How to build a loyalty program that stands the test of time
By Amy Rigby●7 min. read●Nov 21, 2025
Building a loyalty program that stands the test of time requires aligning your program mechanics with real-life customer behavior and business economics. You’ll need to account for how often people buy, how they’ll earn rewards, and which rewards customers will like (but that won’t drain your budget).
Most programs take up to two years to deliver full ROI, and the build phase isn’t easy. But a lasting loyalty program is worth it.
To begin, get the lay of the land with an outline of your goals and information on your customers. From there, you can design your actual program and build the infrastructure to support it.
At-a-glance: How to build a customer loyalty program
Set clear business goals: Outline what you want to achieve and how you will measure success.
Review your customer data: Ask who's buying, how often, and how much they typically spend.
Pick a program type: Consider that points tend to work well for frequent buyers, while tiers may encourage bigger purchases and games can boost engagement.
Create a support system: Give loyalty members priority access through multiple contact channels.
Choose rewards: Match rewards to your goals and encourage customers to spend more per order.
Plan your budget: Allocate $30K to $500K for building the program, or roughly 28% of your marketing spend for ongoing costs.
Make signup simple: Ask for the minimum information needed and add signup prompts at checkout.
Measure what matters: Calculate profit per member, how much more they buy, and total program participation.
Launch with an open mind: Plan to adjust rewards as needed and keep members informed about any changes.
What is a customer loyalty program?
Driving new sales with existing customers can have a huge impact on long-term growth, especially for B2C companies. A customer loyalty program rewards buyers every time they make a new purchase with a brand, encouraging repeat business. Rewards can include discounts, free products or services, exclusive access to new offerings or events, gift cards, and other monetary incentives.
Loyalty programs vs. rewards vs. referrals
These terms often get used interchangeably, but loyalty programs, rewards, and referrals are actually different marketing strategies:
Loyalty programs reward repeat purchases from existing customers. The core mechanic is "buy more, earn more.” Customers accumulate points, move up tiers, or unlock perks based on their ongoing spending with your brand.
Rewards are often used in the context of loyalty programs, but this can also refer to one-time incentive campaigns (think: "spend $50, get $10 back") that don't require ongoing membership or point accumulation.
Referral programs reward existing customers for bringing in new customers. Instead of earning points for purchases, customers earn incentives when someone they referred makes their first purchase.
The key difference: Loyalty programs encourage ongoing purchases, rewards programs encourage a larger single purchase, and referral programs acquire new customers. Many successful brands run them all simultaneously.
Types of loyalty programs
Every business’s customer base is unique. What motivates one group of customers to engage with a brand might fall totally flat with another. The good news is that there are several different types of loyalty programs — and you can choose the program design that resonates best with your customers.
Points-based programs
In a points-based program, customers earn points each time they make a purchase or engage with your brand in high-value ways. Each point typically has a monetary value tied to it — for instance, 25 points may be worth $1 in rewards. These points accumulate until the customer decides to redeem them for discounts, products, or other benefits.
Starbucks Rewards is an example of a points-based program that rewards customers with points that they can redeem for free products or discounts.
Tier-based programs
In a tier-based program, customers are placed into different tiers based on their purchases. As customers spend more money with a business, they move up into higher tiers with more enticing rewards and benefits.
Sephora’s Beauty Insider program combines a points system with tiers (Insider, VIB, and Rouge) that offer special benefits, including a $100 Sephora credit for Rouge customers.
Spend-based programs
In a spend-based program, customers earn rewards such as credits or discounts based on the total amount they’ve spent with a brand.
Cash-back programs
In a cash-back program, customers receive a percentage of their total spending back as cash or credits. For example, West Elm’s Key Rewards program gives customers 2% cash back on purchases made within its group of retail brands and 5% cash back to West Elm card members.
Game-based programs
Game-based programs incorporate challenges, competitions, or other activities that customers complete to earn rewards. These programs keep customers engaged with interactive missions that grow their brand loyalty over time.
Fortnite ’s Battle Pass program rewards players as they complete in-game challenges with perks such as new character skins, items, and styles.
