A loyalty reward costs you what the item costs to make, not what it costs on the menu. A free coffee after ten stamps therefore often means a cost of a few kronor, while the menu price is what you lose at worst. Always count excluding VAT, and remember that some cards never get filled.
Here we go through the difference between cost price and menu price, how VAT affects the figures and how to calculate the whole card instead of a single reward. The examples are made-up calculations in SEK. Swap in your own figures.
Cost price or menu price?
There are two ways to look at the cost, and they give different answers.
- Cost price. What it costs you to give the item away: ingredients, packaging and perhaps some of the labour. This is your actual outlay if the customer comes and buys something anyway.
- Menu price excluding VAT. What you would have taken in if the customer had paid instead. This is your maximum loss, if the customer only came for what was free.
The truth usually lies closer to the first, because customers tend to buy something extra when they collect the reward. But do count both to see the range.
How does VAT affect it?
Menu prices in Sweden include VAT. On food and serving it is normally 12 percent, on most other goods and services 25 percent. You can check current rates with Skatteverket. The VAT included in a price is not your income, so when you compare against your cost, divide the menu price by 1.12 or 1.25.
Example 1: coffee at a café
The range is therefore between about 2.5 and 10 percent, and reality lies somewhere in between.
Example 2: a treatment at a salon
For services, working time is the big item, and if it is already paid the real cost is often low. If the salon is fully booked, though, a free treatment is a slot you could not sell.
How does breakage affect it?
Not all cards get filled. Some customers move away, switch their favourite place or forget the card. That is called breakage, and it means you do not have to pay for rewards that are never redeemed.
Do not rely on breakage to make the numbers add up. Calculate first as if everyone fills the card, and treat breakage as a bonus.
How do you choose the reward and number of stamps?
Think about three things:
- Choose a reward with low cost but high perceived value. Something the customer thinks is worth more than it costs you, such as a drink or an extra.
- Keep the card reachable. Ten stamps at a café where people come every day goes quickly. Ten stamps in a shop visited four times a year takes years. Read more about stamps, points or cashback.
- Calculate cost per visit. Divide the reward’s cost by the number of stamps. That gives you what each visit costs on average, and is easy to compare between set-ups.
You can try different set-ups in the tools, and see what a digital card costs for the rest of the calculation.
Summary
The real cost of a reward is usually far below the menu price. Count excluding VAT, look at both cost price and menu price to see the range, and remember that some cards never get filled, but do not build the calculation on it. Run the examples with your own figures, and you will know what the loyalty club actually costs.