Customers are the backbone of every business – that’s why the key to profitability is engaging your most loyal customers.
On the CandyBar blog, we’ve written extensively about how businesses use loyalty programs to engage customers. After all, a 5% increase in customer retention can increase profits by between 25% and 125%!
Here are some ideas for small businesses to create a successful customer loyalty program that rings results. customized to your own business and effectively brings you results.
What makes a good loyalty program?
An effective customer loyalty program is a marketing strategy that helps your business retain your existing customers. Having repeat customers maintains a steady flow of income, as customers return to make repeat purchases.
How do you calculate Customer Retention Rate?
To calculate customer retention rate over a period, use the formula
- (E – N) / S x 100% where
- S = Number of customers at the start of the period
- E = Number of customers at the end of the period
- N = Number of new customers added during the period
To give an example, if you started with 100 customers in January, had 20 new customers, and started February with 100 customers, you would have an 80% retention rate. You gained 20 new customers, but you were only able to retain 80% of the customers from January.
Why is customer retention important for small businesses?
Small businesses have more modest resources compared to bigger brands like Amazon or Starbucks; primarily, they have much smaller marketing budgets and more limited data resources.
According to Forrester, customer acquisition costs five times as much as keeping and pleasing your existing customers. You can reduce marketing costs and retain predictable profits with a dedicated customer retention strategy. This also helps with extending your customers’ lifetime value.
Why is Customer Lifetime Value important for Small Businesses?
Repeat customers have a high lifetime value compared to new or one-time-only customers. According to Adobe, 8% of repeat customers alone create 41% of a store’s revenue. Therefore, retaining existing customers will pay off more than acquiring new customers.
This also makes loyalty programs an important aspect for small businesses.
Why are loyalty programs valuable for small businesses?
Overall, loyalty programs are very helpful to improve brand loyalty, satisfy customer expectations and increase the number of sales. Two more benefits are:
- Repeat Business: Insights from the Luxury Client Experience Board revealed that a customer has a 27% of returning after the first purchase; but after the third purchase, there is a 54% chance of them returning. If you can keep a customer coming back three times, you’ll likely have a repeat customer — and you might want to encourage the customer to come back with loyalty rewards.
- Word-of-Mouth Marketing: According to Bain & Company’s study, repeat customers feel more comfortable with each purchase, and are therefore more willing to help your business make a positive referral, bringing in new customers.
Tracking customer data can be difficult, without a dedicated tech team. A simple digital punch card can help collect customer visit data and provide a better experience.
How are small businesses capturing customer loyalty?
Here are some examples of small business loyalty programs:
- A juice shop might offer customer loyalty points, daily discounts, or bulk order discounts like Mission Juice, to have customers return.
- Apparel brands can give weekly or monthly vouchers like Cotton On to reward new members and entice the return of loyal customers to make repeated purchases.
- Skincare shops like Benefit Cosmetics offer additional discounts to loyal customers and early bird specials to new customers who join the membership rewards program.
How do I start a loyalty rewards program for my small business?
Using a customer loyalty app will help you set up and track loyalty rewards, but there are several other steps you’ll need for your small business:
- Identify the Customer Behaviour to reward, and Design the Rewards to Match Choosing the customer interactions you wish to reward will help you focus on your loyalty program benefits. Want to sell more coffees? Offer a free one for every 5 cups purchased. Want to encourage more visits? Give a 10% discount off on every fifth store visit.
- Integrate into your daily routine You’ll need to train your staff and employees as well — even part-timers. Customers can get grumpy if they feel they’re not getting the rewards, so make sure everyone knows what the program is and how customers can “earn” or redeem rewards.
- Promote the program! It isn’t enough that you know about the program – your customers need to know too! To promote your customer loyalty program, use various forms of promotion, both in the store and outside. Create a small business video to promote the program and make sure to post on digital channels like email newsletters, social media accounts, and especially Facebook/Instagram; as well as placing physical advertisements and posters in the store.
Small Business Loyalty Program Ideas:
Here are ideas for small business loyalty programs you can run in your store:
#1 Give Loyal Customers Special offers like Free Gifts and Discounts
A great way to reward loyal customers and attract past customers, Buy-one-get-one (BOGO) deals are irresistible for customers to pass on as it increases the value of the product and encourages customers to purchase it. Free gifts and special offers like discount coupons allow customers to try out new products and spend more on their purchases.
this BOGO promotion, doTERRA offers a bottle of doTERRA Balance free with every purchase of a bottle of doTERRA Peace purchased. Known for their focus on life-enhancing oils, products, and sustainable practices, this deal rewards their customers when they purchase from them and support their brand.
