# How do you set the value of your loyalty points?

If you're not sure about the value of your loyalty points, you won't have a clue how much you're giving away to customers, and they won't either!

Author

Florian Auffret

When it comes to building a successful rewards program, one of the most critical factors to consider is the worth of loyalty points.

So let's see together how to value those points to keep your customers coming back for more!

Check out this blog post for more tips on setting up an effective rewards program.

## Why should you calculate the redemption value of your points?

The redemption value of loyalty points refers to the real-money worth each point holds, determining how much value customers can derive from their accumulated points.

For example, if you allow customers to redeem 1 500 points for a 15€ discount, you can calculate the redemption value by dividing the reward (15€) by the number of points required (1 500).

In this case, the redemption value would be 1 cent per point.

It's important to be familiar with your redemption value, so you can keep an eye on the total number of points you have outstanding.

Multiply it by the total number of points outstanding.

And you'll get an estimate of how much money your customers currently have at their disposal.

Understanding the redemption value and the total value of points can help businesses assess the financial impact of their loyalty program and make informed decisions about how to manage it effectively.

## Perceived value vs. Actual loyalty point value

Redemption value is the value perceived by your customers.

Not to be confused with their actual value to you.

Let me give you an example.

Suppose you decide to offer free products in your loyalty program.

Your customers will have the impression that their points have the same value as the product they're redeeming them for.

So if your product normally sells for 20 euros, but can be purchased for 200 points, your customers will feel that their points are worth 10 cents each.

Only, this 20-euro price includes your usual margins.

In reality, it only cost you 10 euros to produce.

In this case, while your customer perceives your points as being worth 10 centimes each, they actually cost you only 5 centimes.

Make sure your points have a higher perceived value. This is the first step in ensuring that your program generates a positive ROI.

## How many loyalty points should you offer ?

### Calculate points value of purchases

The key to determining the right value for loyalty program points is to strike a fair balance between providing valuable rewards to customers while maintaining healthy profit margins for your business.

A general guideline is to give back 5 points  for every euro spent.

For example, if your customers spend 100, you offer them 500 loyalty points.

Do not forget to research industry standards and what your competitors are doing to ensure your program remains attractive compared to others.

### Calculate points value of missions

One of these awesome things about online loyalty programs, like the ones you can build with Loyoly, is that you can reward customers for actions that help grow your brand awareness.

These actions include signing up for an account, referring friends, and posting UGC and sharing on social media.

Let's take a look at the most common point-earning actions (knowing that you have more than 30 at your disposal with Loyoly).

It's smart to offer customers a nice incentive to create an account, but don't make it enough to immediately redeem a reward.

To encourage them to use the account for future purchases, offer about half the points needed for your first reward.

For example, if your first reward is 10€ off for 100 points, a 50-point sign-up bonus would be perfect.

#### Following on social media

You can build your community and promote your brand by awarding points for following you on social media.

Just make sure the total points earned from social media actions and the sign-up bonus doesn't exceed the points required for the first reward.

For instance, if the first reward is 100 points = 10€ off and the sign-up bonus is 50 points, you can offer 10 points for each social media follow, as long as you don't propose more than 5 of them.

#### Reviews

Rewarding customers for leaving product reviews on your website or on every dedicated platform is key.

Since they've already made a purchase, you can be generous with these rewards too.

We suggest offering about half the points needed to redeem the first reward, similar to a sign-up bonus.

This will motivate customers to share their thoughts and experiences with others.

#### Birthday bonus

Since this can only be earned once a year, you can be more generous.

It's okay to offer up to the same amount of points needed for the first reward.

We recommend that customers should fill in their birthday on their account at least 30 days in advance. This way, you can avoid a situation where customers come on their birthday and leave the next day.

## How many loyalty points should your rewards be worth?

When deciding how many points your rewards should be worth in your loyalty program, there are some important factors to consider.

Your first reward should be set just above the amount of points a customer can earn without making a purchase.

Thus you ensure they have to make a purchase before redeeming a reward.

However, you also want to keep your customers motivated, so it's crucial to strike the right balance.

Take into account how frequently your customers make purchases and design the rewards to be attainable.

A great target to aim for is to have the first loyalty redemption within 1 month of a customer signing up for the program.

This way, they experience the benefits relatively quickly, encouraging further engagement with your brand.

Before finalizing the rewards and their values, it's essential to figure out your average order value

Knowing this will help you determine how many points the first reward should be worth, especially if you plan to offer percentage-based discounts on purchases.

Let's take a look at some of the most frequently offered rewards.

### Percentage discount

These rewards offer varying value depending on how much the customer spends.

To determine the points needed for a percentage discount, consider your Average Order Value (AOV).

Let’s say your AOV is 50€ and you want to offer 10 % off.

If your redemption value is 1€ = 5 points, you can set the reward value at 25 points (10 % of 50€ is 5€).

### Amount discount

Here you have the choice between fixed or incremental amount discounts.

Fixed rewards have predetermined point values, like 8€ off for 800 points or 20€ off for 2000 points.

Incremental rewards allow customers to decide how much they want to redeem based on a set dollar value per point.

For example, if 100 points = 1€, customers could use 352 points for 3,52€ off.

Just remember to set a minimum points requirement to ensure they make a purchase before redeeming any discount.

### Free products

Offering free products can be both attractive and practical, whether you're clearing stock or introducing exclusive new items.

As we discussed in the “Perceived vs. actual value” section, ensure the reward's value is fair to both customers and your business.

### Free shipping

It's an excellent reward for attracting customers (if you don't already offer it as standard).

To value this, calculate your average shipping cost and set the reward accordingly.

If your average shipping cost is 13€, the reward should be 1300 points (still when 100 points = 1€).

Also, set a maximum value to avoid losing money on expensive international shipping orders.

You know, figuring out the value of loyalty points is a super crucial aspect when creating a rewards program.

The best part is, it's entirely in your hands, and you can adjust it to suit your brand's specific objectives.

But keep in mind that sometimes a straightforward program works wonders, so don't stress too much about it!

Keep it simple and effective!