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Building a Loyalty Program That Actually Works: A Restaurant Guide

Loyalty programs can increase repeat orders by 50%. Here's how to build one that drives real results, not just sign-ups.

SM
Sarah Martinez
Head of Product
September 7, 2024
10 min read

The Loyalty Program Reality


Most restaurant loyalty programs fail.


They get sign-ups, but don't drive behavior. Customers join, forget about it, and never redeem.


But the restaurants that do loyalty programs right see:

  • 50% increase in repeat orders
  • 30% higher customer lifetime value
  • 20% of revenue from loyalty members

    • Here's the difference between a program that looks good and one that actually works.


    Why Loyalty Programs Matter


    The Economics

  • Acquisition cost: $8-10 per delivery customer
  • Repeat order rate: 20-30% without loyalty program
  • Repeat order rate: 50-60% with effective loyalty program
  • Lifetime value: 2-3x higher for loyalty members

    • The Platform Problem

    Delivery platforms own the customer relationship. Loyalty programs help you:

  • Build direct relationships
  • Drive repeat orders
  • Reduce platform dependence
  • Increase customer lifetime value

    • What Makes a Loyalty Program Work


    1. Simple to Understand

    Complex programs = low engagement. Keep it simple:

  • Clear earning rules
  • Easy redemption
  • Obvious value

    • 2. Fast Rewards

    Customers want to see progress quickly:

  • First reward after 2-3 orders
  • Regular milestones
  • Surprise rewards

    • 3. Real Value

    Rewards must feel valuable:

  • 10-15% discount minimum
  • Free items (not just discounts)
  • Exclusive access

    • 4. Easy to Use

    Friction kills loyalty:

  • Simple sign-up
  • Automatic tracking
  • Easy redemption
  • Mobile-friendly

    • Program Types


    Points-Based

    How it works:

  • Earn points per dollar spent
  • Redeem points for rewards
  • Example: 1 point per $1, 100 points = $10 off

    • Pros:

  • Flexible rewards
  • Encourages higher orders
  • Easy to understand

    • Cons:

  • Can feel slow
  • Requires tracking system

    • Best for: Restaurants with consistent customers


    Visit-Based

    How it works:

  • Earn a stamp/check per visit
  • After X visits, get free item
  • Example: Buy 10, get 1 free

    • Pros:

  • Very simple
  • No technology needed
  • Easy to communicate

    • Cons:

  • Doesn't reward high spenders
  • Easy to lose track

    • Best for: Simple programs, small restaurants


    Tier-Based

    How it works:

  • Different levels (Bronze, Silver, Gold)
  • Better rewards at higher tiers
  • Example: Gold members get 20% off, free delivery

    • Pros:

  • Encourages more spending
  • Creates exclusivity
  • Higher engagement

    • Cons:

  • More complex
  • Requires tracking

    • Best for: Restaurants with high-value customers


    Hybrid

    How it works:

  • Combines points + visits + tiers
  • Multiple ways to earn
  • Flexible redemption

    • Pros:

  • Maximum engagement
  • Appeals to different customers
  • Higher lifetime value

    • Cons:

  • Most complex
  • Requires technology

    • Best for: Larger restaurants, multiple locations


    Implementation Options


    Simple (No Technology)

    Punch cards:

  • Physical cards
  • Stamp per order
  • Redeem for free item

    • Cost: $0.10-0.50 per card

    Best for: Small restaurants, local focus


    Medium (Basic Technology)

    Email/SMS tracking:

  • Sign up with email/phone
  • Track orders manually or via POS
  • Send rewards via email/SMS

    • Cost: $50-200/month for service

    Best for: Medium restaurants, growing programs


    Advanced (Full Platform)

    Loyalty platform:

  • Automatic tracking
  • Mobile app
  • Advanced features
  • Analytics

    • Cost: $100-500/month

    Best for: Larger restaurants, multiple locations


    Best Practices


    1. Make Sign-Up Easy

  • QR code on receipts
  • Package inserts
  • Website sign-up
  • In-store promotion

    • Goal: 30-40% of customers sign up


    2. Communicate Regularly

  • Welcome email/SMS
  • Progress updates
  • Reward reminders
  • Exclusive offers