#2 “Loyalty and Punch Cards” for collecting redeemable points
Loyalty and Punch cards are great ways to keep track of customers and reward their purchases with your business. These cards go beyond offering a discount by offering more rewards to their customers.
It is very common for companies selling food and drinks to use this loyalty program with their customers; incentivizing them to return and spend more to receive attractive gifts and discounts.
Boost Juice has a loyalty card and mobile app that allows customers to easily sign up and benefit from their loyalty program. Instead of a punch card, points earned from every drink purchased are stored on your card. Customers can also order their drinks online with their app to skip the queue.
Just for signing up, they get a free drink on their birthday – and every 11th drink purchased is free.
At the Vibe Club, every 11th Boost is Free. Via Boost Juice Bars
This type of loyalty program is very appealing as they are very easy and convenient to use. This translates to customers finding it very easy and fun to enjoy the rewards from your loyalty program.
#3 “Free Upgrades” to reward loyal customers who renew their membership and retain customers from going to competitors
Many businesses which provide services and sell software with regular updates usually offer free upgrades to their customers to retain them and attract new customers to purchase from them. By using this loyalty program with attractive benefits, you can enhance your customer’s experience and deepen their loyalty to your company.
An example of a big brand doing this is Telstra, an Australian Telecommunications Company. Telstra offered existing customers on old plans and lower data allowances a free monthly upgrade of 15-60GB mobile data. Now, we know they’re not exactly a small business – but it was done in a move to remain competitive.
If you’re a small business offering software, early access to new features, priority customer service, and small service upgrades are things you can offer customers. If you work in a retail or F&B business, you can offer a birthday reward for consumers, giving discounts or an upsize on a meal to make them feel special.
#4 “VIP experiences” for upgrades and mementos
Customers like nothing more than to be treated with exclusivity when they make purchases and remain loyal to their favorite brands. By creating a members-only VIP loyalty program for your customers, they will feel drawn to return to your business for repeated purchases to get exclusive perks like VIP-only discounts, FOMO deals, free gifts, new product samples. This loyalty program is not expensive or difficult to implement as you can promote this in-store when customers make purchases from you, and promote it online so new customers who want the VIP perks will sign up for it.
Sephora goes beyond the loyalty card points idea with an attractive 3-tiered VIP loyalty Program that increases in perks when customers make more purchases with rewards like Meet and Greet beauty events, Sweepstakes, Birthday gifts, and free samples.
On a smaller scale, making customers feel special is a great example. Plain Vanilla, a small cafe, uses a digital loyalty program to make sure every staff member gets to know each customer by name and turn the cafe into a community.
#5 “Partnerships” to increase the rewards and make the benefits more appealing to customers
By teaming up with other small businesses who share your target market but are not directly competing with you, you can mutually attract customers from other businesses who will have an interest in your brand. With this loyalty program, customers will be more likely to give your business a try and return to purchase from you when they receive positive customer experiences.
The partnership between companies Casper & West Elm allows customers to easily purchase Casper mattresses from West Elm stores when they are looking at home furnishings. This collaboration is a low-cost customer acquisition channel that allows Casper, a sleep startup, to promote their mattresses through West Elm, a popular home furnishings retailer with an established loyal customer base.
On a smaller scale, look for businesses nearby that you can partner with and offer group deals. For example, your cafe could work with the bakery down the road for a breakfast deal.
#6 “Store exclusive freebies” for limited-time gifts
Offering free gifts help to promote new products in your business and attract previous customers to return to your store to make another purchase. By offering limited-time freebies, customers will be enticed for the fear of missing out on a good deal. When customers return to your store, they will be more likely to spend more too.
In conjunction with International Women’s Day Month, The Face Shop collaborated with Zara to offer their customers a free limited edition shopping bag and skincare kit. This time-sensitive deal rewards their customers and entices them to spend more to enjoy the freebies.
#7 “Special Days” tied with holidays for attractive discounts
With one busy season, many businesses can see a huge spike in their revenue when shoppers clamor for attractive deals for products and services they desire during that period of time. For example, many businesses see an increase in sales during events like Black Friday, Cyber Monday, Christmas, and New Year sales.
