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The long-term success of your retail store or restaurant depends on repeat customers. One of the best ways to encourage customer loyalty is with a loyalty program.

Here are four steps to using a loyalty program to grow your sales.

1. Choose the right loyalty program.

Loyalty programs have come a long way from paper punch cards. Today’s digital loyalty programs incorporate customer relationship management and marketing functions as well. Belly, Loyalzoo, Perka and Spendgo are a few of many programs tailored to small, independent businesses.

Factors to consider include:

  • Costs: Consider both monthly costs and setup fees, plus the costs of training time for your employees on the new system.
  • Ease of use: A good loyalty program is easy for both customers and employees to learn and use.
  • Your goals: Determine what you want your loyalty program to achieve before you start looking, so you can assess how well each program will help you reach those goals.
  • Data: Find out what type of customer information you can collect, as well as what metrics are collected that will help measure the program’s effectiveness.
  • Format: Many loyalty programs give you the option to offer plastic loyalty cards, but some are mobile-only. Take your customer base into account—if most of your customers are seniors, they’ll want physical cards, but if most are twenty-somethings, digital-only may work better.

Also, check out the types of loyalty programs your competitors have in place. How well do they work? How can your loyalty program help differentiate your business from the competition?

2. Decide how to structure your rewards.

Common rewards structures include:

  • Points system: Members earn points for each purchase, and redeem points for rewards.
  • Tiered rewards: Members qualify for more and/or better rewards as they reach higher thresholds of spending.
  • Cash back: Members receive a percentage of cash back on purchases.

Rewards can include discounts, free gifts, perks or access to special events. Vary your rewards on a regular basis to keep customers interested. For example, a retailer could hold "Two-fer Tuesdays" and offer double the points for every purchase on Tuesdays. A restaurant could offer bigger discounts for loyalty program members during slow times of the day to bring in business.

3. Market your loyalty program.

Once you've chosen your loyalty program and decided on your rewards system, let customers know about it. Market your loyalty program on your website, with signage in your store or restaurant, via email and on social media.

Your employees are a key element in spreading the word. Train them to (quickly) explain the benefits of the loyalty program during each transaction and ask customers if they want to join. Restaurant owners can put loyalty program sign-up cards on tables or include them with the check. Retailers can put cards at the checkout counter and in shopping bags.

Use your loyalty program members to spread the word about your business, too. Offer them rewards for liking or sharing your social media posts, or an incentive for every friend or family member they get to join the loyalty program.

4. Measure the results of your loyalty program.

Don't just "set and forget" your loyalty program. Track the results to make sure it's working. Digital loyalty program software provides a wealth of information to show which offers work best. You should also measure these metrics:

  • Activation rate: The percentage of new members. If new sign-ups stagnate or slump, it's a warning sign.
  • Redemption rate: The percentage of points issued that customers redeem for awards. A low redemption rate means customers sign up, but don’t actually participate.
  • Inactivity rate: How long it's been since a member used the loyalty program. Members who are inactive for a long time often end up leaving the program.
  • Attrition rate: The rate at which customers drop out of the program. You can generally assume a customer has dropped out if they haven't used the program for 12 to 18 months.

Finally, monitor the profit margins of sales generated by your loyalty program. If your loyalty program isn’t cost-effective, revise your rewards so they boost your business’s bank account rather than depleting it.