How to Create a Rewards Program for Small Business

A small-business rewards program provides incentives — like discounts and free merchandise — to your customers for their loyal business. The more they spend with you, the more they get back. It’s a simple way to show your customers they're appreciated while also marketing your business, driving sales and improving customer loyalty.

The right rewards program will help promote your business, but you'll first need to understand your business model, customer base and marketing budget to find the best option.

Types of rewards programs

You likely participate in several rewards programs yourself, and it can help to think about how each one is structured and what you like and dislike about them before deciding which program to use for your own business.

Punch cards

• Pros: It’s simple to use, implement and understand. Your customer gets one punch for each purchase or amount of money spent. Gain a certain number of punches and get a reward. Customers are likely familiar with this model.

• Cons: Collecting customer data, like email addresses, isn’t as easy since the cards aren't part of an electronic system. Also, cards can get lost and some people prefer not to carry around extra items in their wallets.

Scannable membership cards

• Pros: Since the membership card is part of an electronic system, it's a step up from the punch card. You’re collecting customer data like email addresses and phone numbers, which you can use to share news and updates through email or text message marketing.

• Cons: Unless you opt for digital options, customers still need to keep track of and carry a card.

Opt-in email

• Pros: You’re asking customers to share their email address with you so that you can send them discount and sale offers from time to time. This is a great way to announce sales or move merchandise when you have new items coming in. Plus, it’s simple enough to collect email addresses through your point-of-sale system at the end of a transaction or through an opt-in form on your business website.

• Cons: Organization and technology is required on your end for collecting and using data. Not everyone feels comfortable sharing their personal information, so consider offering an immediate incentive for signing up (like 10% off your next purchase).

Mobile apps

• Pros: Many POS platforms are already integrating loyalty rewards programs into their suite of services, or you can partner with a third-party company like Belly, Fivestars or Spendgo. You can easily collect and organize your customer data, as well as communicate with your customers. Customers can view their rewards status digitally without having to carry cards around.

• Cons: Not all customers want to download a separate app for every company they interact with, so — much like email — you may need to offer an immediate incentive. Then you need to ensure the app brings enough value that they continue to use it.

Create a rewards point system

The most important component of any business rewards program is simplicity — for both your customers and your business.

Before launching your rewards program, consider what type of points structure makes the most sense for your business model:

• Rewards for signing up. You can reward your customers just for opting into your program. For example, by signing up for emails or downloading and registering on your app, customers can receive exclusive discounts and offers.

• Rewards for reaching spending benchmarks. Reward customers based on the amount they spend in your store. For example, a customer earns a point for every dollar spent. They earn a reward when they reach a certain points level.

• Rewards for types of purchases. Customers earn points or punches for each purchase of a specific product or service. For instance, each time a customer purchases the “gold-level car wash,” they earn one punch on their card. Once they purchase a certain number of washes, they get one for free.

» MORE: Online marketing strategy and tips

Mariah Petrovic, a freelance writer, contributed to this article.