Why Your Coffee Shop Needs a Loyalty Program (and Tips for How to Start One)

Why Your Coffee Shop Needs a Loyalty Program (and Tips for How to Start One)
Rewards programs are a must-have for coffee shops looking to increase customer loyalty. Keep reading for tips on starting a loyalty program and taking it to the next level.
by Paige Newberry May 09, 2023 — 8 min read
Why Your Coffee Shop Needs a Loyalty Program (and Tips for How to Start One)

What can be more satisfying than the perfect cup of joe? Getting rewards for drinking that cup of joe! Customer loyalty programs, also known as rewards programs, are a great way for small businesses, such as coffee shops, to incentivize their customers to keep coming back and grow revenue. Loyalty programs for small businesses can offer rewards or perks to those who shop with them, typically in the form of points that can be redeemed for discounts or free items. 

Programs like these can help increase retention and revenue, bring more business through your doors, optimize customer lifetime value, and set your coffee shop apart from competitors. As a matter of fact, 79% of consumers agree that loyalty and rewards programs make them more likely to continue doing business with a brand. If you’re not yet using one for your coffee shop, we’re here to “pour over” the reasons why you should be implementing a customer rewards program and tips for how to start.

How loyalty programs drive retention and customer lifetime value

One of the primary benefits of rewards programs for small businesses is increased retention. Customers who participate in a loyalty or rewards program are more likely to continue doing business with a company because they feel appreciated and valued. This is especially important for coffee shops, which often have a high level of competition and need to stand out to attract and retain customers.

In addition to increasing retention, loyalty programs can help bring more business through the doors. Customers who have earned rewards or perks may be more likely to visit a coffee shop more frequently to redeem their rewards, and they may also be more likely to tell their friends and family about the business and its rewards program. This can lead to an increase in overall foot traffic and revenue for the coffee shop.

Loyalty programs can also make customers happier by offering them exclusive discounts, free items, or other perks that they wouldn’t be able to get elsewhere. This can lead to a positive customer experience and can encourage customers to continue doing business with the same coffee shop.

Optimizing customer lifetime value is another important benefit of loyalty programs for coffee shops. By offering rewards or perks to customers who make frequent purchases, a coffee shop can encourage those customers to spend more over time. This can lead to an increase in overall revenue for the business as well as a more loyal customer base.

In addition to the financial benefits of loyalty programs, they can also help a coffee shop set itself apart from competitors with branding. By offering a rewards program that is unique or superior to those of other coffee shops in the area, a business can differentiate itself and attract customers who are looking for a more rewarding and personalized experience.

Understanding the basics of a coffee shop loyalty program

Before implementing a loyalty program for your coffee shop, you’ll want to have a basic understanding of ways to structure your program, the types of rewards to offer, and common best practices. 

Program structure

Generally, there are twelve common loyalty program structures:

  1. Visit-based: Reward your customers on a per-visit basis. For example, a customer can earn one point for every visit to your coffee shop with a minimum purchase amount.
  2. Item-based: Reward customers when they purchase specific items, such as the drink of the day or one of your most popular lattes.
  3. Category-based: Reward your customers with different levels of points based on item categories. For example, customers may earn one point for drinks and two points for snacks or a pastry.
  4. Spend-based: Reward customers based on the total amount spent at your coffee shop, prior to tax and tip. For example, you can offer one point for every $1 spent.
  5. Referral: Customers are encouraged to refer friends or family to your coffee shop. In exchange, they receive a reward or discount.
  6. Subscription-based: Customers pay a monthly fee for access to exclusive discounts or perks.
  7. Tiered: Customers earn more rewards of perks as they move up through different levels.
  8. Paid: Customers are charged for access to exclusive rewards or discounts.
  9. Free perks: Customers are offered free items or services after a certain number of purchases.
  10. Game-based: Gamification is used to encourage customer engagement and rewards them for certain actions.
  11. Cash back: Customers receive a percentage of their purchase back in cash.
  12. Coalition: Customers earn rewards at multiple businesses within a network.

Loyalty programs can be structured in either a single-tier or multi-tier format. A single-tier program offers the same rewards to all customers, regardless of how much they spend or how often they visit the coffee shop. This can be a simple and straightforward option that is easy for customers to understand.

A multi-tier program, on the other hand, offers different rewards or perks to customers based on their level of activity or spending. This can be a more complex program to implement, but it can also offer more incentives for customers to engage with your small business and earn higher levels of rewards.

