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How to Calculate the Cost of a Free Reward Before You Offer It

Before you offer a free coffee, drink, haircut, or anything else as a loyalty reward, run this five-minute calculation. The spreadsheet, the inputs, and the rule of thumb.

Loop Customer Team··5 min read
How to Calculate the Cost of a Free Reward Before You Offer It

Never launch a reward without running the numbers first

Simple ROI math for deciding what rewards to offer
Simple ROI math for deciding what rewards to offer
How to calculate if your loyalty reward actually makes sense
How to calculate if your loyalty reward actually makes sense

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Customer lifetime value impact before vs after loyalty
Customer lifetime value impact before vs after loyalty
One extra visit per month compounds dramatically over years.

The simple formula

Step-by-step visual that makes the process simple and clear
Step-by-step visual that makes the process simple and clear
The exact language and approach that top performers use
The exact language and approach that top performers use
Real-world example of the tactic in action
Real-world example of the tactic in action

(Cost of the free item) × (expected redemption rate) ÷ (average number of visits to earn the reward) = Cost per earned reward

Then compare that to your average profit per visit. If the reward costs more than ~30–40% of your average profit per visit, you may need to adjust the ratio or the reward itself.

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