---
title: "How to Set Up a Loyalty Program? A Practical Guide to Points Systems, Tier Design and Cost Calculation in E-Commerce"
description: "How to set up a loyalty program? Designing a points system in e-commerce, tiers, the real cost of points, abuse prevention and a cost calculation tool."
url: https://www.faprika.com/en/blog/loyalty-program
language: en
site: Faprika
---

# How to Set Up a Loyalty Program? A Practical Guide to Points Systems, Tier Design and Cost Calculation in E-Commerce

> How to set up a loyalty program? Designing a points system in e-commerce, tiers, the real cost of points, abuse prevention and a cost calculation tool.

You spend on ads, campaigns and discounts to win a new customer; after the customer places their first order, most stores leave them on their own. Yet a customer who orders again brings sales with no extra acquisition cost. A **loyalty program** gives the customer a concrete reason to shop again: accumulated points, an unlocked tier, a gift voucher or a special benefit.

This article is structured like a lesson. Step by step, you will learn the types of loyalty programs, how to design a points system, how to calculate the real cost of a point, tiers, ways to prevent abuse, how to announce the program to customers and how to measure its success. The tool in the article calculates, with your own figures, what a points system really costs you.

Key Takeaway

“A loyalty program is not a discount, it is an investment. Every customer you give points to has prepaid for the next order they will return for; the program's value lies in exceeding the cost of that return.”

## What Is a Loyalty Program?

A loyalty program is a regular system that rewards customers for purchases, memberships or other actions to encourage them to buy again. The most common form in e-commerce is earning points on purchases and using those points as a discount on the next order.

The difference between a loyalty program and a one-off campaign lies in continuity: a campaign is offered to everyone for a set period, while a loyalty program builds a long-term relationship with the customer and ties the reward to the customer's behavior. For this reason, unlike a campaign, the program aims to increase customer lifetime value.

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## Why Is a Loyalty Program Valuable in E-Commerce?

A loyalty program increases the repeat purchase rate and revenue per customer, which reduces dependence on the cost of acquiring new customers. An existing customer already knows and trusts you; selling to them again is often cheaper than reaching a new one.

- **Repeat orders:** Accumulated points lead the customer to spend them with you instead of going to another store.
- **Basket value:** Customers may increase their basket to reach the next tier or reward.
- **Customer data:** A membership-based program lets you get to know and segment your customers.
- **Less reliance on discounts:** Instead of attracting customers with a general discount every time, you bring them back with the points they have earned.
- **Recommendations:** A satisfied, rewarded customer recommends the store to the people around them.

We recommend reading

What Is Customer Lifetime Value (CLV) and How Is It Calculated?

## What Are the Types of Loyalty Programs?

Five basic types of loyalty programs are used in e-commerce: a points system, tiered (VIP) membership, gift vouchers and rewards, a referral program, and membership benefits. Most stores choose one of these or combine several; the choice depends on the product type, order frequency and your margin.

*Görsel: Types of loyalty programs: points system, tiered VIP membership, gift voucher and reward, referral program and membership benefits; how each works and which stores it suits (Five types of loyalty programs and when they fit.)*

| Type | How does it work? | Best suited for |
| --- | --- | --- |
| Points system | Points are given for spending, membership or reviews; points become a discount on the next purchase | Frequently purchased products; the first step for most stores |
| Tiered (VIP) membership | As spending grows, the customer moves to a higher tier and earns more benefits | Customers who spend regularly and heavily |
| Gift voucher and reward | A voucher or gift is given after a certain amount of spending or a specific action | Low order frequency; for those who want to show the reward in concrete terms |
| Referral program | The customer who recommends the store and the new customer who arrives are both rewarded | Brands with high satisfaction and a community |
| Membership benefits | Members get special prices, shipping benefits or early access | Encouraging membership; B2B and dealer structures |

We recommend reading

What Is Money Points? (Glossary)

## How Do You Design a Money Points System?

A money points system rests on four decisions: how points are earned, how much a point is worth, how points are spent, and how long points last. These four decisions determine whether the program is both attractive to the customer and sustainable for you.

*Görsel: The points cycle: the customer shops and earns points, the points balance builds up, the points are used as a discount on a later purchase, and the customer comes back (The points cycle: earn, accumulate, spend, come back.)*

### 1. How are points earned?

The earning rule should be simple and clear: the customer earns points for every amount spent. Besides purchases, giving points for actions such as membership, product reviews, referrals and birthdays steers customers toward valuable behavior.

