Loyalty programs of all shapes and sizes have been operating for decades and are universally present in many categories of business.
In some cases, they have become profitable and sustainable businesses in themselves (some airlines and coalition programs), separate to their original ‘host’ business or have been used to raise capital for their host business.
While this might be realistic for the minority, most loyalty programs are still operating within the marketing function of a business.
Their financial viability, profitability and cash-flow to their host business is not transparent or clearly reported.
All too often, a program is seen as an expense as there is no financial structure and process in place to report on a program’s profit and/or loss, impact on cash flow and related balance sheet implications.
This leads to a defensive approach to managing programs rather than a proactive and innovative mindset to motivate program success.
Loyalty programs need financial fitness - dynamic financial models for real-time and proactive decision-making
Loyalty program financial fitness starts with setting up of robust frameworks and dynamic models sensitive to the changes of program variables.
A good place to start is with your program financial ecosystem.
Do you have a profit and loss report? Does it support a balance sheet and cash flow?
Do you have a forecast or budget for the program’s performance?
Is it in a financial model flexible enough to adjust offers or new propositions you’re looking to launch in market this year?
What if scenario’s
‘What if’ scenario planning is a powerful process to guide your loyalty program strategy.
Feed your loyalty program financial model with ‘what-if’ inputs (drivers of success) to reveal the real-time impact on success.
What if you increased…
- the volume of members joining
- member activity rates
- member spend or frequency of purchase or
- the value of the benefits offered
(There are many other inputs to consider).
How would these increases impact the profit and loss, the cash flow and balance sheet?
You can do the same with the cost inputs.
What if you changed the cost of rewards or the cost of managing the program?
If you have a dynamic financial ecosystem and good support from your finance team then the ‘what-if’ scenario planning can push your program to new levels of financial viability.
You will see the outcome in the numbers in real-time. This helps turn your decisions into actions at speed.
Building a healthy, wealthy, and wise loyalty program in 2022
The financial fitness of your loyalty program is vital for sustainable success.
Start by setting up your program’s financial models and frameworks to feed you with dynamic insights to push your program to new levels of success.
If you need some assistance or an independent assessment of the financial fitness of your loyalty program, email firstname.lastname@example.org for our free Loyalty Program Financial Fitness Assessment.
Our experience and expertise have been gained from over a decade in accounting for loyalty programs through tailored and program specific profit and loss, cash-flow, and balance sheet reporting.
These have been developed for major airlines, retail programs and B2B wholesaler programs. The financial models manage program structures of all types of programs from points earn and burn, credits, discounts, cashback, and gift cards, tiered and flat programs.
The goal is to have a healthy, wealthy, and wise loyalty program fit for 2022 and ready to help you make strategic decisions to deliver a positive financial difference for your program and your business.
Request your free Loyalty Program Financial Fitness Assessment from email@example.com
Have a happy loyalty year!