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Is Your Restaurant Loyalty Program Working?

The Metrics That Can Answer the Question

September 14, 2023

The Metrics That Can Answer the Question

Virtually every quick-serve brand has a loyalty program these days. Customers generally expect them and perceive a restaurant without a loyalty program as offering reduced value. But loyalty programs should also make good business sense. So, how do you know if yours is working?

Brands love to tout their new sign-up numbers and total membership base, but this data is ultimately not very useful. Enrollment is the first hurdle, but it won’t necessarily translate to sales unless you add value. If your loyalty members use your app only once to get a discount, you may have lost money rather than earned it.

One metric that provides more insight is capture rate. Your capture rate reflects what percentage of customers used the loyalty program when ordering. While a high capture rate won’t automatically transform into increased sales, it will provide a treasure trove of insight into your customers’ spending habits and preferences. That data can then help drive your marketing and sales efforts.

Loyalty programs are a form of marketing, meaning franchisers should understand the return on investment (ROI). From a business perspective, a loyalty program should generate sales beyond what the member typically spends. Track spending by loyalty and non loyalty customers separately and compare the average lifetime value of each. Those in the rewards program should generate a notably higher percentage of revenue.

Another way to calculate ROI involves comparing the cost of the rewards you give to customers against the excess revenue they generate. Your program should create more sales than it costs to operate. Remember that swag and exclusive menu items can entice loyalty members while costing less.

Finally, the reward redemption rate is a crucial metric every business with a loyalty program should consider. At first glance, you might think a low redemption rate is better for your business — you got the sale without having to give anything away for free. But a low redemption rate also means minimal engagement and enthusiasm from your customers. Customers who don’t redeem their rewards don’t see them as valuable. That’s terrible news for any business.

While loyalty programs are necessary for quick-serve restaurants, they should bring more value to your business than customers. It’s good to show appreciation, but not at the expense of your bottom line.

West Coast Franchise Law

If you have any questions about franchising, please contact the experienced franchise and business law attorneys at West Coast Franchise Law today at (206) 903-0401 to discuss your situation. Nate Riordan is a 2023 Franchise and Bankruptcy Super Lawyer with over 20 years expertise helping clients achieve their business goals.