programs, recognizing their ability to reduce marketing costs and drive substantial revenue growth.
Strategically incentivize customers to help meet your business’ needs.
Loyalty programs can be designed to address specific business challenges. For example, if your restaurant experiences peak demand during lunch hours, you could offer incentives to encourage customers to visit during less busy times. This can help balance your workload and increase revenue during slower periods.
Remember, businesses have fixed costs like rent, loan payments and employee wages. Every sale, regardless of time or day, helps offset these costs. Therefore, any and all revenue is valuable—even if that revenue comes from more attractive rewards for customers.
Consider a bakery at the end of the day. Unsold baked goods are often discarded, leading to lost revenue. A loyalty program can help address this issue. By offering rewards for repeat customers, you can incentivize them to visit during slower times, reducing waste and increasing sales.
The mix of higher frequency visits from customers and lower costs in driving those visits can lead to an increase in revenue, and all you’re doing is making customers happy and lowering their costs. It’s a win-win for all parties involved.
Two is better than one: Partner with local businesses.
Following the lead of large successful corporations, consider partnering with other local businesses to offer a more comprehensive loyalty program. This can provide greater value to your customers and encourage more frequent visits. Consider partnering with nearby restaurants, shops or services.
For example, if you’re running a restaurant near an ice cream shop, you could offer a free ice cream to repeat customers. This mutually beneficial partnership can attract more customers to both businesses.
Consider using technology.
Implementing a loyalty program can be challenging for small businesses due to factors like fraud, customer engagement and budget constraints. While large corporations often have the resources to develop sophisticated loyalty programs, smaller businesses can leverage technology platforms and partnerships to create effective programs. (Disclosure: My company helps with this, as do others.) These providers often specialize in fraud prevention, customer engagement and program management.
Look for platforms that provide easy-to-use apps, direct communication channels and reward management options. Loyalty apps can offer a more direct and engaging way to connect with customers compared to traditional methods like email, text messages and mailers. By incorporating sales promotions, discounts or exclusive offers into the loyalty program, companies can communicate with customers without being intrusive.
Make your rewards program appealing to customers.
A great rewards program needs to be appealing. Here are some recommendations for creating an appealing rewards program:
• Be flexible: Allow customers to choose rewards that are meaningful to them.
• Prioritize accessibility: Make it easy for customers to redeem rewards and track their progress.
• Set achievable goals: Set realistic reward requirements to avoid discouraging customers.
I’ve found that a visit-based rewards program can be more engaging than one tied to spending amounts. Many customers appreciate the simplicity of earning rewards just by returning. And requiring customers to spend a specific amount can limit participation. While some may spend less than your average, others will spend more. Your goal should be to increase overall foot traffic, not just average spending per visit.
By implementing a well-designed loyalty program, you can boost customer loyalty, drive revenue and reduce marketing costs. Remember to focus on providing value to your customers, tailoring your rewards to their preferences and simplifying the process. Don’t be afraid to give worthwhile rewards to your customers.
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