Cashback in Loyalty Programs: Meaning and How It Compares to Points

By Alva Chew · Updated 2026-11-04

Definition Cashback is a loyalty reward that returns a fixed percentage of each purchase to the customer as a money balance they spend on later visits. At 5%, a US$20 purchase adds US$1. It costs you the same as points that return the same share of spend, but a points programme lets you set what the reward is and change it later.

What is cashback?

Cashback is a reward that gives the customer a set share of what they spend back as money. The customer buys, a balance builds up, and the balance is later taken off a bill with you. A card issuer can also pay it out to a bank account, but in a shop it is almost always spent in the shop.

Because the reward is money, the customer needs no conversion. US$1 of cashback is worth US$1.

How do you calculate cashback?

Multiply the purchase by the cashback rate.

Purchase	Cashback rate	Balance earned
US$20	5%	US$1.00
US$20	2%	US$0.40
US$100	5%	US$5.00

The figures are our own arithmetic. Your cost is the rate times the sales of members who go on to spend their balance. If a member earns US$5 and spends it, you gave away US$5 of sales. If they never spend it, you gave away nothing, which is the idea behind breakage.

Is cashback different from points?

The mechanism is the same. A balance grows with spend and is spent with you later. What differs is the unit and who controls it.

Cashback is a money balance at a fixed rate. The reward is always a bill reduction at menu price.
Points are a count that you convert to a reward. You decide the point value and can offer an item that costs you less than its menu price.

At the same return on spend, both cost the same. 5% cashback and 5 points per US$1 at 1 cent a point each return US$5 on US$100. Our comparison of cashback vs points for a small shop sets out the cost table and the trade-offs.

Do customers spend their cashback?

The best public evidence comes from a programme built like cashback. Stourm, Bradlow and Fader studied a retailer whose points had a fixed cash value and describe it as a linear programme. They name a cash-rewards credit card as another example.

Finding	Scope
3% of purchases had a redemption, though redeeming could cut the basket price by nearly 30% on average	One international retailer, earning 1% of spend
40% of customers redeemed at least once over 43 months, so 60% never did	Same retailer and period

Source: Stourm, Bradlow and Fader, Journal of Marketing Research, April 2015.

The study covers one retailer, and 1% is a thin reward. It does not compare cashback with points. What it shows is that a stored balance of money-like value is often left alone. Our page on redemption rate explains how to track this in your own shop.

A second study bears on the exchange rate. Chun and Hamilton found that customers were less likely to redeem and more likely to spend money when the rate between points and money varied than when it was fixed. Source: Journal of Marketing Research 61(5), 2024, abstract read 4 November 2026. Cashback is fixed by design, so this finding supports a stable rate whichever reward you choose.

What should you set the rate at?

We found no verified public benchmark for small shops. Work from your gross margin. Pick a share of sales you could afford to give back if every member spent their balance in full, then check whether customers notice it. A rate too low to see changes little. Our guide to setting a points earn rate uses the same method, and the earn rate page defines the terms.

Avoid changing the rate often. A rate customers have already seen is awkward to cut later.

How Gimify fits

Gimify is a points-only programme, so it does not offer cashback. Customers earn points in proportion to what they spend, and you set how many points a reward costs. The card lives in Google Wallet with a live balance, and the free plan covers one outlet with unlimited members.

Questions owners ask

What does cashback mean in a loyalty program?

It means the customer earns a percentage of each purchase back as money. The balance grows with every purchase and is taken off a later bill. The rate is fixed, so the customer can calculate the reward before buying.

How do I calculate the cost of cashback?

Multiply your sales by the cashback rate. At 5% on US$10,000 of monthly sales the most you can owe is US$500. You owe less if some customers never spend their balance.

Is cashback the same as a discount?

No. A discount is taken off the current bill for everyone. Cashback is earned on one visit and spent on a later one, so it only costs you when the customer comes back.

Do customers actually spend their cashback?

Often they do not. In one fixed-value programme at a large retailer, 60% of customers never redeemed over 43 months. That is one retailer, not every shop, but it shows a money balance can sit unused.

Does Gimify offer cashback?

No. Gimify is points only. Customers earn points in proportion to what they spend, and the card in Google Wallet shows a live balance.