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Loyalty programs can be a great way to save money, but it's important to consider the hidden costs associated with them. Educate yourself on what you need to know about loyalty program fees and discover tips on how you can make sure that your rewards program pays off.
1. Membership Fee Costs
When you start a loyalty program, one of the most important costs to consider is the membership fee. This is a fee that is charged by some loyalty programs for members to join the program. You need to think about how many members you will have and whether or not the cost of membership fees will outweigh the revenue generated from having those members. Consider setting your own revenue goal and determine if it's financially feasible before signing up for any loyalty program.
2. Point Inflation Cost
Point inflation is another hidden cost associated with loyalty programs which often goes overlooked. This cost happens when the loyalty points tied to purchases are higher than the actual value of those items purchased, resulting in a loss of revenue for your business. Monitoring and managing your points system can help mitigate these losses and ensure that your loyalty program does not become an unsustainable financial burden.
3. Data Management Fees
In addition to point inflation, there may be other hidden fees associated with launching and managing your loyalty program. For example, if you are outsourcing the data management of your loyalty program, you should anticipate paying a fee for creating, storing, and maintaining customer profiles as well as any analytics work that needs to be done in order to track user engagement and rewards redemption. Determining how much this fee will cost your company is an important part of budgeting for your loyalty program.
4. Technical Services Costs
Technical services costs are yet another hidden cost when you onboard a loyalty program. This can include fees for website hosting, software support, program maintenance, and other services that help enable your loyalty program to run smoothly. If the third-party provider does not offer technical services, it might be necessary to hire your own IT staff or outsource the work to an outside agency.
5. Reward Fulfillment Expenses
Once you’ve determined the rewards and points structure for your loyalty program, you’ll need to set aside budget to fulfill these rewards. This might include printing or packaging expenses for physical rewards like merchandise or gift cards, or the cost of digital goods such as ebooks, music downloads, and online courses. Depending on how many customers initially enroll in and participate in your loyalty program, these reward fulfillment costs can add up quickly and should be taken into consideration when first setting up the program.
Summary
Before investing in your loyalty program, it's wise to think about some of the hidden costs you may be up against. We suggest looking for a loyalty service that maximizes impact whilst minimizing the time and effort to set up and manage your program.
