In brief
Loyalty points are a currency a business issues to its own customers. Two numbers define the whole program: the earn rate, or how many points a unit of spend produces, and the redemption value, or what a point is worth when spent. Multiply them together and you have the discount you are giving, expressed as a percentage of revenue.
A point is a currency you issue
A loyalty point is not a discount and not a coupon. It is a small unit of a currency that only you accept, that you create at a rate you choose, and that you can revalue.
That is the whole appeal of the mechanic and also its whole risk. A stamp card makes one promise — ten visits, one free coffee — and cannot bend. A points program makes a promise denominated in something you control, which means you can adjust it, and customers know you can.
The two numbers that define the program
Everything else is decoration.
The earn rate. How many points a unit of spend produces. “1 point per £1” is an earn rate. So is “5 points per £1”, which sounds five times more generous and may not be.
The redemption value. What a point is worth when it is spent. If 500 points buys a £5 item, a point is worth one penny.
Multiply them and you get the only figure that matters to your accounts:
earn rate × redemption value = the discount you are giving, as a share of revenue.
1 point per £1, at a penny a point, is a 1% program. 5 points per £1 at 0.2p a point is the same 1% program with a larger number printed on the receipt. Customers respond to the larger number; your margin responds to the product.
Pricing it, with real arithmetic
Work backwards from what you can afford, not forwards from what sounds appealing.
- Decide the discount you can carry. Say 2% of revenue on the categories the program applies to.
- Pick a reward you already sell and know the true cost of. Say a £4 item.
- Work out the spend that should earn it. At 2%, £200 of spend earns £4 of reward.
- Choose numbers that make that visible. 1 point per £1 and 200 points for the reward gives a customer a target they can hold in their head.
Then check the target against reality: if your average transaction is £6, 200 points is 33 visits. That is not a loyalty program, it is a lottery. Either the reward gets smaller or the percentage gets bigger — but the arithmetic has to survive contact with your actual basket size.
Unredeemed points are a promise, not a saving
Every point you have issued and not yet honored is an obligation sitting on your business. The share never redeemed is called breakage, and it is the reason points programs look cheaper than they are until they suddenly do not.
Two failure modes come from ignoring it:
- Treating breakage as profit. A balance that has been dormant for a year is not free money. It is a customer who may come back next month with a claim you have already spent.
- Not knowing the total. If you cannot say what your outstanding balance is worth in cash, you are running an unbounded liability. Anything you use to run points should tell you that number.
Larger operators account for this formally. A small business does not need the accounting standard, but it does need the figure.
Expiry, handled honestly
Expiry caps the liability and creates urgency. It is also the single most reliable way to make a customer stop believing in any balance they hold with you.
If you use it:
- State the rule where points are earned, not only where they are lost.
- Prefer inactivity-based expiry — points lapse after a period with no visits — over a hard annual cutoff. It punishes absence rather than patience.
- Give warning before a balance disappears.
- Check what your market’s consumer law requires you to disclose, and when. This varies by country and is not optional.
Where points programs go wrong
Devaluation. Raising the points price of a reward is a price rise the customer can measure precisely. Do it twice and the program becomes something they discount mentally.
Arithmetic in a queue. “You have 340 points” answers nothing. The customer wants to know how close they are to something. If the interface cannot say that in one line, most people stop tracking it.
A first reward that is too far away. A balance that has never produced anything is not experienced as progress. Something small and early is worth more than something impressive and distant.
Points on everything. Applying the program to categories with thin margin turns a loyalty scheme into an across-the-board price cut on your worst-earning lines.
What points require that stamps do not
A points program has to know the transaction amount. That means the till has to pass it — through a loyalty module in your point of sale, or an integration between your POS and a separate platform.
This is the practical reason most single-site local businesses end up on a stamp card instead. Not because points are worse, but because the requirement to move basket totals out of the till is where the project stops.
If your point of sale already includes loyalty and can do the arithmetic, most of that cost is already paid, and points become a reasonable choice.
Points or stamps
That decision has its own page, because it turns on one question — whether the spread between your smallest and largest sale is wide enough that treating them identically feels wrong.
If it is, points track something real. If it is not, points add a conversion rate without adding motivation.
The NeoLoyal approach
NeoLoyal does not run points. It runs visit-based stamp cards: a qualifying visit your team validated earns one stamp, a fixed target earns a fixed reward, and both sit on the card where the customer can read them.
That is a deliberate limit. If the arithmetic above is the shape your business needs — variable basket sizes, a till that can pass the amount, rewards that scale with spend — a points platform is the right tool and we would rather say so.