Adding a loyalty program to your Shopify store can be a great way to boost your bottom line. But before you invest in one, it’s important to understand the ROI a loyalty program can provide.
Harvard Business Review reports that companies with strong loyalty programs grow revenues 2.5 times faster than their competitors, and generate 100% to 400% higher returns to shareholders. Another study by Invesp found that 83% of customers using loyalty programs are more likely to continue doing business with certain companies.
It’s not just about increasing sales. A loyalty program can also provide a host of other benefits, like bolstering social proof and strengthening customer retention.
(Both of which…can also lead to more sales, FWIW.)
So, what’s the ROI of adding a loyalty program to your Shopify store? There are many factors to consider, but here are a few of the most compelling ones.
The 5 Most Lucrative Benefits of a Customer Loyalty Program
1. Sales
The data’s in, folks. Members of loyalty programs just plain spend more, more often.
To give one example, members of Sephora’s Beauty Insider loyalty program account for nearly 80% of the company’s annual sales, as reported by Shopify. Meanwhile, members of Amazon Prime spend more than twice as much as non-members.
2. Customer Retention
Simply put, loyalty programs help to cultivate customer…loyalty. (Yes, duh…just follow us here.) According to one study, 75% of consumers say they favor companies that offer rewards.
Customer retention is vital to success. Increasing customer retention rates by 5% increases profits by anywhere from 25% to 95%. Customer acquisition costs rarely go down, so it behooves you to focus on retaining the ones you’ve got instead of spending time and money capturing new ones.
3. Lifetime Value
So, loyalty members hang around for longer and ultimately spend more – it follows, then, that loyalty members have higher LTVs than non-loyalty members.
Customer lifetime value is an important metric to track, because it predicts your profitability and serves as a checkpoint for your customer acquisition cost. A business can only be profitable if the customer LTV outweighs the CAC.
4. Social Proof
Depending on how you have your loyalty program structured, it may result in highly valuable social proof. If you’re unfamiliar with the concept...
Dynamic Yield fancily defines it as:
“A psychological phenomenon where people assume the actions of others in an attempt to reflect correct behavior for a given situation.”
Basically, if enough people say you’re selling a great product, a hesitant buyer* is more likely to believe they would also think your product is great and <add to cart>.
(*Or many hesitant buyers. Science says 84% of shoppers trust online reviews as much as their friends.)
That reviews matter is nothing new, but here in times A.C. (After Covid), they’re even more important. 2021 data shows that review interaction (searching for, filtering, or clicking to expand reviews) is up 50% from pre-pandemic levels.
(Lifted from our blog post How to Get More Reviews on Your Shopify Store's Products.)
Robust reviews (written and video, if you can get it!) are hugely important to online conversion. Reward members for leaving written reviews, give them bonuses for video reviews, and incentivize them to refer their friends.
5. Engagement
Loyalty programs and engagement are inextricably linked. Customers who are already engaged and interested in a brand are more likely to sign up for a loyalty program – giving you even more opportunities to connect with them. Customers who are maybe a bit more on the fence can be brought into the fold by enticing them to sign up, opening an avenue for deeper connection.
Even when a customer isn’t actively buying something (yet), loyalty programs offer the promise of tangible benefits, which can motivate them to keep engaging with a brand.
When customers are engaged, they are more likely to convert. In fact, engaged customers are 5x more likely to choose the brand for future purchases than unengaged customers.
There’s one final benefit to implementing a loyalty program that we haven’t really talked about, but it’s a biggie: data collection. We didn’t include it in the above list because it's typically more of a side benefit of such a program instead of the primary objective – and the data is really only valuable based on what you do with it.
That said, loyalty programs can offer an incredible window into the habits, preferences, and behaviors of your most valuable customers. The insights and information you gather can inform marketing strategies, product decisions, and so much more.
How Do You Add a High ROI Loyalty Program?
As you now know, adding a loyalty program to your business is a great way to increase customer engagement and loyalty – but not all loyalty programs are created equal. Some programs enable high ROI, while others can be costly and difficult to manage.
How do you make sure your loyalty program falls into the former category?
Two platforms that can help you add a high-ROI loyalty program to your Shopify store are Yotpo and Smile.io. These platforms offer a suite of tools to help you manage your loyalty program as well as a host of other related marketing functions.