- **Purchases:** A certain percentage of the amount spent, or a fixed number of points for each set amount.
- **Membership:** Welcome points for the customer who creates an account.
- **Product reviews:** Points for an approved review; this increases the number and quality of reviews.
- **Referrals:** Points for recommending the store and for the new customer who arrives.
- **Special days:** A small gift of points for a birthday or membership anniversary.

### 2. How much is a point worth?

The value of a point determines both how attractive the customer finds the reward and what it costs you. The most common practice is to match one point to a fixed amount (for example 1 point = ₺1); this way the customer immediately understands how valuable their balance is.

### 3. How are points spent?

Points are used as a discount on the next purchase; however, setting some limits on spending protects the program. The limits should prevent orders with very high discounts while staying fair to the customer.

- **Use up to a certain percentage of the basket total:** Set the highest share that can be paid with points.
- **Minimum usage:** Let points be usable once they reach a certain amount; this encourages customers to accumulate them.
- **Category exceptions:** Limit point spending on low-margin products.
- **Campaign overlap:** Decide in advance whether points can be used together with discounted products and coupons.

### 4. How long should points last?

Having points expire after a set period encourages customers to spend them and limits your liability. If the period is too short, customers will not find it fair; if it is too long, the accumulated points liability grows. A balanced approach is to set a reasonable period and remind the customer before it runs out.

## How Is the Real Cost of a Points System Calculated?

The real cost of points is not all the points issued, but the portion customers actually spend. Some of the points issued are never used or expire; so the effective cost is the product of the earning rate, the value of a point and the usage rate.

Formula: **Effective cost (%) = (points earned per ₺100 spent × ₺ value of a point × usage rate) ÷ ₺100**. For example, if 5 points are given for every ₺100 spent, 1 point is worth ₺1 and 60% of points are used, the effective cost is 5 × 1 × 0.60 = ₺3; that is, 3% of revenue. This rate comes out of your margin.

*Görsel: The cost of a points system: 5 points are earned per 100 lira spent, one point is worth one lira, 60 percent of points are redeemed and the effective cost is 3 percent; the margin falls from 30 percent to 27 percent (Example calculation: the cost is the portion that is used, not all points issued.)*

## Points System Cost Tool

The tool below calculates the effective cost of your points system, the margin left after points, and the total cost at a given revenue. The figures are examples only; replace them with your own earning rate, point value and estimated usage rate. If you do not know the usage rate, first try a low and a high scenario.

Points system cost tool

Points earned per ₺100 spent

Value of 1 point (₺)

Share of points used (%)

Gross profit margin (%)

Monthly revenue (₺)

Effective cost (percentage of revenue)**3%**

Margin left after points**27%**

Monthly points cost**₺15,000**

Even if all points issued are worth ₺25,000, only the used portion (60%) turns into cost. The figures are examples.

The tool shows the direct cost of points; it does not account for the extra sales the program brings (repeat orders, higher baskets). Whether the program is worthwhile is understood by comparing this cost with the additional contribution margin it generates.

We recommend reading

How Is Profit Margin Calculated?

## How Do You Set Up a Tiered (VIP) Program?

A tiered program divides customers into groups by spending and offers more valuable benefits to each group. The goal of reaching a higher tier encourages customers to grow their baskets and shop regularly.

*Görsel: Example of a tiered loyalty program: bronze, silver and gold tiers; annual spending threshold, points multiplier and extra benefits (Example three-tier structure: thresholds and benefits are illustrative.)*

- **Keep the number of tiers low:** Three tiers are enough for most stores; too many tiers become confusing.
- **Set achievable thresholds:** Reaching the first tier should be easy; the top tier should be hard but attainable.
- **Give each tier a concrete benefit:** Such as a points multiplier, a shipping benefit, early access or special support.
- **State tier periods clearly:** Explain which period's spending determines the tier and when it is renewed.
- **Show customers their progress:** A message like "[amount] left to the next tier" grows the basket.

Managing the tiered structure with user groups is a practical way: each customer is assigned to a group based on spending, and group-specific conditions (such as a shipping benefit) are defined.

## How Do You Prevent Abuse of a Loyalty Program?

Every reward system also attracts those who try to abuse it; for this reason, the program rules must be written strictly and clearly from the start. The aim is to prevent fake earnings without penalizing legitimate customers.

