Loyalty Programs - Big, Big Profits (Biz Idea)

I've always been fascinated with Loyalty Programs business models. Few other business concepts offer higher profit margins. Here's a simple example of one such business model to consider should you decide to cash in.

1. You negotiate an arrangement with a retailer who agrees to issue to his/her customers one (1) loyalty program point for each $20.00 increment they spend with the retailer.

2. The retailer agrees to pay you a nominal $1.00 (5%) of the $20.00 paid by customer for each point issued. This $1.00 is your service fee to manage the program and to pay for the wholesale cost of the premium the customer receives when he/she redeems their loyalty program points.

3. Now let's crunch some numbers. We'll use a toaster oven as an example of a premium a customer can get when redeeming his/her loyalty points.

Toaster Oven = 600 Points (requires the customer to redeem 600 Loyalty Program Points)

The Retailer receives $12,000.00 in sales revenue (600 X $20.00 - the amount spent by the customer to obtain 600 points). The Retailer's sales revenue is reduced to $11,400.00 after paying your program service fee for the 600 Points.

You receive $600.00 (600 X $1.00) to manage the Program and provide the premium, in this example the toaster oven.

Your wholesale cost for the toaster oven = approximately $23.00

You pay out $23.00 (the wholesale cost of the toaster oven)

You keep $577.00 ($600 - $23.00)

Now to get a real sense of the huge profits to be made, simply multiply the $577.00 times hundreds or even thousands of customers. And the truly amazing thing is, some customers may never redeem their points which means you get to keep the entire $600.00