Loyalty program economics
Before you launch a loyalty program, you’ll want to make sure the numbers will work out. Here are four key economic considerations that separate successful programs from money-losing ones.
1. Loyalty margin
Loyalty margin measures the gap between what rewards cost your business and what they're worth to customers. The concept is simple: you want rewards that feel valuable to customers but cost you relatively little to provide.
Boston Consulting Group gives a classic example: A hotel's "free" night costs only the price of cleaning the room (assuming it wouldn't have been booked anyway), but the customer perceives several hundred dollars in value. A high loyalty margin provides sustainable economics.
Loyalty margin = $300 (customer value) - $50 (cleaning cost) = $250 in perceived value per $50 spent.
2. Personalization ROI
Generic rewards leave money on the table. McKinsey research shows personalized loyalty offers can improve profit margins by 2-4 percentage points. But how do you know what works with your customers? Run some tests and see what performs best.
How to test:
Segment loyalty program members by predicted LTV and tailor rewards
A/B test reward types (such as experiential vs. monetary) across segments
Trigger offers based on purchase history
Measure incremental margin lift in personalized cohorts vs. control groups
3. Points liability
When customers earn points, those points represent a future obligation. You'll eventually deliver the reward. Under US GAAP (governed by the Financial Accounting Standards Board) and IFRS accounting standards, unredeemed points must be recorded as a deferred revenue liability on your balance sheet. Work with your finance team to estimate redemption rates and recognize revenue appropriately.
4. Fraud controls
Loyalty programs attract fraud, including multi-accounting (one person creating multiple accounts to farm bonuses), card testing through small rewards purchases, and points reselling on gray markets. But you can prevent some of that by using an incentives platform with built-in fraud prevention tools.
How to build a customer loyalty program
Developing a customer loyalty program is a major undertaking with the potential for massive ROI. It begins with understanding your target customers, including what motivates them and what rewards will keep them coming back for more. Balance that with your business needs, and you’ll create lifelong fans and bolster your bottom line.
Step 1: Establish goals for the program
For maximum effectiveness, tie your loyalty program's goals to your departmental and company goals. The OKR (objectives and key results) framework can help make them concrete and measurable.
Objectives answer, “What do we want to achieve with this program?”
Key results answer, “What metrics will tell us we’re on the path to achieving our objectives?”
For example, if a SaaS company wants to get better at retaining customers, it might develop the following OKR for its loyalty program:
Objective: Increase customer retention
Key result 1: Increase NPS score to 45.
Key result 2: Reduce average customer service response time by 20%.
Key result 3: Reduce monthly customer churn rate from 5% to 3%.
Objectives are the compass that points you to the destination you want to reach. Key results are the roadmap that tells you how to get there. By using the OKR framework, you can tell when you're on the path to success.
Step 2: Gather data on your current customers
Once you know what you need the program to achieve, determine what your customers want. Open your POS and CRM software and dive into the analytics to find out:
Customer demographics
Frequent purchases
Favorite products
Average customer spend
Average customer lifetime value (CLV)
Additionally, talk to your sales and customer service teams. They have the most direct customer experience and have a wealth of information about:
What customers get excited about
What customers frequently ask for
Save this data for later when you choose rewards and incentives for your program (step 5).
Step 3: Decide how to structure your loyalty program
Once you’ve defined your business goals and understand what motivates your customers, it’s time to choose a structure for your loyalty program. Here are a few questions to help you choose the best option for your brand.
How often do your customers make purchases from you? If your customers make frequent, lower-cost purchases, a points-based or cash-back program could work well. For higher-cost, less frequent purchases, a tier-based program might work better to drive loyalty.
How do your customers engage with your brand currently? If you sell to a young, social media-active, highly engaged audience, a gamified program structure could resonate with your buyers. An older, more time-constrained audience might prefer a more straightforward points-based or cash-back design.
Do you offer limited-edition or seasonal products and services? If you sell seasonal or limited-edition products or services, a tier-based program can reward your most loyal customers with exclusive or early access. If your offerings stay consistent year-round, a points-based program can motivate customers to come back.
