Should your DTC startup have a loyalty scheme?

Hi there,

When start ups start out they often straight away get a loyalty scheme, apply it to the full website and spend a lot of time trying to communicate it and its value… only to be disappointed that it doesn’t work. 

I came in at a later stage asking about this little website wide floating bar of the reward scheme, only to hear, “yeah… it doesn’t do much, we are thinking about removing it”.

Honestly, it put me off loyalty schemes myself for a while.

But, over time I realised loyalty schemes were working incredibly for my bigger Product-Market Fit customers.

I mean, your existing customers deserve rewards and benefits too. 

Why not show them extra love and attention for staying with you? Also, it’ll cost you a lot less than trying to acquire new customers. 

Plus there are a myriad of secondary benefits from pushing for reviews through it (depending if your review platform allows that), pushing referral and more. 

But why are loyalty schemes letting down so many startups?

I believe they are starting too early.

Is it worth getting a loyalty scheme in place?

If you have 200 new customers per month in the beginning…

20% sign up for your scheme -  that is 40 people…

5% are then convinced to buy more that wouldn’t have been overwise… 

That is 2 extra orders, 1% growth overall…

Now obviously, they might order more than once extra over time, but you get the idea. We are talking peanuts.

Rather, if you are at 2000 new customers per month, that is 20 extra orders - hmm, much better.

The real calculation is a more complex combination of order frequency, order value and sign up rates / order rates.

This is just a back of the napkin indication of why I don’t think you need to start immediately. Especially as:

• There are often costs of the tool involved

• There will be costs in terms of email setup involved

• You are probably still working out the right messaging angle for you

• You haven’t worked out how to bring in new customers

• You don’t know what the normal buying behaviour is yet

But once you are starting to scale up new acquisitions, get a better understanding of all these areas to learn more about whether a loyalty scheme is worth your time.

Your checklist for getting started

So you know me, I like to keep it practical. If you’ve done the calculation, and it is time to start, here is your action plan:

1. Work out what reward level you can do based on your margins (smile.io recommends 3%-10% per dollar spent)

2. Work out what you want to reward (some of my favourites are reviews, referral, milestone rewards, surveys for learnings - if you have a big enough customer base definitely run a survey to your most loyal customers to ask)

3. See which tool best works for your plan (the two major ones are smile.io and influence.io)

4. Work out your sign up strategy for new email sign ups (integrate 1-2 extra emails to your flow plus potentially mention it in existing emails) and existing customers (I’d recommend a 5-6 email flow to share it, excluding automatically people who have signed up)

5. Plan emails to encourage usage (you can’t assume they will automatically use it, think sharing about the system, sharing points and random emails when you have new rewards)

6. Figure out how you want to place the loyalty scheme on your website (I personally don’t like the floating widgets much as it can get in the way of your website content, but do like having a page)

I’m a fan of keeping it simple to start with, especially if you aren’t very big, so shying away from the fancy things (tiers within the programme, multiple different rewards, VIP programmes, etc). These are all interesting to look at later in the process. 

Recommendation

Valentin Radu’s recently published book The CLV revolution has a great chapter that dives deeper into loyalty schemes (Chapter 13), from covering in depth the benefits and value of a loyalty scheme to what programmes can look like and a great loyalty programme case study. 

I recommend buying it in general - I’ve already devoured it. Why? Because with profitability being more important than ever, we really need to focus on getting more high quality customers to keep coming back rather than acquiring random new customers. 

The CLV revolution shows e-commerce businesses how to do this through clever analysis of their customers and using this quantitative data to drive improvements to acquire more of those customers, speaking to them effectively and keeping them onboard longer. 

Before signing off today, I wanted to take a minute to congratulate 🎉Patrick Klarer🎉 on winning the recent prize draw from my newsletter improvement survey. Patrick, I really hope you enjoy my Growth Experiment Tracking Course and can’t wait to hear your thoughts on it!

A massive thanks to everyone else who gave feedback on the survey - your opinions are super important in transforming the future of the Growth Waves newsletter 🌊

Big thanks to my team member Lola Hylander, who helped in researching this newsletter. We were seeing more and more companies want to focus on this so we were determined to share the best (but pragmatic) advice to get you started. 

Loyalty is incredible, but it comes first from adding value and then building a scheme that helps provide additional value and impact.

Chat soon,

Daphne