A rewards program incentivizes customers to stay loyal to your brand by offering them gifts or discounts when they reach milestones—like a certain number of products purchased or friends referred.
Eighty percent of marketers say that loyalty programs bring in more money than they cost, with a third reporting a return on investment (ROI) of between 400% and 600%, according to Statista.
There are many types of rewards programs, and the exact shape yours will take depends on your business goals and customer preferences. Learn how to identify the right structure for your business, design your program, and start rewarding your most loyal customers.
What is a rewards program?
A rewards program is a type of customer loyalty program with an incentive structure that encourages customers to take a desired action, such as referring new customers to your business or choosing your brand over the competition.
Rewards programs come in many shapes and sizes. Here are a few popular options:
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Points programs. In a points system, customers earn points for making purchases, leaving customer reviews, tagging your brand on social media, or any other behavior you want to incentivize. Loyalty points can function like store credit or be exchanged for exclusive benefits.
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Tiered programs. Tiered loyalty programs use tracking systems to assign loyalty program members a particular status within the program structure. Customers who cross a certain point threshold qualify for that status tier, earning access to exclusive discounts, rewards, or free products.
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Referral programs. These programs reward customers for successful referrals. A customer may earn store credit or free gifts when a referred customer purchases something from your store.
Many successful loyalty programs borrow elements from various program types, creating custom structures around a particular business’ needs.
Rewards program examples
The men’s grooming company Manscaped has a comprehensive membership rewards program that bundles several benefits, allowing members to earn reward points on purchases and access exclusive discounts and extended warranties on hardware products.
The children’s furniture retailer Bambi Bay found that launching its points system improved existing customer retention. “We’re seeing fewer one-and-done transactions,” the company’s IT director, Josh Weiss, says in a Shopify case study. “Now loyalty members are coming back for some of the smaller items because they know they’re going to get to use those points.”
Bambi Bay uses the built-for-Shopify application Smile to credit customer accounts regardless of where they shop.
How to create a rewards program
- Set broad program goals
- Identify desired behaviors
- Choose incentives
- Select a loyalty platform or application
Here’s how to design and launch a rewards program that meets your needs:
1. Set broad program goals
Determine what you want your customer rewards program to achieve, selecting objectives that support your company’s larger business and marketing goals. Here are a few ideas:
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Better customer retention
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Decreased customer acquisition costs
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Greater customer lifetime value
You can use a rewards system to drive any outcomes beneficial to your business, but common goals include encouraging repeat purchases and building lasting customer relationships.
Next, identify the metrics you’ll use to evaluate your success, such as revenue from repeat purchases or customer retention rate. You can use the SMART goal framework to develop your targets; you’ll use these to design your program and evaluate your results later on.
Australian baby gear retailer Snuggle Honey designed its rewards program to boost customer retention rates, for example. The company implemented the digital rewards application Yotpo, boosting its ratio of returning customers to achieve a customer retention rate of 40%, according to a Shopify case study.
2. Identify desired behaviors
List the customer behaviors you want to encourage, prioritizing those that directly affect your goals.
For example, Jaxon Lane rewards customers for referrals because its program goal is combatting rising customer acquisition costs, as the brand’s founders say on an episode of the Shopify Masters podcast.
Here’s a partial list of behaviors to consider:
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Spending more money per order
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Increasing purchase frequency
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Discussing your brand in their networks
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Reviewing your products
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Tagging your brand or products on social media
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Referring new customers to your business
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Spending more on specific product categories or in particular time frames
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Choosing your brand over more convenient or affordable alternatives
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Providing product feedback or participating in customer feedback surveys
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Visiting your brick-and-mortar store
Consider actions that indirectly support program goals. The haircare brand Ouai rewards customers for various in-person and digital interactions—like leaving product feedback or discussing the brand on social platforms—to boost overall engagement with the brand.
3. Choose incentives
To determine your incentives, consider your goals, what your customers value, and your available resources. Here’s some inspiration:
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Store credit
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Product discounts
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Exclusive products
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Exclusive events, such as early access to sales
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Early access to new launches or discounts
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Free products or free product samples
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VIP customer support
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Member-only discounts
Points-based loyalty programs (in which points are redeemable towards purchases) can be effective for businesses that want to increase revenue and have a high enough markup to absorb the discount.
You can also pair other incentives with more niche goals; Ouai provides personalized rewards to improve customer relationships, for example. “We do a lot of high-touch, individualized stuff,” former CEO Hannah Beals says on Shopify Masters, adding that the company gives customers who love a specific fragrance early access and previews for new product launches.
You can also use customer data to identify the incentives your customers want and design rewards programs that resonate with them. Clean beauty company Oh My Cream used the Shopify POS to develop a loyalty program specific to customer desires, a strategy that resulted in increased customer retention, higher CLV, and improved customer engagement, a Shopify case study reports.
4. Select a loyalty platform or application
Loyalty apps simplify program administration by applying earned rewards to customer accounts and allowing customers to redeem them at checkout. They can also display rewards balance information or program status in customer accounts, and some offer built-in analytics tools to help you track program performance and understand customer needs.
Choose an application that can accommodate your planned incentive structure and various sales channels. Aim for omnichannel deployment. The London-based bakery Konditor transitioned from a paper loyalty card for in-store customers to the digital application Leat, a change that improved customer satisfaction, increased program enrollment, and provided valuable insights into its target audience.
The Shopify App Store has multiple reward apps that you can integrate directly into your Shopify store. Smile, Yotpo, and LoyaltyLion are popular options.
You can also use Shopify’s built-in discount code and gift card tools to reward customers outside of the context of a third-party loyalty application.
How to create a rewards program FAQ
How do reward programs make money?
Loyalty rewards programs encourage customers to take actions that benefit the business, ultimately increasing revenue and boosting profits. They can help businesses retain customers and refer new ones, and they can increase customer lifetime value when used well.
How do you structure a customer loyalty program?
The best loyalty system for your business encourages customer behaviors that benefit your business and minimizes strain on your resources. Best practices include researching loyalty program types for inspiration and ideas and selecting a loyalty program application that helps you maximize program benefits and reduce administrative burden.
How much does a rewards program cost?
You can design a loyalty program to fit any startup budget, and a well-designed loyalty program will increase your profit margins in the long run. You can keep costs down by using a free or low-cost loyalty program application and selecting incentives that maximize the value to customers and minimize the cost to your business.
