Loyalty schemes that do not give away your margin

The tenth cut free is the most common loyalty scheme in the country and one of the least examined. It is a 10% discount, paid to the customers who were already the most loyal, in exchange for nothing they were not going to do anyway.

Sometimes that is fine. Often it is a rebate on your best clients dressed up as a growth strategy.

The only question that matters

What behaviour is this changing? If the honest answer is none, you are not running a loyalty scheme, you are running a discount with a delay on it.

Behaviours worth paying for include coming back sooner, spending more per visit, booking a service they have not tried, referring somebody, coming on a quiet day and paying up front. Each of those is worth real money and each can be rewarded specifically.

The three shapes and what they suit

Stamps are simple, visible and understood by everybody. They work best where the service is uniform and the visit frequency is what you want to move. A stamp card is a blunt instrument, which is exactly why it works in a barber shop and badly in a garage.

Points let you weight things. Points per pound spent rewards value rather than visits, so a client having a colour earns more than one having a fringe trim. You can also award points for the behaviour rather than the spend, which is where they get interesting. Double points on a Tuesday costs you far less than 10% off everything.

Cashback and credit is the most flexible and the most controllable. A balance earned on this visit and spendable on the next is genuinely powerful, because it is only valuable if they come back and it brings its own deadline.

Cost it before you launch it

Take your gross margin on a typical service, then work out what the reward costs as a share of it. A tenth visit free on a £30 service is £30 given away against roughly £270 of revenue, so about 11% of turnover and a much larger share of your margin.

Now compare that to giving £5 of credit for rebooking on the day. That is under 2% of the same revenue and it is buying a behaviour rather than rewarding an existing one.

Rules that keep it sane

• Put an expiry on earned rewards. Credit with no end date is an open liability and it removes the urgency that made it work.
• Cap what can be redeemed at once. A client arriving to spend eleven months of points in a single Saturday appointment is a bad day.
• Do not stack it with everything else. A loyalty reward on top of a promotional price on top of a referral credit is how a service gets delivered at a loss.
• Exclude gift card purchases from earning. Otherwise somebody can buy value, earn a reward on it and spend both.
• Make the balance visible to the customer without them asking. A scheme nobody can see is a scheme nobody responds to.

The version most businesses should run

Something small, automatic and tied to rebooking or spend, with a clear balance the client can see, an expiry and a cost you have actually calculated.

The scheme that goes wrong is always the one designed as a gesture rather than as an offer, because a gesture has no number attached and nobody notices what it costs until it has been running for two years.