Loyalty Program ROI

Whether you’re throwing around the idea of starting a loyalty program or you’ve got one set up but aren’t sure it’s really moving the needle for you, a quick loyalty program ROI calculator can help you figure out the next steps.

After letting your program run for a bit it’s as simple as adding up all the profit you’ve brought in (attributed to the loyalty program), subtracting the costs associated with the program, and then multiplying by 100. 

The tricky part of figuring out how to calculate ROI for loyalty programs is digging into the numbers and determining how much revenue can actually be traced back to the program, as some revenue would have occurred with or without the program.

We’ll help you navigate that below and provide insights on driving a higher ROI loyalty program if you’re feeling that results thus far have been underwhelming. After all, brands that use Rivo for their Shopify loyalty program are seeing a 52x ROI - who’s to say you can’t see the same?

How to Calculate ROI for Loyalty Programs

There are too many customer retention statistics demonstrating the value of loyalty programs to continue overlooking this strategy. But even once you’ve got yours in place there needs to be continuous iteration and improvement. 

This requires setting up a baseline for your customer loyalty program ROI and then measuring ongoing efforts to improve. So, let’s start with how to calculate ROI for loyalty programs before getting into ways to drive it higher.

Determine the Revenue Your Loyalty Program is Driving

The first thing you need to do is quantify how much revenue your loyalty program generates. To get a true sense of how well your program is performing, you need to isolate customer behavior before and after enrollment to see the program’s direct impact.

Compare the revenue generated by loyalty members against non-members. Loyalty members typically spend more and return more often, but you need to track these differences. These are the customer retention KPIs that matter most:

• Average Order Value (AOV): Compare the cart values of members vs non-members.
• Repeat Purchase Rate (RPR): Measure how often loyalty members return vs non-members.
• Customer Lifetime Value (LTV): Are members staying engaged longer and spending more over time? Probably, but you need to be sure.

The goal is to find out incremental revenue driven by the program. In other words, revenue that wouldn’t have existed if not for the program. This is the equation for incremental revenue:

(Loyalty Member AOV x Orders per Member) - (Non-Member AOV x Orders per Non-Member)

It’s also important to be accurate in how you attribute revenue to loyalty program promotions. Look at redeemed discounts and points-based redemptions, exclusive loyalty-member promotions, and of course, recurring revenue from subscription-based loyalty programs.

Calculate All Costs Associated With the Loyalty Program

Once you know how much money is coming in directly from your loyalty program you need to subtract all the costs associated with it. We have a more detailed guide on the loyalty program cost calculation, but here are some of the most common direct and indirect costs:

Software and platform fees: Are you paying per-member fees, API integrations, or a SaaS subscription?

• Discounted rewards: Every discount or freebie given affects margins.
• Free shipping perks: Track how often members redeem this benefit as those shipping fees are coming out of your pocket.
• Marketing and promotion: Cost of emails, SMS, social media ads promoting the program.
• Customer support: More members means more inquiries about points, redemptions, and tiers. You may find yourself hiring an extra rep or two.
• Fraud and abuse protection: Some members game the system, and while there are tools that can help prevent this, those costs add up.

Your unique loyalty program may incur other costs we haven’t mentioned, so take your time to weigh them all for the most accurate depiction of overall costs. Then, it’s just a matter of using our simple loyalty program ROI calculator below.

Equation for Gauging the ROI of Loyalty Programs

Learning how to actually calculate ROI for loyalty programs is simple. Use this equation:

ROI = (Incremental Profit / Total Program Costs) x 100

So say you brought in $750,000 in incremental program over the course of a year and the program cost you $250,000. That would be an impressive 300% ROI, and you’d deserve a pat on the back for structuring, executing, and managing such a profoundly successful program!

In this case, every $1 you spend on loyalty brings back $3 in profit. Great! But what if the ROI of loyalty programs falls short of what you were hoping for? Well, you may need to go back to the drawing board and look into alternative customer loyalty strategies. We’ll share tips on that later.

More Key Metrics for Measuring Loyalty Program ROI

Before we offer advice on driving a higher ROI loyalty program let’s look at some other important customer loyalty analytics worth tracking as you hit the ground running:

• Customer Retention Rate (CRR): This tracks the percentage of customers retained over time. Subtract customers at the end of the period by new customers, and then divide that figure by customers at the start of the period. Multiply by 100 and you have your CRR. A rising CRR suggests the program is making a positive impact.
• Net Promoter Score (NPS): This poll-based metric assesses customer satisfaction and the likelihood of referrals. Higher NPS means loyalty members see real value in the program.
• Redemption Rate: How many earned rewards are actually used? Divide redeemed rewards by total issued rewards and multiply by 100 to find out. If it’s low, your program’s rewards might not be compelling enough to drive engagement.
• Churn Rate Among Loyalty Members vs Non-Members: If loyalty members are churning at the same rate as non-members, your program may not be providing enough value.

Our blog has more tips on how to calculate repeat purchase rate and other metrics, like CAC vs LTV, if you’d like to learn more. Otherwise, let’s look at some steps you can to drive a higher ROI loyalty program. 

Advice for Creating a High ROI Loyalty Program

Building a loyalty program that generates more revenue than it costs is easier said than done, but building the foundation for your program on Rivo is an excellent first step. You also need to start by choosing the right model in the first place.

