So how exactly do you measure incentives? After all, you have to justify the budget for your incentive program to various stakeholders across multiple departments. You need to be able to prove ROI and to track whether the strategies you are using are having the intended effects. This is where incentive program KPIs come into play. KPIs are key performance indicators, which are basically metrics you can measure. Using KPI-based incentives is a crucial part of an effective incentive program. Of course, which KPIs you use will depend on the nature of your program, but the infographic below should give you an idea of the kind of metrics you should be tracking:
How Do You Measure Incentives? KPI-Based Incentives Infographic:
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Incentive Program KPIs: Leading Indicators and Lagging Indicators
As you can see from the infographic, there are two categories of incentive program KPIs: Those that predict success (leading indicators) and those that prove success (lagging indicators). It’s important to track both types of KPIs.
Monitoring leading indicators will help you know that your incentive program marketing is effective, that it’s reaching your target audience, and that the value proposition your program presents is beginning to motivate the desired behaviors. Tracking lagging indicators enable you to justify the ROI of the program and gives you important information and insights for improving your program.
Leading Indicators for Your Incentive Program
Leading indicators for your incentive program are used to monitor communication, engagement, participation, and overall program health.
Examples of leading incentive programs KPIs include:
- Bounce rates for emails and direct mail: This incentive program KPI measures that your communication is actually reaching your participants. If this number is low, it means your participant data isn’t accurate, which is definitely a problem. Over the past 2 years, 56% of eligible participants have had to be removed from campaigns due to bad data.
- Email open rates: Email is an important medium for incentive program communication. Additionally, open rates for rewards program-related emails range from 22.3% to 268% higher than industry benchmarks. This number will be higher for smaller audiences who have been enrolled in your program for a longer period of time and lower for larger audiences who are less familiar with your program. If this number starts dropping, it’s important to make sure your email subject lines are engaging and that your emails aren’t getting caught in spam! Also, if this is metric is low, it might be useful to explore other mediums like SMS, push notifications, or direct mail.
- Email click rates: Email click rates are super important. This means that your emails are presenting a clear, compelling call-to-action (such as clicking onto your reward program site to see the latest promotion). Incentive program-related email click rates are anywhere from 6.8% to 780% higher than the industry standard. If this number isn’t as high as you would like, you can experiment with email body copy, imagery, color, as well as your CTA. Are you asking too much of your participants? Remember to use the appeal of incentive rewards to your advantage! People are much more likely to engage with emails that showcase the awesome rewards they can earn.
- Percentage of target audience enrolled: This is the number of participants enrolled in your program, versus the number of participants you invited. This number will fluctuate, depending on the scope of your program and whether you are using an open enrollment or a closed enrollment strategy. The higher this number, the better – but it’s important to be realistic.
- Average time-to-enrollment: This incentive program KPI is an important measure of whether or not your program marketing is effective and whether or not you are presenting an attractive value proposition. Offering limited-time promotions or using Gamification are two tactics you can use to reduce your time-to-enrollment.
- Number of reward site log-ins: This is an engagement metric that indicates your target audience is excited about your incentive program. But, more importantly, it shows that participants are actively engaging with your program. If this number starts dropping off, what can you do to re-engage participants?
- Number of points awarded: The number of points awarded indicates that your target audience is beginning to display the desired behavior your program was intended to motivate and are earning reward points as a result. As this number begins to rise, it’s a strong indicator that your program is beginning to achieve a positive ROI.
- Percentage of points redeemed: Percentage of points redeemed indicates that you are positively reinforcing the desired behaviors your program was intended to promote. You want your program to be a closed-loop, so to speak, where desired actions are consistently rewarded. Redemption campaigns that inspire participants to redeem their points for online rewards or travel rewards are an important part of an incentive program communication strategy. Additionally, from a budgeting perspective, unredeemed points can create a headache for accounting. Many of our clients have found that having an expiration date for unused points is an effective way to keep this number high.
Lagging Indicators: How Do You Measure Incentive Outcomes?
Lagging indicators are the final outcomes your leading indicators help predict. These numbers are a little more straightforward. Depending on the type of program and your overall goals, lagging incentive program KPIs can include:
- Overall sales increase.
- Sales increase for a specific product.
- Average order size.
- Average order frequency.
- Performance on satisfaction surveys.
- Customer retention rate.
- Number of referrals.
- Overall ROI.
These numbers indicate whether or not your incentive program accomplished what it was designed to do – and to what extent. Generally, if your program underperformed, you can go back through your leading indicators and pinpoint where there was a breakdown or where there are areas for improvement.
How to Calculate Incentive Program ROI
At the end of the day, ROI – return on investment – is the number that matters most. It measures the overall benefit of an incentive program to you bottom line. The formula is simple:
So, for example, if you invested $100,000 in your incentive program, and your program resulted in a sales increase worth $150,000 dollars, then $100,000 would be your cost and $150,000 would be your value. Then, you would just plug those numbers in.
In this example, your ROI would be 50%, which is substantial, although modest compared to the returns some of these companies made from their incentive programs. If you are interested in project your ROI from an incentive program, or want to measure your ROI on an existing program, check out our ROI calculator. And, if you have any questions about how to measure incentive program KPIs, feel free to shoot us a call!