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How SMBs can structure customer loyalty programs

Written by Spencer Durrant on January 29, 2016 in Strategies & Tips


A lot of SMB owners feel excluded from running a rewards program for their customers because they don't think they can offer a valuable program and still profit from it. But what would you, as an SMB owner, say if I told you that it's entirely possible to implement a profitable customer loyalty program for your online store?

You don't have to sell the farm with your rewards program

A common misconception among SMBs is that in order to compete with Amazon's Prime Membership they have to practically give things away in their rewards program. That's simply not true.

Why is not true? The answer is found in a blog post from HubSpot that tackles this very subject. In that post, author Lindsay Kolowich wrote,

"It costs a business about 5-10X more to acquire a new customer than it does to sell to an existing one. Not only that, but on average, current customers spend 67% more than new customers. In light of statistics like these, businesses must think about what they are doing to keep their customers coming back to their business."

The post goes on to talk about 7 different ideas for customer rewards programs that actually add value (and don't cost SMB owners an arm and a leg to implement), and even includes an eBook to give ecommerce store owners more information on the subject.

It proves the point that you don't have to come up with a rewards program that makes you feel like you're giving away too much for too little in return. Your existing customers are already likely to spend more in your store. What your rewards program can do is obviously reward them for spending more, but also offer a nice incentive to new customers. 

So, how should you structure your rewards program? I've gathered a few of the options that exist that are proven to work and will not cost you your business to implement.

Yearly fee for big benefits

This is the exact model Amazon uses for their Prime service, which costs $99/year. While the above linked HubSpot article points out the fact that one of the features of a robust loyalty program is to break down barriers between you and potential new customers, the author points out that a one-time fee for exclusive access to benefits can be beneficial for online stores, if used correctly. 

An example of that would be to charge customers $50 a year for free or flat-rate shipping. instead of facing the "sticker shock" that leads to shopping cart abandonment (due to high taxes, shipping rates that weren't disclosed, etc.) customers will know that their membership guarantees them a certain shipping rate. 

From a pure ecommerce standpoint, this is the biggest selling point of an Amazon Prime membership - free two-day shipping on qualifying products. However, it's interesting to note that the HubSpot article cites information that suggests Amazon actually loses money by offering their Prime membership, but they make up for the losses because of how frequently consumers will use their Prime account to purchase products. 

So this rewards program model is definitely better-suited to SMBs who thrive on frequent purchases, even if the margins are thin. By offering a flat shipping rate in exchange for the cost of a yearly membership, you can offset any money you may lose on shipping from the subscription revenue.

Simple points system

This might be the most popular rewards program available (think credit card rewards).

The theory behind a points system is simple: for every dollar that a customer spends in your store, they receive X amount of points that can be redeemed to purchase any product in your store.

However, creating that kind of tracking system can be a monumental undertaking for most SMB owners. Luckily, a bevy of rewards apps exist that enable you to offer customers a points-based rewards system without the cost of building one yourself. 

SpendGo is an option that alleviates a very common problem with points-based reward programs: customers often forget that they've earned points and never use them. SpendGo enables your customers to decide if they want to use their points at every point-of-sale on your site, ensuring that they never forget they have rewards points just waiting to be spent. SpendGo tends to run most businesses around $50 a month to use their robust platform. 

If you want to see other app options, you can see a list here.

Referral program

This is another popular program, one that's employed by a lot of cable companies. The premise is simple - if one of your customers refers a friend to your store, and that friend makes a purchase, your customer receives a predetermined benefit. The benefit can be anything from a $50 credit on their account to free shipping on their next purchase. 

A referral program is a bit harder to sell as a rewards program because it involves the customers doing more work in asking their friends to buy from your store. It's probably a smarter idea to include a referral bonus as part of your rewards program.

A rewards program can go a long ways to not only increasing the amount of sales made by your existing customers, but also enticing new customers to shop at your store. It doesn't have to be complicated or excessively costly in order for the rewards program to offer value to your customers - it just has to be fair. If you keep the above advice in mind when creating, or tweaking, your rewards program, you'll definitely see the benefits of a finely-tuned rewards program in a short amount of time.

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Photo courtesy Jeff Kramer.

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