What member rewards cost each quarter, and which tier earns it back
What the answer looks like
Illustrative output on sample data
Illustrative example: how Lexi answers this for a smoothie and juice chain with three loyalty tiers. It compares members with matched non-members on gross margin for the last quarter.
- Green: $180,000 reward cost, $126,000 incremental margin. Return = (126,000 - 180,000) ÷ 180,000 × 100 = -30%.
- Gold: $95,000 reward cost, $171,000 incremental margin. Return 80%.
- Platinum: $40,000 reward cost, $104,000 incremental margin. Return 160%.
What the data shows
The program returns $401,000 on $315,000 of rewards overall, but Green loses $54,000 a quarter.
What it means
Green members redeem a free drink on almost every fifth visit, whether or not their visits increased after joining.
What to do
Move Green to a points threshold that rewards extra visits, and keep Gold and Platinum as they are.
Want me to show Green members' visits before and after joining?
Tier return on rewards formula
Why it matters
Rewards are a real cost, and they are easy to spread across tiers that do not earn them back. Comparing each tier's reward cost with the extra margin its members bring shows where the program pays its way and where the reward structure needs to change.
Frequently asked questions
How do you measure whether a loyalty tier pays off?
Compare the tier's reward cost with the extra margin its members bring, measured against similar non-members. If the extra margin is lower than the cost, the tier loses money. Measure each quarter, since redemption and visit patterns change over time.
Why do entry-level loyalty tiers often lose money?
Entry tiers attract many guests whose spend barely changes after joining, so rewards mostly cover visits that would have happened anyway. Rewards tied to extra visits, such as points that pay out only at a higher visit frequency, usually fix this.
What counts as reward cost in a restaurant loyalty program?
Count the cost of goods for free items, the value of discounts redeemed and any points-related fees. Use cost, not menu price, for free food and drinks, so the comparison with incremental margin is like for like.