- **Fake memberships:** Limit the same person from opening many accounts to collect welcome points (email and phone verification).
- **Points after returns:** Take back the points earned by a returned order; otherwise the customer keeps the points by returning.
- **Review points:** Give points only for approved reviews tied to a real order.
- **Referral abuse:** Check for accounts that refer themselves and "new" customers coming from the same address.
- **Overlapping discounts:** Block combinations that push the margin below zero when points, coupons and campaigns are used together.
- **Announce the rules in writing:** State the program terms and your right to make changes clearly.

We recommend reading

What Is a Discount Coupon? How to Create and Profitably Use Coupon Codes in E-Commerce

## How Do You Announce a Loyalty Program to Customers?

If the customer does not know about the program or cannot see their points balance, the program does not work; so announcement and visibility are as important as design. The program needs to be recalled at every point the customer encounters.

- **Home page and product page:** Show a concrete message such as "Earn [points] points with this product."
- **Cart and checkout step:** Show the points to be earned and the available balance in the cart.
- **Order confirmation email:** State the points earned and the total balance.
- **My Account page:** Make the points balance, history and expiring points easy to see.
- **Reminder before expiry:** Notify the customer before points expire; follow consent rules, as a transactional notification.

Tip

Making the balance visible is half of the program

If the customer does not remember having points, they will not use them; and unused points do not create loyalty. Write "Your available points: [balance]" on the cart page and let them apply it with one click. When using points is easy, the program truly brings customers back.

## Points System or Direct Discount?

A points system and a direct discount produce different results: a discount raises sales immediately but does not bind the customer; points bring the customer back because they defer the reward. The two are not alternatives to each other but tools serving different goals.

|  | Direct discount | Points system |
| --- | --- | --- |
| Effect | Immediate sales increase | Future return |
| Does it bind the customer? | No; the customer leaves when the discount ends | Yes; the customer returns to spend their balance |
| Cost | The entire discount given | Only the portion of points that is used |
| Customer data | Not required | Membership and purchase data is collected |
| Best suited for | Clearing stock, campaign periods | Goal of repeat purchase and loyalty |

## How Does a Small Store Start a Loyalty Program?

You do not need to start a loyalty program with a large system; it is safer to start with a small, simple points system and grow it based on results. The three steps below let you launch the first version quickly.

1. **Set a single rule:** Give points at a fixed rate for every purchase and match a point to a fixed amount; leave complex tiers and multipliers for later.
2. **Calculate the cost in advance:** Find the effective cost with the tool above and make sure your margin can cover it.
3. **Monitor the results and expand:** After a few months, review the points usage rate, repeat order rate and number of members, then add tiers, review points or referrals.

This approach limits both technical and financial risk; if the program works you expand it, and if it does not, changing its rules is easy.

## Loyalty Programs and Customer Data (KVKK)

Because a loyalty program relies on membership and purchase data, it is subject to personal data protection rules. Participation in the program, data use and communication consent need to be regulated clearly and separately.

- **Privacy notice:** Explain which data is processed for which purpose within the program.
- **Marketing consent is obtained separately:** A points balance notification and a promotional message are not the same thing; a separate, unticked consent is required for promotional content.
- **Option to leave the program:** The customer should be able to leave the program and learn what happens to their data.
- **Do not ask for unnecessary data:** Collect only the information needed for the program to work.

We recommend reading

How to Ensure KVKK Compliance for an E-Commerce Site?

## How Is the Success of a Loyalty Program Measured?

You track whether the program works with five indicators: program membership rate, points usage rate, repeat order rate, the average basket difference between members and non-members, and the program's effective cost. Together, these let you compare the cost with what it returns.

- **Program membership rate:** What percentage of customers joined the program?
- **Points usage rate:** What percentage of the points issued was spent? If it is very low, the program is not visible or attractive; if it is very high, the cost may be high.
- **Repeat order rate:** How often do program members reorder compared with non-members?
- **Average basket difference:** How much does members' basket value differ from that of other customers?
- **Effective cost and additional contribution:** Is the points cost positive when compared with the additional contribution margin the program brings?

We recommend reading

E-Commerce Metrics: 15 KPIs You Need to Track

## How Do You Manage Seasons and Campaign Periods in a Loyalty Program?

During busy campaign periods, program rules need separate thought: customers are already shopping with high discounts then, and discounts combined with points can erode the margin quickly. Clarifying the program's relationship with campaigns in advance prevents surprises.

- **Limit point spending on campaign products:** You may choose not to allow points to be used as an extra discount on already discounted products.
- **Decide point earning separately:** Decide whether campaign purchases earn points at the normal rate, at a lower rate or not at all.
- **Aim for a return after the campaign:** Encourage spending the points earned in the busy period in the following months, so that the campaign customer becomes a lasting customer.
- **Announce the rules in advance:** Tell the customer how points will work during the campaign before they shop.

