The hidden costs of loyalty - forecasting the true cost of your loyalty program

Before you launch a loyalty program, smart marketers will first seek to forecast ROI. This requires building a financial model that comprehensively accounts for the costs of a loyalty program. In our new whitepaper we break costs into components and discuss a step-by-step approach to building a cost model.

DIY or seek expertise?

Forecasting the cost of a loyalty program can get complex quickly, even for simple programs. If you’ve found yourself frustrated with complicated spreadsheets, agonizingly triple-checking formulas and constantly revising your model as you run different scenarios, then you’re not alone.

Once you have a financial model prepared, how can you be sure your model is accurate? Do you trust the numbers or feel a lingering sense that your estimates might compound to derive wholly unrealistic figures? Factors such as adoption rates, redemption rates, breakage, expiry, gross margin variance, supplier funding and franchise contributions quickly complicate the calculation – often requiring assumptions and estimates that can make the difference between positive and negative ROI.

Accuracy matters

A robust, accurate costing is critical factor influencing the design and long term profitability of your loyalty program, so it’s important to get it right. Read through this guide first and get in touch with Simplicity if you need support. We run loyalty programs for a big range of retailers, franchises, airlines and financial services clients – and we have a big team of friendly loyalty experts who would love to help!

Alternatively, download our whitepaper to obtain a deeper comprehension of the algorithm so you can replicate and tweak your own financial model. 

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