According to Adobe’s study, the average shopper spends 17% more during holiday sales, while repeat customers spend 25% more. Timing your loyalty programs to specially-timed events will bring huge benefits to your business’s profits!
Source: Dunkin Donuts Facebook
For this Halloween deal, Dunkin Donuts rewarded their DD Perks® members by emailing them drink offers, allowing them to earn 3X points (15 points per dollar).
They also entice new customers by encouraging them to sign up by October 23rd as a member to enjoy the rewards.
Source: Dunkin Donuts
This great deal encourages their loyal customers to spend more to enjoy the rewards. This also attracts new customers to subscribe and receive future promotions to try their products, thereby building more brand loyalty.
#8 “Feedback with Rewards” get customers feedback, their expectations, and needs
Giving customer surveys is a great way to receive feedback from your customers and find out what their expectations and needs are. This allows you to improve future customer experiences and your products/services.
You can implement this loyalty program online via email alerts, checkout pages, apps, or physically on receipts or brochures, and give rewards such as discounts or freebies for future visits. You can add an expiry date to give a sense of urgency for customers to act quickly.
#9 “Customer Birthdays deals” to build customer loyalty
Providing customer birthday or anniversary deals is a great way to build customer loyalty and your email marketing list for your small business. This is a good way to insert your brand into customers’ consciousness in a non-intrusive way weeks or even months after their last purchase for you.
Source: The Body Shop New Zealand
#10 Social Media
Social media sharing events allow you to use word-of-mouth marketing for your brand by engaging your customers.
You can use points redemption in various ways to make your customers invested in your loyalty program:
By earning points with each purchase, customers can complete tasks or games to earn Badges, Leaderboard rankings, or track their progress on performance graphs to motivate them to continue purchasing for rewards.
For example, the Drops app sends its customers who have downloaded and subscribed, daily motivational mobile reminders to practice languages and provides a tracking system of how each user is progressing with the language. The gamification not only makes language learning fun but also increases the chances of converting free users into subscribers.
When gamification is introduced into your loyalty program, your customers will be more motivated to remain invested in your business.
#11 “Socially Responsible Loyalty Programs” helps to engage with customers on a deeper level and increase customer loyalty to the brand
When companies incorporate their stance on important social issues into their loyalty program, they are more likely to build customer loyalty by attracting new customers and retaining existing customers who share the same views on those social issues.
By creating meaningful benefits and rewards within your loyalty program, you will be able to increase customer engagement and retention as customers are more willing to support brands that support a social cause.
The Cotton On Foundation allows customers to contribute to various social causes through the purchase of various products they have available; from supporting vulnerable communities to improving working conditions for women. Customers who sign up as members and spend $100 will receive a $5 voucher for their next purchase.
You can create a strong emotional connection with your customers when you integrate social responsibility into your loyalty program.
#12 Digital Loyalty Apps
If you are looking at a simple and easy way to run your loyalty program, a digital loyalty program on a mobile app will greatly help your customers to keep track of their reward points and redeem their rewards easily.
You can also improve your business easily by reviewing customer data from your app and tracking their shopping behaviors, what will attract them back to your shop and which rewards they enjoyed.
Candybar, a digital punch card loyalty program running in a mobile app, easily allows customers to redeem rewards and accumulate points when they shop online and in brick-and-mortar stores. Customers only need to enter their information into the app to earn points for their purchases.
H2 How to know your program works?
To measure the success of your loyalty program, we can look at the various ways to do so:
- Customer Retention Rate: The customer retention rate looks at how long a customer will shop with you over the long run. The higher the rate, the more profits your business will earn.
- Customer Churn Rate: Look at the rate at which customers stop purchasing at your shop, this is your customer churn rate. Churn will never be 0%, but with the right retention strategy, you should be losing fewer customers.
- Customer Satisfaction Survey: To find out how happy your customers are with your loyalty program, simply give them a satisfaction survey.
By effectively engaging your repeat customers through business loyalty programs to help you acquire more customers, your efforts will go a long way in building and strengthening your business brand and increase your business’s profits. When you focus on customer retention and CLV, on top of new customer acquisition, you will succeed in getting the most out of your repeat customers, and create a successful and effective business loyalty program for your business that brings results.