Is It Worth It? How to Calculate the ROI of Your Loyalty Program

Phil Ingram
15 hours ago
4 min read

As a business owner, you ask yourself a thousand questions a day, but this one is crucial: When it comes to a loyalty program, is it worth the investment?

With nine out of ten businesses running some loyalty scheme, it's easy to feel pressured into starting one. But here's a sobering statistic: a staggering 77% of programs that reward transactions fail within two years. They become a slow, silent drain on your resources.

So, how do you make sure you're on the right side of that statistic? It all comes down to understanding the actual return on investment (ROI). Let's break it down in simple terms.

The Real Cost of Loyalty: More Than Just a Line Item

To figure out if a loyalty program is making you money, you first need to know what it's costing you. It’s not just about the price of the software.

The Obvious Costs:

Platform Fees: The subscription you pay for the digital loyalty software. For many services, this can range from a few hundred to several thousand pounds a year. Note: meed changes this entirely by giving you free access to the platform until you reach 50 members.
Setup & Implementation: The initial cost to get things designed, customised, and integrated with your systems.
Marketing: The money you spend on posters, emails, and social media to get customers to sign up.
Staff Training: The time and money spent teaching your team how the program works so they can explain it to customers.

The Hidden Costs (The Silent Profit Killers):

These are the costs that creep up and catch you by surprise.

Opportunity Cost: This is a big one. Every hour your staff spends managing the program, dealing with customer queries, or trying to analyse data is an hour they could have spent on other money-making activities.
Customer Service Burden: Loyalty programs create extra admin. Members will have questions, issues with their accounts, and problems redeeming rewards, all of which take time and resources to resolve.
Fraud & Security: You need to monitor for people gaming the system, which can be a hidden drain.
Maintenance & Updates: Technology needs looking after. Bug fixes, system updates, and feature enhancements all add to the ongoing cost.

This is where the game is changing. Traditional loyalty solutions come with all this baggage. But what if you could eliminate most of it? A platform like

meed is designed to have zero technical overhead for the business. Because it’s a single cloud-based platform, there are no maintenance costs, no system updates for you to manage, and no complex infrastructure to worry about. It’s all handled for you.

The Biggest Cost of All: The Rewards

The most significant expense is, of course, the rewards themselves. This can be anything from 5% to 20% of your revenue, depending on your business. This includes the cost of discounts, free products, and any fees from partners.

The Simple Loyalty ROI Formula

Right, let's get to the maths. Don't worry, it's straightforward.

Loyalty ROI = (Incremental Profit - Program Costs) / Program Costs x 100

Let's break that down:

Program Costs: Add up all the costs we just talked about (obvious, hidden, and rewards).
Incremental Profit: This is the extra profit you made because of the program. Track the revenue from your loyalty members and compare it to that of non-members. That additional revenue, multiplied by your profit margin, is your incremental profit.
The Calculation: Subtract the costs from the extra profit. Divide that number by the costs. Multiply by 100 to get your ROI percentage.

If that number is positive, your loyalty program is making you money.

A Real-World Example: The Coffee Shop

Let's say a coffee shop brings in an extra £22,320 in profit from its loyalty members in a year. The total cost of running the program was £19,884.

Net Profit: £22,320 - £19,884 = £2,436
ROI: (£2,436 / £19,884) x 100 = 12.3%

A positive return in the first year. Not bad at all.

So, When Should You Take the Plunge?

A loyalty program isn't for everyone, and timing is everything. Here’s a quick checklist to see if you’re ready:

Revenue: You're bringing in at least £50,000 a year.
Customers: You have a solid base of at least 200 regular customers.
Purchase Frequency: Your customers visit at least 4 times a year.
Retention: You're already keeping more than half of your customers coming back.

If you tick these boxes, a loyalty program could be a powerful investment. If not, it's probably best to focus on growing your core business first.

The great news is that modern platforms have removed the financial risk of getting started. With meed, for example, you have complete access to the platform for free until you reach 50 members, removing pretty much all risk altogether. Also, it is so simple to use, it solves the issues of time spent by staff.

The final verdict? A well-designed loyalty program, implemented at the right time, can be one of the best investments you make. The key is to go in with your eyes open, understand the true costs, and choose a modern solution that works for you, not against you.