Optimising your loyalty marketing budgets

As new financial year budgeting processes get underway – or in some cases have already been done – the focus for marketers often turns to analysing return on investment (ROI), data acquisition strategies, advertising spend and a lot more, including loyalty programs.

If you already have a loyalty program in market, you’re probably slicing and dicing the data to report on your membership base, redemption value, revenue growth, satisfaction rating and so on. But if you don’t have a program in market, where do you start?

Start at the beginning: Recruitment and rewards

There are three main things to consider when planning your loyalty marketing budget:
- Who is your target audience?
- What is the action you want to drive?
- How much are you are willing to invest to reward them for this action?

Try and quantify your target audience and based on previous activities, narrow down a realistic recruitment rate. How many individuals are in your target audience – is it 500, 5,000 or 15,000?
Do you have contact details for everyone, or will your recruitment strategy be a combination of targeted and social? Can you send an invitation to register email to everyone in your target group?

For example, if you send an invitation email to 25,000 individuals, and based on an average B2B email conversion rate of 3.3%, that’s 825 registrations.

In addition to this include any other recruitment strategies you might want to include to drive the success rate up even further. This can include things like using your sales teams, outbound tele, social media advertising or retargeting emails and promotion in newsletters. All of this needs to be included in your recruitment budget.

What is the cost to reward your desired behaviour?

The next question to bear in mind is once an individual has registered, what behaviour are you trying to influence – what do you need them to do? Is it sales growth, training, certification, event attendance, or a combination of many actions?

Are you trying to reengage dormant customers or target the mid-tier partners where you have identified the greatest growth opportunity?

If it’s a new behaviour or one that might have a level of resistance to it – something that will potentially require more effort for the individual – you will find the reward incentive will need to be more enticing.

If you have a fixed reward budget you can use a leaderboard or auction reward mechanism which will allow you to reward an unlimited number of points to individuals, without increasing your reward budget.

As a general rule of thumb, reward budgets vary from 1%-5% of gross revenue for your target audience or product set.

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Costing it out

There are several program costs you need to take into account.

Setup / Refresh Launching a new program or refreshing an existing program will incur a setup cost. This will vary based on the program complexity and time to launch. The longer the program is in market, the less the setup costs will be as a percentage of the overall program costs.

Program Management Once in market, a well-executed loyalty program will deliver far greater returns and benefits than one that does not have a dedicated focus and a champion driving the outcomes.

Outsourcing the management of your program isn’t for everyone. However, bear in mind that whether outsourcing or managing it inhouse, there are still costs involved. Whether it be a fixed headcount, or an operating expense as offered through outsourcing to a specialised provider.

Just as with setup costs, the longer the program is in the market, the greater the spread of program management costs will be as a percentage of overall costs.

License Fees There are many purpose-built loyalty platforms that can offer companies the right mix of functionality vs cost. Generally, license fees are subscription based and are incurred on a regular billing cycle while your program is live in market.

Marketing As with all great strategies, once you have launched the program you need to remind and reinforce the benefit to existing and new customers through regular personalized communication.

Maintaining a high standard of visual appeal, engaging copy and interactive tools on the website is critical to the success of the program and needs to be included in your budget along with ongoing marketing and promotional costs.

A typical split on these program costs can look as follows

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Balancing the budget

A good loyalty program is an investment that can reap solid returns for your business.

Careful planning at the outset and being clear on your business requirements and the behaviours you want to drive, will ensure you maximise your loyalty marketing budget while also delighting your partners and building your business.

Talk to us if you need further advice.

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