The effort and time a company puts into building and launching a loyalty platform makes the time after launch seem like smooth sailing. Right?

Not quite! After launch, you’ll find there are numerous methods for evaluating your loyalty program and discovering opportunities to fine-tune your processes.

Once you’ve been operating long enough to gather some data (6 months to 1 year is a good time to start) there are different metrics you can use to gauge the success of your program. One area to focus on is the rewards and redemptions: how are your customers utilizing the platform?

Calculating Redemption Rates

The rate at which customers turn points into rewards can show you several things about your redemption platform. Redemption rate is the proportion of all points awarded which are then redeemed. To get this number, divide the number of points customers spend on rewards by the total number of points issued.

There are different ways you can assign a value to your reward points when calculating redemption rate. In this example here, Nerdwallet uses cents per point in their breakdown of frequent flyer programs redemption values. Companies that heavily feature coupons get their redemption rates by dividing the number of coupons issued by the number of coupons redeemed. Another example is credit card programs which assign one point per dollar spent. When you know your point value then take the time to calculate your redemption rate.

What Is A Good Redemption Rate?

Generally, you’re looking for anything in the double digits – 10%-30% is a good range. 20% is considered the sweet spot for most major retailers. Single-digit redemption rates are a sign you might need to revisit your available rewards or focus more on marketing your rewards program.

Don’t fall for the idea that a higher level of redemption is a bad sign. A high redemption rate is a great thing! It shows your loyalty platform is working – your customers are engaging in the platform. They’re earning points and redeeming them for rewards. Your customers believe your program is valuable and your rewards are worth the time and effort put into accumulating points.

What If Redemption Rates Are Too High?

Again, you should never aim to have a 0% or close to 0% redemption rate. Even if a low redemption rate is more cost effective, it won’t make your loyalty program sustainable long term. Customers won’t take part in a rewards program that doesn’t actually bring them any rewards.

However, there are cases when a high rate of redemption can be detrimental to your program success. The cost of redeeming rewards may start affecting your bottom line when your redemption rate is far above the average 10-30%.  You may need to reevaluate how generous you’re being when distributing points or the value of certain rewards if they’re redeemed too quickly or easily.

How To Get To An Ideal Redemption Rate

There are methods for raising or lowering your redemption rate depending on your needs.

For lower redemption rates, the focus on engaging your customers. Design email newsletters reminding them of their points accumulated and the different rewards available. Study their accumulated points and past redemption history. If you run a tiered rewards program then provide suggestions for ways they could collect more points to reach the next tier level.

If your redemption rate is high enough that it’s cutting into your revenue, carefully evaluate ways to adjust your rewards points value. Consider removing or replacing certain rewards items from your catalog. Another option is to raise the number of points required to redeem.

Be careful though – if your redemption rate is at a good level then your customers like what they see. Any significant changes could result in a downturn in redemptions and a loss of engagement with your customers.

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