Let's take a closer look. 👀
Yotpo helps companies accelerate growth with a full suite of solutions for customer reviews, visual marketing, loyalty, referrals, and SMS marketing. You can build a customized loyalty program designed to maximize engagement and increase lifetime value, including tier-based programs and referrals.
Smile.io helps companies turn customers into advocates. With "points," you can easily motivate valuable customer actions like joining your program. With "VIP," you can keep your best customers engaged with increasing rewards and status. With "Referrals," you can turn your engaged community members into advocates who share your brand.
Which platform is better for you depends on your business needs. If you're looking for a wide range of built-in marketing solutions and a strong API for even more customization, Yotpo is a good choice. If you're looking for a platform that’s easy to get started with, affordable, and really zeroes in on just the most important pieces of customer loyalty and referrals, Smile.io may be the right option.
How Do Yotpo and Smile Compare in Terms of Pricing?
Both Yotpo and Smile offer a wide range of features, at an affordable entry price. (Both offer a free plan to get started with, too!) Yotpo’s most basic paid plan is the Silver level at $29/mo, but realistically, if you want to make sure you have all the tools you really need to maximize the program, you’ll need to be on the Gold tier for $249/mo (since that’s where email marketing integrations kick in). Where Yotpo can get expensive over time is the order cap:
Smile’s lowest tier plan starts at $49/mo, but you’ll want to be on the Growth plan at $199/mo before you know it. Unlike Yotpo, they don’t charge anything based on the number of orders your store processes – just the features available at each plan tier. Nice!
Deciding which one is right for you will depend on how you plan to structure your program and your commitment to executing on that plan consistently. Yotpo and Smile will both be a waste of money if you don’t have a clearly defined program that is nurtured, promoted, and maintained by your marketing team.
You may want to get an estimate on the build out of your program (or just a bit of strategy consulting) with an agency (ahem) before you commit. If you want to do really complex custom things, you’re going to need API/webhook access (which in Smile’s case is only available on the Enterprise plan, which starts at $1,000/mo). We’re happy to advise!
Is It Possible to Lose Money By Implementing a Loyalty Program?
TL;DR, 1000%.
Yes, loyalty programs are a proven way to boost sales while increasing retention, social proof, and customer engagement. That said, they can backfire.
For example, if a merchant incorporates discounts into their loyalty program incentives, and then reduces prices on low-margin products or services, they might end up losing money. If the same merchant then realizes their mistake and hikes prices back up, they might leave previously loyal customers in a state of befuddled “dafuq?” (Which is…not great for customer relationships.)
This can be easily avoided if you pay close attention to your margins and ensure that you don’t offer excessive discounts by comparison. You may also want to consider adding restrictions, such as not allowing points to be redeemed on clearance merchandise, or requiring a minimum purchase amount.
Another point to watch out for is loyalty program fraud, which, for example, contributed to Subway’s decision to discontinue its original stamp program. Loyalty program fraud is generally committed by hackers, employee “insiders,” and unscrupulous members.
Hackers can be deterred by all the usual things (complex passwords and multi-factor authentication, CAPTCHA fields, etc.). Employee fraud can be prevented by training employees on program policies, including a clause in their employment contract forbidding them to participate in the program, and establishing an anonymous tip reporting line. Member fraud is less straightforward and can be difficult to detect, but the best defense is a good offense: make sure the rules of the program are clearly laid out, along with the consequences of breaking them. Keep an eye out for any strange transactions (i.e. a brand new member making a purchase a redeeming 1000 points, if it’s not reasonable for them to have accumulated that many so quickly), and investigate them promptly.
One way to ensure that you don’t lose money on your loyalty program is to offer tiered discounts with an upper limit. This means that customers receive a greater discount the more loyalty points they accumulate.
So, dollars spent = points accumulated. More points = higher discounts. You’re making up for the steeper discounts with greater spend on the front end, while making your customer feel VIP af. 😎 Everybody wins!
Do Loyalty Programs Work Better for Certain Businesses?
After all that you might be wondering if loyalty programs only fit a certain kind of business. The reality is they’re a great fit for just about any business or vertical.
That said, subscription brands are particularly well-suited for a loyalty program, as subscriptions face the pressure of churn more so than other businesses. A loyalty program can help reduce attrition and keep customers engaged and excited.
That said, literally any business can benefit from a low-cost, low-effort solution that – when executed correctly – can deliver more sales, increased customer retention, strong social proof, and increased engagement.
It’s a loyalty program. A loyalty program is the solution.
