Loyalty programs on Shopify: how to design, measure, and scale them

Based on a conversation between Matt Czerniak of wecanfly and Marton Kosdi-Kovacs, Co-Founder of Love Loyalty.

‍The full episode is available on the Flying with Shopify channel.

Key takeaways in 30 seconds (TL;DR)

• Around 80% of customers don't return after a first purchase without active retention work.
• Key metrics: point redemption rate, purchase frequency, and LTV for program participants vs. the rest – measured over at least 6 months.
• Reward threshold: 5–10% of the next purchase value motivates without gutting margin.
• Red flag: redemption rate above 40% with stagnant profit – you're discounting customers who would have bought anyway.
• A purely transactional points program identical to competitors builds discount hunters, not brand loyalty.
• Paid memberships make sense when 30–40% of customers are already returning and the product is bought more than once a year.
• A loyalty program is one of the most effective forms of customer data collection – and one of the few where customers hand over data willingly.
• POS integration and wallet passes close the loop between offline and online.
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How do you know your loyalty program is working?

This is the hardest question in loyalty and the most common objection before launching. Nobody will tell you a specific order happened because of points. But there are measures that give a real picture.

Before launching, establish your baseline retention metrics: what percentage of customers return, how often, how many first-time buyers come back for a second purchase. Those same metrics measured 6–12 months after launch – compared for the same cohort – show whether the program is making a difference.

The simplest early-stage indicator is point redemption rate. If customers are redeeming points and coming back, the program is resonating. If not, it needs adjusting. One or two rounds of iteration are normal: very few brands get it right the first time.

Key metrics to track:

• purchase frequency
• average order value (AOV)
• lifetime value (LTV) for active program participants vs. the rest of the customer base
• point redemption rate.

How much discount is too much? Setting the right reward threshold

The answer depends on industry and margin. Brands with 80% margins can give away a 10% discount without trouble. Subscription brands that don't make money until the third or fourth purchase calculate it differently.

A benchmark that works for most brands: points awarded after one purchase should be worth around 5–10% of the next transaction. That's enough to give the customer something to think about. If they need another pair of shoes and know they have a 10% discount at your store, they'll probably go there.

Red flag: a point redemption rate consistently above 40% month-on-month, without corresponding profit growth. That's a signal you're giving discounts to customers who would have bought anyway – you're burning margin. A second warning sign: if the only customers returning after launch are those redeeming points, and no new returning cohort is appearing, the program isn't generating new retention – it's subsidising existing behaviour.

Beyond points – access, belonging, and status

If every brand in your category runs a similar points program, there's no reason for a customer to be loyal to you specifically. That's not brand loyalty, it's discount loyalty.

The future of loyalty programs isn't transactions – it's a feeling of access, belonging, and status.

Examples:

• Queue skips for higher-tier customers – costs the merchant nothing, but the customer reads it as a clear status signal.
• Express returns, early access to collections, invitations to closed events.
• Closed communities where customers who exceed a spending threshold can review unreleased products and directly influence the range – for the brand, this doubles as an insight channel.
• One-on-one meetings with the founder.

Not every benefit needs to be expensive. What matters is that it's perceived as exclusive and not available to everyone.

A loyalty program as a data-harvesting engine

A loyalty program isn't only a retention tool – it's one of the most effective ways to collect customer data that customers hand over willingly, in exchange for a better experience.

Basic sign-up data – email, name, date of birth – is enough for birthday campaigns and segmentation. But you can go further. Pet store owners can collect breed, walking frequency, food type, and feeding schedule, then target with a precision no other data source provides. Beauty brands can know a customer's skin type and adjust recommendations by season. Fashion brands can know preferred fits and sizes.

The key point: customers give this data readily because they understand they'll receive better-matched offers and rewards in return. This is a value exchange, not involuntary data collection.

Bridging offline and online – POS, wallet passes, and staff scripts

Around 70–80% of customers who walk into a physical store leave without any trace – the brand doesn't know who they are and can't reach them again. That's one of the largest retention leaks for omnichannel brands.

Shopify POS with a loyalty integration changes that. At the till, staff can collect an email and enrol the customer, or a QR code lets them self-enrol. The customer immediately sees the benefit – points on this purchase, a discount on the next. For paid memberships, the discount can be applied to the current purchase on the spot, which works as an effective in-store conversion.

Wallet passes are particularly effective for customers in their 40s and 50s, who open marketing emails less frequently. A customer adds a wallet pass and the brand can send time-limited push notifications. Love Loyalty is also rolling out geolocation notifications: when a customer comes within roughly a mile of the store, they receive a push with a current offer.

Staff scripts are an underrated element of in-store rollout. Two or three precisely worded sentences that can't be skipped make a real difference. Canadian brand Felix and Norton measurably improved paid membership sign-up rates after standardising their script.

Using loyalty programs to drive sales in quiet periods

Every industry has lower-activity periods. A loyalty program can be calibrated around them.

Strategies that work: setting points to expire, with an email campaign reminding customers before expiry – a customer about to lose points has a specific reason to return. Communicating tier progress: 'Come back now and you'll unlock the next level and these rewards.' Double or triple points on specific products or collections within a defined time window.

A non-obvious side effect of the last strategy: it can be aimed at slow-moving stock. This is one of the less obvious applications of a loyalty program – managing inventory rotation without reducing catalogue prices.

Paid memberships – when they make sense and how to launch one

A paid membership works on different psychology from a points program. A customer who has paid for access returns not because they're loyal to the brand, but because they've paid and want to use what they paid for. Brands report paid members purchasing three times more frequently, or spending three times as much, as other returning customers.

When a paid membership makes sense: 

• when at least 30–40% of customers are already returning, 
• when the product is purchased more than once a year, 
• and when the brand already has a visible group of loyal customers who can become advocates for the program.

A specific revenue figure isn't the deciding factor – returning customer rate and purchase frequency are.

Frequently asked questions about Shopify loyalty programs

Does a loyalty program have to be based on points?

No. Points are one model – and historically the oldest. Modern platforms support programs built entirely around tiers, paid memberships, access to closed content and events, early access to collections, and community invitations. The choice of model should come from understanding your customers and their purchase motivations.

How long before you can evaluate whether a loyalty program is working?

6–12 months is the minimum for a reliable assessment. Earlier, you can monitor point redemption rate and early shifts in purchase frequency. Profitability assessment needs a longer window.

Is copying a competitor's loyalty program a good idea?

No. If your program looks the same as a competitor's, customers have no reason to be loyal to you specifically. The goal is a program unique to your brand and customer base, not benchmarking discounts.

What data is worth collecting in a loyalty program?

Minimum: email, name, date of birth. Extended: lifestyle and product usage information – for pet brands, animal breed and age; for beauty, skin type; for fashion, preferred fits. The more context, the better personalised the campaigns and the higher the return rate.

Do loyalty programs work for small Shopify stores?

Yes, provided the program is matched to the scale. Smaller brands shouldn't start with complex tier systems and paid memberships. Start with a simple points program, measure redemption rate after 1–2 months, and iterate. Love Loyalty's AI program builder uses store data to propose ready-made earning rules and rewards, reducing setup time significantly.