    • Frequency: 1-2x per month


    3. Offer Immediate Value

  • Sign-up bonus (10% off first order)
  • Quick first reward (after 2-3 orders)
  • Surprise rewards

    • Goal: First redemption within 30 days


    4. Personalize Rewards

  • Based on order history
  • Favorite items
  • Order frequency
  • Special occasions

    • Impact: 2-3x higher redemption rates


    5. Make Redemption Easy

  • Automatic application
  • No codes needed
  • Mobile-friendly
  • Clear instructions

    • Goal: Under 2 minutes to redeem


    Platform-Specific Strategies


    DoorDash

  • Use DoorDash Rewards (if available)
  • Drive to direct ordering with loyalty
  • Package inserts with sign-up

    • UberEats

  • Similar to DoorDash
  • Focus on direct conversion
  • Use Uber One as complement

    • Grubhub

  • Build own program
  • Drive direct orders
  • Use Grubhub for acquisition

    • Measuring Success


    Track these metrics:


    Engagement

  • Sign-up rate: % of customers who join (target: 30-40%)
  • Active members: Members who ordered in last 90 days (target: 60%+)
  • Redemption rate: % of members who redeem (target: 40%+)

    • Revenue

  • Revenue from members: % of total revenue (target: 20%+)
  • Average order value: Compare members vs. non-members
  • Order frequency: Orders per member per month (target: 2-3x)

    • Lifetime Value

  • Customer lifetime value: Total revenue per member
  • Retention rate: % of members who return (target: 50%+)
  • Churn rate: % of members who stop ordering (target: under 10%)

    • Technology Solutions


    Simple Solutions

  • Loyalty cards: Physical punch cards
  • Spreadsheet tracking: Manual entry
  • Email/SMS: Basic communication

    • Platform Solutions

  • LoyaltyLion: $99-299/month
  • Smile.io: $49-249/month
  • FiveStars: $200-500/month
  • Toast: Built-in loyalty (with POS)

    • Custom Solutions

  • POS integration: Build into existing system
  • Mobile app: Custom loyalty app
  • Full platform: Enterprise solution

    • Real Results


    A burger restaurant we work with implemented a points-based loyalty program:

  • 1 point per $1 spent
  • 100 points = $10 off
  • Sign-up bonus: 20 points
  • Mobile app for tracking

    • Results after 6 months:

  • 35% of customers signed up
  • 45% redemption rate
  • 2.5x order frequency for members
  • 25% of revenue from loyalty members
  • $8,000/month in additional revenue

    • Common Mistakes


    1. Too Complex

    Complex programs = low engagement. Keep it simple.


    2. Slow Rewards

    If rewards take too long, customers lose interest. First reward within 2-3 orders.


    3. Poor Communication

    If customers forget about the program, it doesn't work. Regular communication is essential.


    4. No Personalization

    Generic rewards = low engagement. Personalize based on behavior.


    5. Difficult Redemption

    If redeeming is hard, customers won't do it. Make it automatic or very easy.


    Getting Started


  • Week 1: Choose program type and structure
  • Week 2: Set up technology (or simple system)
  • Week 3: Create marketing materials
  • Week 4: Launch to existing customers
  • Month 2: Promote to new customers, measure results

    • The Bottom Line


    Loyalty programs work when they're:

  • Simple to understand
  • Fast to reward
  • Easy to use
  • Actually valuable

    • The restaurants that do loyalty right see 50% more repeat orders and 30% higher customer lifetime value.


    Start simple. A basic points program or punch cards can drive real results. Then scale based on what works.


    For a restaurant doing 500 orders/month:

  • 35% sign-up rate = 175 members
  • 45% active = 79 active members
  • 2.5x order frequency = 197 orders/month from members
  • $30 AOV = $5,910/month from loyalty program

    • That's $70,920 per year in revenue from a program that costs $1,200-6,000/year to run.


    ROI: 1,100-5,800%.


    Worth it? Absolutely.

    Tags

    loyalty programscustomer retentionmarketingrepeat orders

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    Sarah Martinez

    Head of Product

    Sarah Martinez leads restaurant success at Chowfly, helping hundreds of restaurants optimize their delivery operations and recover lost profits.

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