The Perfect Customer Rewards Program

I have always been a customer oriented person when dealing with customers. The reason being is the customer is the person directly responsible for getting paid. It sounds like a shallow way of thinking, but it's true. Anyone who owns a business is completely dependent on their customers to buy the service or product being offered.

The thing about customers is they are people. Sadly, I find a lot of businesses these days that seem to have forgotten this fact, and it's so obvious to see too. Each customer is an actual person, and because of this, each person deserves being treated like a human being with dignity and respect. Therefore, I have set out to design the perfect rewards program to be completely customer oriented with respect to the business at hand. As many of you know, I have a soft spot for small businesses that are locally owned so this program is going to be tailored to them.

The Perfect Rewards Program

Cash: Simplicity at it's finest. Instead of a points based system, this rewards program is based on cash that can be used at any participating business or at the customers disposal.
Points can receive whatever value a business wants to give them, while cash is consistent with the economy's value on the dollar. However, using a dollar value (or another currency) will allow for easily transferring purchasing power to the customer. A good example would be a customer earns $50.00 and instead of spending it back at your store, he decides to take a pay-out and take his wife on a date with the money. The customer should have every right to do whatever he/she wants with the rewards obtained, and while it may seem like you just lost out on $50.00 worth of business; The customer is going to know that entire night that you provided him and his wife with that night.

Profit: Let's give a portion of the profit to the customer for the items or services they have purchased, and another portion of profit from purchases the customer referred to you.
Advertising is the name of the game, so why not let your customers do it for you by giving them 30% of your profit.

10% to the customer themselves they can either take off the purchase amount or save for a later date. (This will allow you to bring up the rewards program with every purchase, and the customer has an AWESOME choice.)
10% to the customer who referred to you this customer.
10% set aside for customer appreciation promotions.
The first thing to do is calculate the profit ratio and apply it to the rewards program.

For the past calender year find your "Net Income After Taxes", and if an accountant does it for you, it's probably going to be on the last line of the income statement.
Next, we need the figure for "Net Sales" for the past calendar year. (Total sales minus discounts or other losses related to the sales)
If you divide "Net Income After Taxes" by "Net Sales" you have your profit ratio.
To make things easy let's say their is a 10% percent profit ratio. So 1% of the price of every item or service you offer will go directly to the customer either saved or used at the time of purchase, 1% will accrue on the customer's rewards account for all the purchases of friends and family that customer has referred, and finally 1% will go into an account for the manager/owner to put on some type of a customer appreciation event.

It's time to argue as an advocate for the customer. The customer is actually earning money from you now, so whatever bank handles the rewards program, you will need to make sure they get the best deal possible. Whatever positive attributes you can't handle yourself, it's up to you to make sure the bank upholds their end for the customer. That simply means getting them a good interest rate of return for their rewards account.

The 1% for all customer's spending that you get to have fun with is very important. You can host a party with free food, prize give-aways, hold a lottery, or give the sum to a customer who has a kid with cancer. The possibilities are endless, and you now have an account specifically to have fun with, and spend on the customers which makes budgeting for it a snap.

Last, but most certainly not least is the newsletter. With this type of rewards program in place, customers will want to receive the news letter, and share it with their friends. What better headline can a business have that puts 30% of the profit right back into loyal customer's hands?

Concerns

What if customers think I'm ripping them off by giving them only 1%? The 1 Percent is just an example, and will be about what you're giving them at first. As time moves on, your customers will send you more customers. The rewards program itself will give you more customers. As business improves, so will your system. The better your business does, the more rewards your customers will get. Other costs will also go down improving your prices. If you double your business, utilities will still stay the same or increase only slightly. Labor Costs will increase slightly as you hire more people or increase hours, but it won't double. Advertising costs will go down as your customers will do it for you.

How will this rewards program compare or compete with other rewards programs. Simplicity at it's finest. Most rewards programs are complete crap. They are designed to give a nice headline but never return what's promised. When I was about 16, I walked into K-Mart in November and there were two people sitting at a table as I walked in. "Would you like to sign up for our school rewards program?"

"What is this." I asked.

"Fill out this form, and we'll give you this card where a percentage of whatever you buy here at K-Mart will be sent to the School of your Choice."

"Sweet, what's the percentage?"

"Umm, I'm not sure."

Looking on the back of the card, the percentage was %.00025, so if I spent $1,000; the school of my choice would get a quarter. That's 25 whole pennies.

Most rewards programs to date that I've seen are about 1 percent cash back in the form of points, and you can only use them at the store in which you accumulated them. Credit cards have some Awesome rewards programs. However those programs are completely unraveled with the interest rate applied to the card.

How can I compete with big lump sum rewards programs? Visa at the moment will give a customer $50.00 after spending only $100.00, and that sounds like an Awesome deal doesn't it? It's definitely not a bad deal, but there is a lot of fine print that I haven't read. But even if there weren't any fine print, any person taking advantage of this deal has just signed up for a credit card. They will inevitably spend more than $50.00 in interest rates.

Just by having a rewards program that is completely customer based is more than enough. Granted, it's not flashy right up front, but it's honest. It's also simple, and doesn't lock a customer in via contracts and other things. The greatest strength of a program like this is it's simplicity, and non-aggressive nature, people will be drawn to it more and more as time goes on.



Special Thanks to: Charles Ehlert, Greg Kugler, John Gros, and Hendra Setyadi Putra for helping me create the perfect rewards program.