## 8 Common Mistakes When Setting Up a Loyalty Program

1. **Starting without calculating the cost:** If the points rate exceeds the margin, every sale turns into a loss.
2. **Setting overly complex rules:** Customers do not join a program they do not understand.
3. **Leaving points invisible:** A customer who cannot see their balance will not use it.
4. **Never setting an expiry for points:** Accumulated liability gets out of control.
5. **Not taking points back on returns:** Customers who return an order and keep the points abuse the program.
6. **Stacking points with campaigns and coupons:** Discounts on top of discounts erode your margin.
7. **Making the reward unreachable:** A goal that is too far away discourages the customer.
8. **Not measuring success:** The program carries on without anyone knowing whether it works.

## Loyalty Program Checklist

Review the items below before launching the program and at regular intervals afterwards.

- Have you calculated the effective cost of a point (taking the redemption rate into account)?
- Is your margin still healthy after points?
- Are the earning rule, the point value and the spending limits simple and written down?
- Is the points expiry defined and communicated to customers?
- Are the points of a returned order taken back?
- Are overlaps between points, coupons and campaigns under control?
- Are there safeguards against fake memberships and referral abuse?
- Is the points balance visible on the product page, cart, account and in e-mails?
- Are the privacy notice and marketing consent managed separately and correctly?
- Are the member rate, point redemption and repeat order rate being tracked?
- Are the program terms and the right to make changes put in writing?

## Loyalty Program and Points Management with Faprika

Setting up a loyalty program requires an infrastructure that calculates points, shows them to the customer and manages them. In the Faprika e-commerce platform, this stage includes the following elements (you can see which feature starts in which plan on the [e-commerce plans](https://www.faprika.com/en/pricing) page):

- **Cash points and gift vouchers:** A ready-made system for awarding points for actions such as signing up, shopping and reviewing, and for offering gift vouchers in campaigns, is included in all plans.
- **Campaign module:** Campaign and discount rules that can be built without limits are included in all plans; you manage overlaps between points and campaigns with these rules.
- **User groups:** You divide customers into groups and define conditions for each group, such as a shipping benefit or a tax exemption; this offers a practical basis for a tiered program. The steps are in the [User Groups](https://www.faprika.com/en/tutorials/user-groups) tutorial.
- **Product review and rating management:** You can manage reviews with or without approval; in a program that awards points for reviews, it makes it easier to reward only approved reviews.
- **Favorites, comparison and price-tracking lists:** Lets members save products; varies by plan.
- **Message templates:** To add points information to notifications such as the order confirmation, e-mail templates are edited from the panel; the steps are in the [Message Templates Management](https://www.faprika.com/en/tutorials/message-templates) tutorial.
- **Reports:** Membership, sales and campaign reports help you track the impact of the program; reports vary by plan.

## Frequently Asked Questions

**What is a loyalty program?**

A loyalty program is a structured system that rewards customers for purchases, membership or other actions in order to encourage them to shop again. In e-commerce, its most common form is collecting points on purchases and using those points as a discount on the next purchase.

**How to set up a loyalty program?**

First choose the type of program (points, tiered membership, gift voucher, referral); in a points system, set the earn rule, the value of a point, spending limits and expiry; calculate the effective cost and make sure your margin can bear it; put abuse prevention in place, announce the program to customers and measure its success.

**How is the cost of a points system calculated?**

The effective cost is the product of the points earned per ₺100 spent, the money value of a point, and the rate at which points are redeemed. Not all the points issued, but only the part actually spent turns into cost. For example, with 5 points per ₺100 spent, 1 point = ₺1 and 60% redemption, the effective cost is 3% of revenue.

**How many lira should a point be worth?**

There is no single correct value; you choose a value that the customer will find attractive and that your margin can afford. The most common practice is to map 1 point to ₺1; the customer understands the value of their balance right away. Verify the value you choose with the effective cost calculation.

**Should points last forever?**

Generally no. Points with an expiry encourage the customer to spend and limit your liability. A balanced approach is to keep the period reasonable and remind the customer before it expires; it must be stated clearly in the program terms.

**What happens to the points of a returned order?**

The points earned from a returned order must be reversed; otherwise the customer can place an order, return it and keep the points. Write this rule into the program terms and have the system apply it automatically.

Let your customer collect points and stay with you

Manage your loyalty program from a single platform with the cash points and gift voucher system, user groups and the campaign module. Plan your program together with Faprika experts.

Request a Demo

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