Redemption Rate: The Two Meanings in Loyalty Programs
By Alva Chew · Updated
Definition In loyalty programs, redemption rate has two meanings. It is either the share of issued points that customers actually spend, such as 60,000 of 100,000 points redeemed (60%), or the number of points needed for a unit of reward, such as 100 points for US$5 off. The first tells you whether customers use the program. The second, with the earn rate, sets how generous it is.
Why does redemption rate have two meanings?
People use the same phrase for two different numbers. Analysts and accountants usually mean the share of points that get spent. Program designers and customers often mean the price of a reward in points. Both matter, and they answer different questions.
| Meaning | Question it answers | Example |
|---|---|---|
| Share of points redeemed | Are customers using the program? | 60,000 of 100,000 points redeemed = 60% |
| Points per unit of reward | How much is a point worth? | 100 points = US$5 off, so 1 point = US$0.05 |
Meaning 1: the share of points redeemed
Formula: points redeemed ÷ points issued × 100.
Take an illustrative café that issued 100,000 points in a quarter while customers spent 60,000. Its redemption rate for the quarter is 60,000 ÷ 100,000, or 60 in every 100 points. The other 40,000 points are still in balances. Some will be spent later. Some never will, and those become breakage.
A simple period total can mislead, because points spent this month were often earned months ago. A cohort view is fairer. Take the points issued in January and track how many of those are redeemed by March, June and December.
| Points issued in January | Redeemed by March | By June | By December |
|---|---|---|---|
| 20,000 | 8,000 (40%) | 12,000 (60%) | 14,000 (70%) |
These are illustrative numbers. What you are looking for is the shape. A curve that rises steadily means members come back and spend. A curve that stalls early means many members earned once and drifted away.
Meaning 2: the points needed for a reward
This is the exchange rate between points and rewards. If 100 points buys US$5 off, the redemption rate is 100 points per US$5, or 20 points per US$1. Each point is worth US$0.05.
On its own this number says little. It only means something next to the earn rate.
| Earn rate | Redemption rate | Customer spend to earn US$5 off | Back on spend |
|---|---|---|---|
| 1 point per US$1 | 100 points = US$5 | US$100 | 5% |
| 1 point per US$1 | 50 points = US$5 | US$50 | 10% |
| 3 points per US$1 | 300 points = US$5 | US$100 | 5% |
Rows one and three are the same deal in different numbers. Keep the numbers round so staff can explain them in one sentence.
How do the two meanings connect?
The price of a reward affects how many points get spent. If the first reward is cheap enough to reach in a few weeks, more members redeem and the share of points redeemed rises. If the first reward needs months of spending, many members stop before they reach it and their points sit unused.
Raising the points needed for a reward after launch is called devaluation. In its May 2024 review of credit card rewards complaints, the US Consumer Financial Protection Bureau named devaluation as one of four recurring problems customers raised, alongside surprise conditions, redemption problems and lost rewards. A café program is far smaller, but regulars react the same way when a reward they were saving for moves further away.
What should you track each month?
- Points issued and points redeemed. The ratio is meaning 1.
- Members who redeemed at least once. This shows how widely the program is used, not just by a few heavy users.
- Time from joining to first redemption. If it is long, lower the first reward or add a welcome bonus.
- Outstanding balance in dollars. Points multiplied by value per point is what you still owe customers.
Seeing redemptions in Gimify
Gimify records every earn and redemption at the counter against the member’s balance, so you can see which points are being spent. Staff cannot redeem more than a customer holds.
Questions owners ask
How do I calculate my loyalty redemption rate?
Divide the points redeemed in a period by the points issued in the same period, then multiply by 100. If you issued 100,000 points and customers redeemed 60,000, the redemption rate is 60%. For a fairer view, track the points issued in one month and see how many are redeemed over the following months.
Is a low redemption rate good for my business?
It lowers what you pay out, but it usually means members have forgotten the program. Customers who never redeem get no reason to come back, which is the whole point of running one.
What does 100 points = US$5 mean?
It is the redemption rate in the second sense. Each point is worth US$0.05. With an earn rate of 1 point per US$1, the customer gets back 5% of spend.
Can I change how many points a reward costs?
You can, but raising the points needed for the same reward devalues what customers already hold. Give notice, and consider honoring the old rate for existing balances.
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