I'm a sucker for small business loyalty programs.
Just take a peek in my wallet and you’ll discover punch cards for all my most frequented local businesses—the coffee shop that gives you a plastic farm animal instead of a table number, the ramen spot with the most delicious tonkotsu broth, the bookshop with the most diverse selection of cookbooks (that also happens to be located between two tasty pie shops).
These small business loyalty programs, like every other loyalty program, are designed to generate repeat business, gain customer retention, and, ultimately, cultivate a thriving network of brand ambassadors who sing your praises to their friends, family, and extended circles.
In most cases, a loyalty program rewards customers for their repeat business and customer behavior, but it can also include rewards for social sharing, referrals, and other actions that demonstrate loyalty.
Of course, there are some costs associated with loyalty programs for repeat customers, including the time and energy it takes to set one up as well as the rewards themselves. But with some clever math and due diligence you can get a loyalty program up and running with minimal cost—and a high return on investment thanks to customer retention.
This customer loyalty programs piece will dig into:
4 types of loyalty programs to keep customers coming back
There are a few different types of loyalty programs for existing customers, each with pros and cons. When determining which one is best for your small business, remember that it needs to work for you and your customers.
In other words, your staff and point of sale (POS) system must be able to properly support it, and it needs to be low-barrier enough for your customers to make use of it.
The punch card method is by far the easiest to implement for new customers and loyal customers, since it requires nothing more than a stack of loyalty cards and a hole punch.
The rewards for this type of customer satisfaction loyalty program typically include a free item after X amount of purchases (e.g., a free coffee after 10 coffee purchases) or $X off after X purchases (e.g., $20 off your next purchase after making 10 purchases of $20 or more):
The punch cards I mentioned in the intro. I’ve earned so much free ramen and gyoza over the years I should get a customer loyalty tattoo.
There are a few downsides to this type of loyalty program. Firstly, the customer must physically have their card on their person. Secondly, cards are easy to lose, throw out, or simply forget. And finally, this method doesn’t require the customer to provide their email or phone number, which means you can’t reach out to them with promotional materials.
Similar to punch cards, these are physical (usually plastic) cards that customers carry around in their wallets to earn rewards over time.
The use of these cards requires your POS system to be synced with whatever rewards platform your company is using, and is often used by grocery stores or other bigger retailers (such as Sephora).
Pro-tip: Some membership cards give customers that feeling of exclusivity, like the tiered Beauty Insider cards. Use them to rack up points to redeem for free products and receive a free birthday gift.
Similar to the punch card, this program requires the customer to carry around a physical card, but depending on the tech you have in place, your staff could also just ask for a phone number or email to pull up their account, which makes things easier for your customers.
This type of loyalty program is often based on points collection. Once you reach a certain number of points, you receive a specified amount off your next purchase. In some cases you can redeem the points to get items for “free.”
Email or phone number opt-in
Many companies will register customers to their loyalty programs directly through their POS systems during checkout.
It solves the problem of carrying a physical card—however, you may find people are hesitant to hand out their personal information in order to join. One way around this is to offer a discount or points for signing up on their current purchase.
Again, this type of program is typically points-based, although sometimes it’s frequency-based like the punch cards.
Some companies will do a combination of in-store or online opt-in like Body Energy Club has done, since they sell products both online and off:
At Body Energy Club’s brick and mortar locations, staff simply ask for your name and phone number at purchase and you start racking up points then and there.
Many small businesses operate solely online and so do their customer loyalty programs.
You’ll most often see requests to join the loyalty program during checkout, when you’re asked to either sign in or “Create an account to earn rewards.”
Grocery delivery service Spud maintains customer loyalty with their points program, which allows customers to collect points with every online order.
When Spud customers hit 1,000 points they automatically get a $10 credit on their next order.
A note on B2B loyalty programs
If you’re a B2B (business to business) or wholesale company, your loyalty program might look a little different from the ones described above. After all, your customers will likely be dealing with your sales team over the phone or email, and they’ll likely be making purchases bigger than a morning latte.
B2B loyalty programs present grander opportunities in terms of customer referrals, upselling/cross-selling, and brand awareness. For this reason rewards tend to be bigger and more impactful to the customer, such as in the form of cash rewards.
Software company Unbounce recently launched their version of a loyalty program, which rewards customers who refer other customers with 20% cash back of the new customer’s lifetime recurring revenue:
Maybe you can’t offer such a large reward at this point in time, but a similar structure might work for your B2B business.
How to create a small business loyalty program
If your current customers are happy with your offers and you’re doing okay financially, a loyalty program is the perfect way to turn your customers into evangelists while also drawing in new customers.
Not sure where to start to attract loyalty members? Here’s a three-step process to getting your small business loyalty program up and running.
1. Choose your platform
The first thing you’ll want to do when creating a loyalty program is to choose a platform to run your program on. As a small business owner, you likely can’t justify the cost associated with a bespoke platform. Good news is, there are many popular applications you can try, including:
- Belly. One of the more popular rewards apps, Belly is a great option for brick and mortar businesses since it provides its customers with iPads for easy in-store signup.
- Fivestars. Registering for a loyalty program powered by Fivestars requires only a phone number, which to customers is a relatively small ask. As a business owner, you can segment customers based on a number of tags and present segments with personalized rewards.
- LevelUp. This mobile-based restaurant rewards app is the perfect platform if your customer base (1) likes to use their smartphone for everything and (2) likes to order their food online to save time.
When making your decision, take a few moments to consider the following questions:
- Who are my customers and potential loyalty members? Are they likely to be tech-savvy? Would they be hesitant sharing their personal data?
