This loyalty program cost calculator is for shops, restaurants and cafes in Saudi Arabia. Enter how many points a customer earns per riyal, what a point is worth when it is spent, and the share of points you expect to be redeemed, and you see the cost of the program as a percentage of member sales and in riyals per month. Add your gross margin and the calculator works out how much extra sales or how many extra visits you need to cover that cost. Every number is yours; the example shown is illustrative only.
How to calculate the cost of a loyalty program
Start with the face rate: what goes back to the customer from every riyal if they spend all their points, which is points per riyal multiplied by the point value. Then multiply by the redemption rate, because some points are never spent. The result is the effective cost as a share of sales. Members also earn points on any extra sales, so each extra riyal adds your margin minus that cost to your profit, and the break-even sales figure is worked out from that.
Effective % = Points/SAR × Point value × Redemption % · Break-even sales = Monthly cost ÷ (Margin % − Effective %)
What is a loyalty program and how do reward points work?
A loyalty program, or customer rewards program, is a deal with a registered customer: they earn a reward each time they buy, so they come back to you rather than going elsewhere. It takes three common forms: loyalty points collected and then spent as a discount or a product, cashback added as credit for the next visit, and a stamp card such as "tenth coffee free", which is common in cafes across the Kingdom. All three are calculated the same way: a card that gives a free cup after nine is one point per cup, with the point worth a ninth of the cup's price.
Paid memberships, where an annual fee buys a standing discount, work differently because the customer pays up front; this calculator covers points, cashback and stamp cards.
How to set the point value and the redemption rate
The point value is your decision, and how much you can afford is set by your margin, not by what competitors offer. Put the effective cost next to your gross margin: if rewards take a quarter of the margin or more, the program needs a big rise in visits to pay for itself.
You will not know the redemption rate before launch, so start with a high estimate such as 70% or 80%, then replace it with the real figure from your system after three months: points spent divided by points issued. Set an expiry period for points and a minimum to redeem, and put both in the program terms customers can see.
Product reward or discount: the effect on your profit margin
A discount on the bill costs its full value: SAR 5 off cuts revenue by SAR 5. A free product costs only what you paid for it: a drink that sells for SAR 10 and costs SAR 3 to make costs you SAR 3 when it is given as a reward. That is why cafe and restaurant programs look generous to the customer while costing the business less. Switch on the advanced mode and choose "A free product" to see the cost at cost price instead of selling price. To check the effect of discounts on their own, use the discount calculator, and to work out margin from cost, the profit margin calculator.
Unredeemed points: a liability on your books
A point a customer has earned and not spent is a promise you still owe, and the calculator shows it two ways: the face value of all points issued, and the part expected to be redeemed at your redemption rate. In the advanced mode, enter today's unredeemed points balance to see the size of the outstanding liability.
On the accounting side, IFRS 15 (Revenue from Contracts with Customers), as endorsed in Saudi Arabia, treats points that give the customer a material right as part of the original sale. That can mean deferring part of the invoice revenue until the points are spent or expire, rather than booking the reward as an expense when it is redeemed. How the revenue is allocated and how unspent points are estimated depend on your program and its terms, so check with your accountant or auditor before you post any entry. This calculator is for pricing and viability decisions, not for preparing financial statements.
Loyalty programs for restaurants and retail stores
Restaurants and cafes see more frequent visits and smaller bills, and their gross margin on drinks is high, so product rewards suit them. Enter the average bill to see how many extra visits cover the cost, and compare that with how many visits you get a month now. A retailer on a thin margin, such as a grocery or electronics store, is safer with a small face rate and a minimum to redeem; test it in the calculator before you announce it. To measure what a customer is worth over their whole relationship with you, use the CAC and LTV calculator.
Common mistakes
- Costing the program on the face rate alone, or on an optimistic redemption rate, and then being caught out when points are cashed in all at once in a busy season.
- Comparing reward cost with sales instead of margin: 3% of sales can be a quarter of a grocery's profit.
- Counting all member sales as extra business from the program, when most of it would have happened anyway.
- Forgetting running costs: the platform subscription, cards and text messages.
- Points with no expiry and no minimum to redeem, which build up a liability you cannot predict.
What to do after you get the result
Compare break-even sales with the rise in visits you can realistically expect. If break-even is higher, try a lower point value or a product reward before launch. Download the Excel file to change the figures in your own sheet and show them to your partner or accountant, since its formulas are real. After three months of running the program, come back with the actual redemption rate and points balance from your system.
When customer points are split between the till and the books
A loyalty program runs at the till: points are earned on one bill and spent on another, and the balance has to match what is in the accounts. For retailers in the Kingdom, Microtec offers O-Green, its cashier and point-of-sale system. Try it at your own till.