Are loyalty points deducted from profit or added to it?

Introduction

Every time a store or restaurant owner decides to launch Points loyalty program A legitimate question comes to his mind: “Will these points be deducted from my profits? Or will they actually help me achieve higher sales and profitability?”

Loyalty programs can feel like "giving away" a portion of revenue, especially when they offer discounts or freebies in exchange for points. But the truth is that Loyalty points are not a direct deduction from earnings Rather, it is a smart, long-term investment that aims to build an ongoing relationship with the customer, increase the average order value, and repeat purchases.

In this article, we analyze the impact of the points system from financial and commercial aspects, and explain the cases in which it can be deducted from profit, and those in which It actually contributes to its increase.

First: What is the loyalty points system?

A loyalty points system is a mechanism that gives customers rewards for repeat purchases or interactions with a store. Points are usually awarded for:

• Purchase value (for example: every 1 riyal = 1 point)

• Invite a friend

• Evaluation of the product or service

• Repeated login or complete the order through the application

The points are later converted into rewards such as:

• Financial discounts

• Free product

• Free delivery

• Symbolic gifts

Second: Are the points considered a “financial loss”?

theoretical: Yes, when a customer redeems points, you are offering something without direct compensation.

But in practice: If your system is designed intelligently, the value you get from customer loyalty and repeat purchases increases Much more than you lose in terms of points.

Let's break it down:

Third: How can the points system add to profit?

1. Increase the number of purchases from the same customer

A customer who feels they will be rewarded with every order will return to buy again. This means:

• Low Customer Acquisition Cost (CAC): You don't spend again to bring it.

• Increase your average monthly spending.

🔸 example: If a customer buys from you once a month at a rate of 100 riyals, and after applying the points, he buys twice for 150 riyals, your profits have increased without additional marketing costs.

2. Increase average order value (AOV)

When you link points to amount spent (eg: every SAR 10 = 1 point), the customer will often add additional products to get faster rewards.

🔸 example: A customer who was buying for 45 riyals may add a product worth only 5 riyals to reach 50 and get more points.

3. Motivate dormant customers to return

By sending them a notification of unused points or offering them double points on a particular day, you can:

• Reactivate them

• Avoid losing them completely

• Take advantage of your previous relationship with them

4. Convert customers into promoters for free

When a customer is satisfied and rewarded with points, he:

• He shares his experience

• He calls his friends

• Promote your store with positive reviews

All this without direct advertising cost.

Fourth: But when are the points a real deduction from the profit?

Despite all of the above, there are cases where points may deplete your profits if:

1. The points system was not carefully calculated

for example:

• Gives too many points.

• Or make it very easy to redeem points (for example: 50 points = 50 riyals discount!).

Here, the rewards become heavier than the profits.

2. There is no minimum purchase when using points

If you allow a customer to use his points on low bills (for example: an order for 20 riyals using 30 points), this directly reduces the profit margin.

3. There is no validity period for points

This leads to the accumulation of points without control, which at one point makes customers use them heavily and be surprised by a decrease in return.

4. Not linking points to the profitability of products

If the products that can be redeemed for points are already low profit, then every point redeemed reduces profits.

Fifth: How do you design a points system that increases profitability and does not deduct from it?

✅ Make every point earned through a “profitable activity”

for example:

• Every 1 riyal spent = 1 point (not just every visit).

• Rating a product only earns points after purchasing.

✅ Set a minimum amount to use points

for example:

• Points can only be used on bills exceeding 100 riyals.

• You must spend at least 500 SAR before using 50 points.

✅ Set a specific validity for the points

For example: Points expire 90 days from the date they were obtained. This motivates the customer to purchase quickly and reduces sudden use in the future.

✅ Give high rewards for highly profitable products

For example: Give a discount in exchange for points on products that bring you a high profit margin (30-40%), not products with a low margin.

✅ Connect the dots to your marketing goals

• Want to increase sales on Monday? Give "double points" on this day.

• Want to get rid of a specific product? Make it easier to redeem it for points than others.

Sixth: Compared to other marketing tools

Marketing tool

Cost

Sustainability

Impact on profit

Sponsored ads

High (per click/impression)

Temporary

Indirect

Direct debits

It affects profit immediately

Temporary

Direct discount

Free gifts

Expensive to ship or manufacture

Temporary

Discount + cost

point system

Low – discounted on usage only

Long lasting

Directed and controllable

Seventh: How do you measure whether points increase profit?

1. Calculate the number of returning customers after subscribing to the system.

2. Monitor the change in average order value before and after applying points.

3. Compare the number of orders that used points against the new orders generated by the system.

4. Monitor how well the system stimulates sleeping clients.

5. Divide the percentage of the cost of rewards by the revenue generated from them.

🔸 If the revenue generated from the points system is higher than the cost of rewards, then you are on the right track.

Eighth: Real examples from reality

🟢 Successful example: perfume store

• Every 1 riyal = 1 point

• Upon reaching 200 points, the customer gets a discount of 30 riyals

• Only used on orders exceeding 200 riyals

📈 Result:

• Increase average shopping cart by 25%

• An increase in the number of monthly orders from the same customers by 30%

• The system contributed to achieving greater profitability without any advertisements

🔴 Losing Example: Local restaurant

• Each visit = 10 points

• After 5 visits, the customer gets a free meal (worth 40 riyals)

• No minimum purchase or expiration period

📉 Result:

• Customers just bought the cheapest order, then used the points

• A decrease in net profit by 18% within 3 months

Conclusion

Loyalty points are not an automatic deduction from earnings. Rather, it is Smart tool for profit maximization If used correctly.The key is in Intelligent design, control, and continuous measurement. Don't award points just because competitors do, but tie them to your goals, profitability, and your customers' behavior.

If you manage the system carefully, you will discover that every point awarded today brings you a regular customer tomorrow, and a “small discount” in the form of a bonus turns into a “big profit” in the long run.

Related reading

• Salon loyalty and membership programmes that change the cash flow

• Convert a positive review into automatic loyalty points

• Loyalty Programs: How to Design an Effective Points System?

• Loyalty by experience: How do you make your customer not forget your service?

• Smart Discount: How do you profit despite offering a discount?