What kinds of loyalty perks are your competitors offering? Take a look at what your competitors are offering in their loyalty programs for inspiration — and then design the simplest program that best aligns with your customers’ behaviors and interests.
Step 4: Optimize your customer service system
Never underestimate the power of one support interaction to win over a customer for life — or lose them. More than half of customers will do business elsewhere after one poor customer service experience.
To make sure your loyalty members receive excellent customer service:
Choose a CRM that lets you prioritize loyalty member support tickets over non-members.
Identify your top support specialists and dedicate this “A team” to loyalty members.
Offer multichannel support, where members have several options for contacting you (live chat, email, social media, or phone). Consider creating a dedicated member support phone number.
Priority support can even be one of your loyalty program’s exclusive perks. It’s one of the benefits that Hotel.com’s One Key offers.
Step 5: Pick the right rewards and incentives
You attract what you reward, so reward what you want to attract. If your goal is to increase average order value, for instance, incentivize higher spending by offering free shipping to members who reach a minimum of $50 per order.
Or, if you're a sports apparel brand that wants to increase signups from a specific customer segment (say, triathletes), you might incentivize enrollment by offering a discount code on triathlon gear.
However, brands should be cautious about creating a transactional relationship, which is not the same as creating loyalty. According to BCG (Boston Consulting Group, a leading management consulting firm), "People want programs to deliver a differentiated experience beyond monetary value, with personalized benefits, free content, and relevant partnerships."
Beyond monetary rewards, customers want incentives that include:
Early access to products
Personalized recommendations
Preferred communication channels
Being a part of a brand’s community
Additionally, aligning your rewards with brand values infuses your loyalty program with meaning. TOMS achieves this by giving loyalty members the option to donate their points to support mental health, which aligns with the Certified B Corp’s mission to improve lives.
When your loyalty program has a strong “why” behind it, customers are more likely to cut you some slack when your rewards change over time.
Step 6: Create a budget
Loyalty programs are an investment. Software development will likely be your biggest one-time cost, estimated to be anywhere from $30,000 to hire an agency to build a custom mobile app to $500,000 to develop loyalty software in-house (including things like developer recruitment and project management).
But then there’s also the cost of maintaining the technology, marketing and managing the program, supplying the rewards, and providing customer service to members.
Need a concrete guideline on how much to budget for ongoing costs?
One survey of 260 corporate respondents found that those with a loyalty program allocated roughly 28% of their marketing budget to customer loyalty program management and CRM.
Step 7: Make it easy (and enticing) to enroll
All that work you're pouring into your loyalty program is useless if customers have to jump hurdles to join. Keep your signup form minimal to improve conversion rates. You can always ask for more information later.
Sephora masters this by:
Making an irresistible offer: Sephora highlights what’s in it for the customer: points, free shipping, and rewards.
Asking for only one piece of information to sign up: The Beauty Insider’s initial form has a single field: email address.
But once you click "continue," it asks for additional information. The genius of this is that once a brand captures that email address, it can send follow-up emails to nudge the user to complete the form if they fail to do so on the first try.
Once you've simplified the enrollment process, be sure your customers know they can sign up. Place CTAs:
On your website. A banner at the top of your page advertising free shipping for loyalty members is a great way to increase signups.
At checkout. If it’s online, include a form where a shopper can sign up for your program right before they hit “purchase.” If it’s in-person, train cashiers to ask shoppers if they’d like to sign up for the rewards program to get instant savings on their purchase that day.
In marketing emails. When you launch your program, announce it to your email list. And post-launch, include regular reminders about the program in your marketing emails.
Step 8: Measure the success and progress of your loyalty program
You’ll likely need to frequently report your loyalty program’s progress to stakeholders. But remember: loyalty programs take time to provide ROI.
“A common mistake many companies make is trying to move too quickly,” writes Boston Consulting Group (BCG). “It’s fine to be patient, so long as the company has a plan and knows what it is trying to build.”
Remind stakeholders that the true ROI of your loyalty program won't show itself within the first few months. By some accounts, it can take two years, especially for free programs. Recent data from Antavo's 2025 Global Customer Loyalty Report shows that patience pays off: 83% of loyalty program owners reported positive ROI, averaging 5.2x return on investment.
