Glossary
What is gross margin, and why does it set your reward?
This is what is left from a sale after what it cost you to make. It tells you what a reward really costs. A $5.50 coffee that costs you $1.65 to make costs you $1.65 to give away, not $5.50. Pricing a loyalty programme off the menu price is the most common mistake there is.
If you take one number into a decision about your reward threshold, take this one.
The mistake it prevents
Owners look at a menu price and conclude the programme is expensive. The giveaway costs you the input cost, not the retail price, and the gap between those two is usually large.
Using it
Cost of the reward divided by the revenue generated over the threshold gives you the programme’s cost as a percentage of revenue. Compare that against what you would pay for the same outcome through advertising.
Related terms
- Reward thresholdHow many stamps or points a customer needs before a reward unlocks.
- Customer lifetime valueThe total margin a customer generates over the whole relationship.
- Average transaction valueAverage spend per sale, before margin.
- Redemption rateThe share of issued rewards or vouchers that customers actually use.