Choosing the Right Loyalty Program Model for Profitability

Some loyalty programs are notorious for draining resources with little return, while others can work wonders to increase customer retention and revenue. Here are the most common options that move the needle in the right direction:

• Points-Based: Great for brands with high purchase frequency (beauty, apparel, grocery). Customers earn points per dollar spent, incentivizing repeat purchases.
• Subscription-Based: Brands with consumables or premium services can use this approach for a consistent, predictable revenue stream. Customers pay a fee (monthly/annually) for exclusive perks and discounts.
• Hybrid Models: Some brands blend both by offering a free points system with an optional paid VIP tier to maximize engagement without alienating customers who don’t want to pay upfront.

Reducing Costs Without Compromising on Value

Sometimes when brands complain about a low ROI loyalty program, costs have spun out of control. It’s not necessarily a revenue-related issue. It could be expensive reward fulfillment, software fees, or customer acquisition costs.

The problem is, cutting costs often means stripping away value, and then, participation in the loyalty program suffers. There’s a fine line between structuring your rewards to make them enticing and avoiding being overly generous. 

Unsustainable reward structures will burn through profits. You need to set a healthy earn-to-redeem ratio. For instance, 10 points for every $1 spent works well. 1,000 points could equate to a $10 discount. You could also offer tiered rewards to encourage higher AOV purchases, like “Spend $100, get 15% off; Spend $200, get 25% off.”

Or, see how moving away from discounts altogether works. Offer early access to new products, exclusive content, or giveaways instead of cash-based rewards. As long as customers feel they’re getting value from the program, you’re moving in the right direction.

One other way to reduce costs without impacting value whatsoever is using an automated reward fulfillment system, like Rivo. This tracks points and redemptions automatically to lower overhead. Perhaps more importantly, though, it supports unparalleled personalization.

Using Personalization to Drive Higher Engagement

Loyalty programs are only profitable if customers actually use them. The best way to maximize engagement is by making it feel like the experience is tailored specifically to each customer. Improving personalization can drive up to a 10% growth in customer retention.

So, instead of use customer data to create segments instead of blanket promotions. There are many ways you could segment customers, including:

• Purchase history
• Average order value
• Engagement with rewards program
• Frequency of purchases

Maybe you have a chunk of customers who buy skincare every two months. You can encourage this purchase cycle by sending them a bonus offer right before they typically reorder.

Or, you can structure win-back campaigns for customers who historically ordered regularly but have lapsed over the past 6 months. Inviting them back with an attractive discount or even just showing off new releases could re-engage them.

We’ve also seen milestone bonuses work well for customers who purchase regularly. This could be something like unlocking VIP status after hitting 1,000 points. Or, gamify the experience for your most loyal customers with something like “Buy three months in a row, get a free gift.”

Encouraging Advocacy and Referrals

The most cost-effective way to grow a loyalty program is to have your existing members bring their friends and family along with them. You can incentivize referrals with double-sided rewards. This is where:

• The referrer gets a reward (like bonus points or store credit).
• The new customer gets an incentive to make their first purchase (maybe a discount or free gift).

This brings down CAC while increasing the conversion rate since customers who are referred are already more trusting of your brand. Along with setting up a Shopify referral program, you can:

• Reward customers for posting about their purchases with bonus points.
• Showcase UGC on product pages to boost conversion rates.
• Host giveaways for customers who share their experiences with your brand.

This turns loyal customers into advocates and amplifies brand awareness without increasing ad spend. It’s a no-brainer for any brand that’s trying to drive retention results and profitability.

Online Loyalty Program ROI Case Study

There’s no need to reinvent the wheel. Looking at customer retention examples and putting your own unique twist on them saves time and stress while driving better results. 

We have a wealth of case studies here at Rivo you can read through, but one that stands out is Ultra Football & Nike. This loyalty program ROI case study is profound because it brought in $800k in loyalty-attributed revenue in less than 6 months for a whopping 293x ROI!

The brand also saw a 150% improvement to AOV and 7% of total revenue was driven by loyalty alone. If this doesn’t sell you on the value of loyalty, nothing will. A huge part of what made it possible was setting up on Rivo, as this unlocked capabilities such as:

• Shopify customer accounts: Effortless integration so members can earn and redeem rewards at the click of a button.
• Cohesive, branded loyalty lander: The Rivo API made it quick and easy to develop a landing page that felt like a natural extension of the rest of the site, all in-house.
• App integration: The brand had its own “Club” app, and we worked together to make sure members could enter specific loyalty tiers based on Shopify brand loyalty segmentation.
• Boot finder custom actions: Ultra Football was able to reward customer loyalty in a variety of ways, including simply setting up their Boot Finder app account.

Our blog has more resources on how to reward customer loyalty if you want to see what’s possible, or you can compare Rivo vs Loyalty Lion, Rivo vs Smile.io, or Rivo vs Yotpo to get a sense of what sets our platform apart. 

Bringing Our Loyalty Program ROI Guide to a Close

Hopefully you feel confident in how to calculate ROI for loyalty programs, but more importantly, how to drive a higher loyalty program ROI if you find that yours is falling short as it currently stands.

The key takeaway? A loyalty program can bring an impressive ROI when you choose the right model, reward structure, and platform. Rivo is ready to help on all fronts. See how we’ve helped 7,000+ leading Shopify brands launch data-driven rewards programs that make an impact.

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