BCG's 2024 research reinforces that today's most successful loyalty programs go beyond simple point accumulation. They create differentiated experiences that build emotional connections with customers.
BCG has developed a three-pronged approach to determining the value of a loyalty program over the long run:
Loyalty margin is how much your customers would have spent to obtain the rewards minus how much those rewards cost your company. You want high loyalty margins.
BCG gives the example of hotels: A "free" night costs the hotel only the price of cleaning the room (assuming no one was going to book it anyway), but for the customer, that hotel room might have cost them several hundred dollars to book.
Loyalty margin = Value of benefits to consumers - Cost of benefits to the program
Incremental share. It's easy for brands to think their loyalty programs are succeeding merely because members are spending more than non-members. But that could just be because your loyalty program attracts people who spend more anyway. The actual test, then, is, "Are loyalty program members spending more than they would have without the loyalty program?"
This is something that Boston Consulting Group calls "incremental share." It measures how much more customers spend because of the loyalty program. Here’s how to calculate it:
Incremental share = Total expenditure per member - Original expenditure per member
Program size is your total company revenue multiplied by the percentage of revenue generated by loyalty members.
"Once a program proves its profitability, generating a sustainable loyalty margin and a healthy incremental share," writes BCG, "the goal should be to increase its size and attract a larger portion of the company's customer base to contribute greater profitability and tie customers more closely to the company."
Program size = Total company revenue X Share of revenue generated by loyalty members (%)
Taken together, these three metrics paint a picture of your loyalty program's true value over time. But if you haven't yet reached the two-year mark, it's better to focus on immediate growth, such as the number of new monthly signups and total loyalty member count.
Step 9: Be mindful when changing rewards due to shifting business conditions
Things change: inflation may rise, the economy may tank, and incentives that were once exciting may become stale (or too pricey to be sustainable). It’s okay (and probably inevitable) to adjust your program’s rewards and structure to meet changing circumstances.
“Brands should expect some consumer frustration with program changes,” writes Mary Pilecki, VP and Principal Analyst at Forrester. But the good news? “Our research shows that this will likely subside as they become familiar with the new program.”
Pilecki adds that to mitigate consumer frustration, brands should:
Ask customers for feedback before making any changes. Customers are likely to be more understanding if you can honestly say that you made those changes based on their feedback.
When Starbucks revamped its loyalty program in 2016, its announcement explicitly stated that the change was “based on the #1 customer request of more Stars awarded based on what they buy at Starbucks, no matter how often they visit.” Sure, customers still complained, but they got over it. Today, Starbucks Rewards is one of the most popular loyalty programs.
Communicate about the changes before, during, and after. Program modifications shouldn't come as a surprise, and you shouldn't try to gloss over the truth. If you have to reduce rewards or make them more difficult to earn, explain why.
Also, be sure to throw in something extra, like priority support, so customers don't feel like it's all take and no give.
Be willing to budge a little. Even if you do everything possible to avoid ruffling feathers, some customers might still push back with valid requests. Listen to them. You may decide to roll back one piece of your change, but not all of it.
Build a loyalty program for the long haul
The loyalty program you launch will likely change. But by following the steps outlined above, you can boost its chances of lasting for decades to come.
Here are the main takeaways as you build your loyalty program:
Expect a significant upfront investment. Building a loyalty program isn’t cheap, but there’s a reason brands make the investment: It can pay off in the long run.
Be patient. Give your loyalty program enough time to really ramp up and start showing ROI. If that feels daunting, remember that successful programs make up a massive chunk of a company's revenue. As of 2024, 60% of Starbucks' sales came from its rewards members.
Be flexible. Expect to make tweaks to meet changing market conditions. As long as you tie your rewards to your brand values and maintain clear and consistent communication with customers, you can minimize consumer frustration.
At 40+ years old, AAdvantage, American Airlines' frequent flier program, is one of the oldest airline loyalty programs still in existence. Over the years, it's changed many times (when it first launched, it offered a reward of a free first-class ticket!) and will surely change again. But the key to its longevity? Rolling with the punches and remembering to prioritize members.
