Most loyalty programs fail not because the mechanics were wrong but because the economics were never modeled. A business offers a free drink after ten purchases without ever asking whether the incremental visits that free drink unlocks cover the cost of the drink. Most of the time, they do. Sometimes they don't. The difference determines whether the program is worth running.
The four numbers you need
Before you design a card, you need four numbers: average transaction value, visit frequency, repeat-customer gross margin, and the win-back conversion rate for customers who go dormant. If you don't know all four, any loyalty design is a guess.
Most independent businesses know the first two. Few know the last two. And those are the numbers that determine whether a stamp card pays for itself.
Sizing the reward
A reward should cost no more than 25% of the gross margin of the visits it unlocks. If a customer visits ten times to earn a reward, and each visit generates $4 in gross margin, the reward has up to $10 to work with. A free drink at a coffee shop that costs $1.20 to produce is inside that budget by a factor of eight.
Modeling the win-back
The real return on a loyalty program is not the repeat visits — it's the customers who would have gone dormant and didn't. A push notification that brings a 28-day-silent customer back for one visit pays for the entire program in most industries.