- Are my staff on-board? How can I make this as painless and easy for them as possible?
- Will the technology work with my existing technology (POS, website, CRM, etc.)? Will it require setup, and if so, who will do that setup and how much will it cost?
- What can I afford in terms of monthly costs (in the case of a monthly software subscription)?
Pro-tip: To gain insight into what your customers (and future customers) want (or don’t want) from a loyalty program, consider sending your customers and leads a survey.
A customer relationship management (CRM) tool can help you do this at scale by filtering your contacts by type (lead or customer) and, if it's hooked up to an email provider, can also send bulk emails to each segment.
Here's what sending one of these emails looks like in Copper, which is designed for Gmail. Notice the blue and green fields—those are dynamic and automatically pull in the names of your customers from Copper, meaning you can send a mass email... but still make it look personalized for each person:
An example bulk reward email from Copper that you might send to existing customers (a.k.a. Your “People” in Copper).
But don’t stop there—your CRM can also do stuff like this:
- Provide you with ideas for potential rewards.
- Some light sleuthing of past interactions stored in your CRM might reveal that your customers are already telling you what they want in a rewards program. Do customers often ask for discounts on repeat purchases? Do they ask for free samples or upgrades? These types of requests are pure gold when it comes to building out a successful loyalty program.
- Help you identify opportunities to “surprise and delight” your best customers.
- Comb through contacts to uncover the ones who’ve been regular customers the longest, then surprise them with a meaningful reward and gauge their response. This is a great way to test out your ideas before implementing a formal rewards program.
2. Determine your rewards structure
Next you need to define how customers will earn rewards and what those rewards will consist of. Again, if you’re lacking insight into what your customers want, don’t guess—ask them!
Ask yourself the following when considering a customer loyalty program:
- What rewards would be most meaningful to your customers? Would they like free products? Cash back? Cash off their next purchase?
- Does it make more sense to use a points or frequency structure?
- What can you viably afford to “give away?”
Pro-tip: Ever hear of MVPing? It stands for minimum viable product, and it means getting a working prototype out the door in the shortest amount of time with the least amount of effort. When it comes to creating a loyalty program that works, it might take some time to get right, so don’t hesitate to launch with an MVP and then make improvements based on the results and feedback you get.
3. Launch and promote your loyalty program
So you’ve gotten a ton of customer insights, you’ve built out your MVP loyalty program, and you’re ready to go live… now what?
Before you release this thing into the wild, you need to plan out your promotion strategy. Because if no one knows about your loyalty program, they’re certainly not going to use it, and you’ll have wasted valuable time and resources on creating it.
Below are just a few of the key ways you can promote your small business loyalty program to loyal customers:
- On-premise signage
- If you have a brick and mortar location (or locations) you best make sure to display visible signage for all patrons to see. At the very least you should include a sign at your POS, but you could additionally place signage in the window for passers-by too. If your business is a restaurant, consider including a small sign on every table.
- When you launch your customer engagement loyalty program, it’s important to brief your staff as well as provide them with some prompts for talking to customers about the program, whether in person, on the phone, or over email. If your staff are excited about the program, your customers will be too.
- Social media
- If you’re leveraging social channels, ensure you announce your loyalty program on each of them. Create consistent images to use across all social media platforms, as well as consistent messaging and share it with your followers. If people have questions or comments, be sure to answer all of them!
- If you have a bit of cash to spend on promo, you could consider retargeting past customers with ads pointing to your loyalty program registration page. If you’re unfamiliar with this marketing tactic, retargeting is a way of getting your message in front of a specified audience on a platform you don’t own (such as Facebook or Instagram). When someone clicks on your ad, you pay a small fee to the hosting platform. But don’t worry, you can set your budget ahead of time so you only spend what you’ve allocated.
- Of course, you’ll want to send an email out to customers and leads letting them know you’ve launched a fantastic new loyalty program, since this may be the tipping point that makes them a new or returning customer. If you used a CRM to send out an email with a survey, consider sending an email out first to those customers who opened the email, since they’ll be the most likely to register.
Is your small business loyalty program working?
Launching your customer engagement loyalty program is a huge milestone, but you need to be diligently tracking customer data, customer behavior and its progress to determine if it was a success or not.
Ideally, you would have set goals for the loyal customer program so you could track how it’s performing. For example, let’s say you wanted to sign up 10% of your customer base within the first three months. To determine if this was a successful customer loyalty program, you’ll use the following participation rate formula:
- Number of participants / Number of customers
According to rewards program software Smile.io, the average loyalty program has a participation rate of 23%, so your goal should be to meet (and even exceed) this rate in whatever you determine is a reasonable timeframe.
Another metric customer data you can be tracking for brand loyalty is redemption rate, which can be calculated as follows:
- Number of points or rewards redeemed / Number points or rewards issued
Again, Smile.io reported that “66% of rewards that were issued by brands were redeemed by their customers” so this should be a good rate to aim for to provide a positive customer experience.
Experience small business loyalty program bliss
The perfect small business loyalty program benefits both you and your customer, not one or the other.
By rewarding your best customers with meaningful rewards to earn brand loyalty, they’ll in turn reward you with loyalty, referrals, and other actions that translate to real value to you, such as social engagement, reviews, and ambassadorship.
If you’re a small business owner, and you’re wondering if a loyalty program for repeat customers would be a good fit for your business, don’t speculate. Your customers will be the greatest indicator of success, so pick their brains, understand their motivations, and launch something, fast for customer satisfaction.