Loyalty Points Calculator
What a points scheme costs as a discount rate, what breakage changes, the liability it builds, and the uplift it needs to break even.
Earning 10.00 points per $1.00 spent
Reward 2,000 points for $10.00
Value of one point $0.0050
Discount rate before breakage 5%
Discount rate after 22% breakage 3.9%
Spend needed for one reward $200.00
which is what the customer has to spend to feel the benefit
Across a year
customer spend in the scheme $840,000.00
points issued 8,400,000
value issued $42,000.00
expected to be redeemed $32,760.00
never redeemed $9,240.00
cost at your margin $19,000.80, since a reward given away costs you its cost, not its price
as a share of spend 2.262%
If the scheme lifts spend 4%
extra spend $33,600.00
extra gross profit $19,488.00
cost of the points on all of it $19,760.83
net -$272.83
verdict the points cost more than the uplift earns, which is the usual finding when the uplift is assumed rather than measured
break-even uplift 4.058%
The same scheme at other ratios
5.00 points per unit 2.5% discount, $400.00 to a reward
10.00 points per unit 5% discount, $200.00 to a reward ← yours
20.00 points per unit 10% discount, $100.00 to a reward
One point is worth $0.0050, so the scheme is a 5% discount before
breakage and 3.9% after it. That is what it is, however it is described:
a discount with a delay, and the delay is what buys the repeat visit.
A customer has to spend $200.00 to earn one reward. That number is the
scheme as the customer experiences it, and if it is far beyond a normal
basket the scheme motivates nobody: the points accumulate slowly enough
to feel pointless and the liability builds anyway.
Breakage reduces the cost and is the least reliable input here. It
depends on expiry rules, on how easy redemption is, and on the audience;
and in several jurisdictions point expiry is restricted or unlawful,
which removes the mechanism that produces most of it.
Points issued and not redeemed are a liability, not marketing spend.
Under IFRS 15 and ASC 606 the points are a separate performance
obligation, so part of the original sale is deferred until they are
redeemed or expire. A growing scheme builds a balance-sheet item that
most small businesses never record.
A reward given away costs you its cost, not its price. A free coffee
priced at three pounds might cost forty pence, which is why product
rewards are cheaper than discounts and why the arithmetic uses your
margin.
The uplift is the assumption the whole case rests on, and it is usually
assumed rather than measured. The honest test is a holdout: launch to a
random share of customers and compare, because the customers who join a
loyalty scheme were already your best customers.
Tiers change behaviour more than points do. The prospect of losing a
status is a stronger motivator than accumulating points slowly, which is
why airline programmes are built on tiers with points attached rather
than the other way round.
Output is valid and updates as you type.
Fix the highlighted fields to update the output.
Ten points per pound, two thousand points for a ten pound reward. That is a five percent discount, and calling it a loyalty programme does not change the arithmetic: a points scheme is a discount with a delay, and the delay is what buys the repeat visit.
Two things decide whether it works. Breakage, the share of points never redeemed, which reduces the cost and is the least reliable number in the model. And the uplift in spend, which is the assumption the entire case rests on and is almost always assumed rather than measured.
On the example below, a four percent uplift loses $273 a year. Break-even is 4.058 percent. That is how fine the margin is on a scheme that sounds generous.
How to use
- Put in the earn rate, the reward cost in points and what the reward is worth to the customer.
- Set breakage, honestly, and read the note about expiry rules.
- Add annual spend, your margin and the uplift you believe in.
Example
Value of one point $0.0050
Discount rate before breakage 5%
Discount rate after 22% breakage 3.9%
Spend needed for one reward $200.00
Across a year
points issued 8,400,000
value issued $42,000.00
expected to be redeemed $32,760.00
never redeemed $9,240.00
cost at your margin $19,000.80
as a share of spend 2.262%
If the scheme lifts spend 4%
extra gross profit $19,488.00
cost of the points on all of it $19,760.83
net -$272.83
break-even uplift 4.058%$200 of spend for one reward is the scheme as the customer experiences it. If that is far beyond a normal basket, the points accumulate slowly enough to motivate nobody while the liability builds anyway.
Pitfalls
A reward given away costs its cost, not its price. A free coffee at three pounds might cost forty pence, which is why product rewards are cheaper than discounts and why the arithmetic here uses your margin.
Breakage is the least reliable input. It depends on expiry rules, on how easy redemption is, and on the audience. Point expiry is restricted or unlawful in several jurisdictions, and where it is, most of the breakage disappears with it.
Points issued and not redeemed are a liability. Under IFRS 15 and ASC 606 the points are a separate performance obligation, so part of the original sale is deferred until they are redeemed or expire. Most small businesses never record it, and a growing scheme builds a real balance-sheet item.
The uplift needs a holdout. Comparing members with non-members measures which customers join a loyalty scheme, not what the scheme does: your best customers join. Launch to a random share and compare.
Devaluation is the standard move and it has a cost. Raising the points needed for a reward reduces the liability overnight and is noticed immediately by the people who were saving. Airlines do it routinely and pay for it in goodwill.
Tiers motivate more than points. The prospect of losing a status is stronger than slow accumulation, which is why airline programmes are tiers with points attached rather than the other way round.
A scheme nobody can reach is worse than no scheme. It costs the liability, generates no loyalty, and tells customers the reward is not for them.
Compatibility
Arithmetic in the browser: nothing is uploaded and nothing is stored.
The point value is the reward value over the points it takes, which is the definition, and the discount rate is that times the earn rate. Breakage multiplies the cost down, and the margin converts a reward’s retail value into what it costs you.
The break-even uplift is derived rather than searched: extra profit is spend times uplift times margin, the points cost spend times (1 + uplift) times the effective rate times margin, so break-even is the effective rate over one minus itself. The margin cancels out of both sides, which is why the answer does not depend on it. The test suite checks that a hair above the figure flips the verdict.
The liability figure is the value issued rather than the accounting treatment, which allocates the original transaction price between the sale and the points. The number here is the right order of magnitude and the accounting entry is a conversation with an accountant.