How to Start a Loyalty Program

Small business owners continue developing new ways to attract and keep customers. To encourage loyalty, some companies create programs designed to reward frequent customers.

Because attracting new customers is at least five times more expensive than retaining current ones, customer loyalty programs for small businesses can lead to increased profits. Continue reading to learn how to start a loyalty program at your small business.

What are customer loyalty programs?

A loyalty program rewards customers when they make purchases from a business. Customers can choose to participate. The more a customer shops with the company, the more rewards they receive. Businesses choose membership requirements and incentives to offer. For example, a loyalty member might receive a free item for every $50 spent.

There are different incentives you can offer participating customers. You can give customers free products or services, discounts, or early access to merchandise.

To participate, customers might need to give you their contact information, like email addresses, names, and phone numbers. You can decide how to set up the loyalty program. Some businesses distribute membership cards that customers use when they make a purchase.

So, how do you create a rewards program?

Creating a loyalty program can result in more sales, frequent customers, and a higher net profit. When deciding how to create a customer loyalty program, think about what works for your business.

No two loyalty programs are the same. You want a small business loyalty program to benefit your company as well as keep customers satisfied.

Even after building a loyalty program, your work is not done. You should continue to measure the loyalty program effectiveness and make adjustments as needed.

To create your own loyalty program, keep these tips in mind.

1. Determine registration requirements

First, you need to think about how customers can sign up for the loyalty program. Maybe you decide to collect their contact information at the point of sale. Or, you might ask them to fill out a form.

Asking for contact information at the point of sale is an easy way to build your contact list. If you hand customers a form and ask them to return it later, they might forget.

Next, choose a way to identify members. Here are some options you might consider:

A punch card
A scannable membership card
A mobile app
A pin code customers can enter

Punch cards

Punch cards are easy for you and customers to use. Customers can count how many punches, or visits, they have left before they get their reward. All you need to do is punch a hole in or stamp their card (use a hole puncher or stamp with a special symbol so customers can’t do it on their own). However, customers are out of luck if they forget their card.

For example, you run a coffee shop. You give customers a punch card during their first visit. The punch cards give customers a free medium drink when they have 10 punches (i.e., their 11th is free). You mark customers’ cards each time they make a purchase.

Scannable membership cards

Scannable membership cards are also relatively easy for small businesses. They look similar to credit cards, but they have a barcode. Each time a customer purchases from your business, you can scan the barcode. This pulls up how many points or visits they still need before their free item. If the customer forgets their card, you can accept their telephone number instead.

Let’s say you own a grocery store. Customers can sign up for the membership card at any time. Each time they buy groceries, you scan the card. After a certain dollar amount spent, you reward them with $5.00 off their next purchase.

Mobile apps

Mobile apps are also easy to use. Like the scannable membership cards, you can scan a barcode on the mobile app each time the customer purchases from you. Customers don’t need to worry about remembering cards.

Let’s say you run a clothing store and offer a loyalty program via your mobile app. Customers show you their app, you scan it, and the points earned are displayed on the screen.

Pin codes

Pin codes can also be a good loyalty program option. The customer creates a code (often four digits) when they sign up for membership in the program. They enter their code into the system each time they buy from you.

For example, you require customers create a pin when they sign up for membership with your gym. After they enter their pin 50 times in the system, they get a free smoothie.

2. Come up with rewards that will draw customers

You want to give customers something of value that will encourage them to keep coming back. But, you don’t want to end up hurting your business’s bottom line with the incentive.

Again, here are some rewards you might consider:

Free merchandise or services
Price discounts
Advanced access to products

Free merchandise

Free merchandise is very enticing to many customers. You can offer something that customers get to choose, like one free drink, food item, shirt, etc. Or, you can choose to give customers a mystery reward, like a scratch card or envelope that tells them their free item.

Price Discounts

Discounts are also great incentives. That way, customers can get whatever they want. And, you will sell more merchandise. For example, you could give 25% off after a customer spends $150 at your business.

Advanced Product Access

For frequent customers, advanced access to products is another attractive reward. If you offer something that sells out quickly or release a new product, this reward will come in handy.

3. Decide on a points system

Another important part of creating a loyalty program is deciding how you want it structured. How many visits until a customer gets rewarded? Does one visit equal one point?

You need to decide on a points system. Here are some examples:

1 purchase = 1 point and 10 points = reward
1 purchase = 100 points and 1,000 points = reward
Reward for every $50 spent

You can even create different levels of loyalty. For example, bronze, silver, gold, and platinum. The more they frequent your business, the closer they’ll get to achieving platinum status, which could come with more points.

You might want to use something simple and easy to remember. This will make things easier for both you and your customers.

4. Keep in touch with customers, but don’t go overboard

Once you obtain customer information through your loyalty program, use it to stay in touch. Send email updates on promotions or other news with your business. But, don’t bombard them with information.

Customers sign up for loyalty programs to get free stuff or discounts at your business. Some also like to stay in the loop so they know about upcoming sales and events. But, most do not want to open multiple emails from your business each day. This is overwhelming.

Make sure to keep your mass emails to a minimum. For example, you might send one weekly email letting customers know about specials for the week. Or, you might send emails only when your company is having a big sale.

5. Offer specials

Reward your loyalty program members even more by giving them extra points on some days. You can double the number of points, punches, dollars, etc. that they earn.

Promote the event on your social media profiles, website, and through email marketing. Some businesses choose to offer deals like this on Small Business Saturday or around big shopping holidays. Or, you can promote specials if your business needs a boost.

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This article has been updated from its original publication date of October 12, 2017.

This is not intended as legal advice; for more information, please click here.