Rewards

When it comes to choosing the rewards for your loyalty program structure, there are several options that coffee shops can consider. Some of the more common types are:

Best practices

Each small business and coffee shop will find a rewards program structure and setup that works best for them, so don’t be afraid to experiment. Most coffee and tea shop sellers that currently use Square Loyalty set up spend-based programs, so you may want to start your loyalty program with that in mind.

If you’re looking into utilizing a single-tier or multi-tier format but not sure which to use, try exploring single-tier rewards for your customers. According to our data, single tier is the most popular reward program structure among Square coffee and tea shop sellers. Offering free items for those who earn a set number of points is also the most popular reward type, so take a look at your offering and see what items could make sense for your structure.

There are also some general tips and loyalty program best practices your coffee shop can use to improve your reward program:

  1. Try offering a variety of rewards so you’ll appeal to a wider range of customers and encourage participation in the program.
  2. Make it easy to participate by creating a seamless and inviting sign-up process for your customers.
  3. Give your customers easy-to-understand reward redemption options. Don’t make it a challenge for them to redeem their rewards once they’ve made the effort to participate.

With the right structure and rewards, your loyalty program will be a valuable tool for helping your coffee shop grow.

How to determine if your coffee shop loyalty program is working

Once you have your coffee shop’s consumer loyalty program set up and running, it’s important to keep track of data points to ensure that it’s working. Referral traffic is a good indicator of how satisfied your customers are and how likely they’ll be to tell friends and family about your cafe. Also, ensure your customer retention rate is high, which measures how many customers return to shop with you again.

Monitoring your coffee shop’s social media mentions and what’s being said across these channels is a good way to gauge the effectiveness of a loyalty program. If customers leave positive online reviews, it’s a sign your program could be catching on and creating a position experience.

Changes in customer purchase habits will tell you a lot about your business success and how well your loyalty program is doing. If customers are spending more money at your coffee shop or visiting more frequently, it’s a sign your program is working. If you notice negative churn instead, that means you’re losing customers. Make sure your remaining customers are spending more money to offset any loss.

Pay attention to Customer Effort Scores (CES) and Net Promoter Scores (NPS). These scores tell you how easy your loyalty program is to use and how likely your customers are to recommend your coffee shop to others.

Choosing the right point-of-sale system for your coffee shop makes all the difference in providing an excellent customer experience and improving the efficiency of your cafe. As a coffee shop owner, you have a lot to consider when it comes to selecting the right POS system. From transaction processing to inventory management and reporting to customer loyalty, it’s crucial to evaluate your needs carefully.

Take your loyalty program to the next level.

Once you have a basic understanding of how you want your coffee shop loyalty program to work and gauge whether or not it’s working, you can begin to explore advanced strategies for increasing customer engagement and repeat sales. 

Run a loyalty promotion.

Businesses that use Square Loyalty can run loyalty promotions to incentivize customers to shop at certain times. This feature allows sellers to create windows of time where their normal program offers enhanced rewards. One effective way to use this feature is by offering a points multiplier, in which customers earn double or triple the usual number of points for a limited time. This can be a great way to drive traffic to your coffee shop during slower times or to promote a new menu item. If you are unsure where to start with your first promotion, you can use our recommended setup based on the most common settings among Square merchants: 

Build a custom loyalty app.

If you are looking for a way for your customers to have a more immersive experience with your brand, it might make sense to integrate your loyalty program into a custom app. The Square Loyalty API allows businesses to build their own loyalty apps and customize them to meet their specific needs. Beyond the out-of-the-box features Square includes in their Loyalty API, creating a custom loyalty app for your coffee shop makes grabbing a coffee and accumulating those rewards effortless and convenient for your customers. No more keeping track of an email in an inundated inbox or scrambling to find a punch card. Your customers can interact with your brand and personality right within the loyalty app.

Gamify your loyalty program.

Gamification can also be a useful tool for improving a loyalty program. This involves using game-like elements, such as goal- or activity-based challenges, to encourage customers to engage with the program and earn rewards. Gamification can be a fun way to keep customers coming back to a coffee shop and can help increase participation in the loyalty program. One example of gamifying your loyalty program would be to award badges for a certain number of visits or certain types of drinks purchased. Once enough badges have been earned, the customer can use them to receive a set percentage off for each visit to your coffee shop.

How to maximize customer loyalty

Once customers sign up for your loyalty program, it’s important that you maintain the relationship. Offering one-of-a-kind coffee and food items and being generous to your customers with great rewards only composes half the picture of building a loyal following. Creating community and establishing relationships are the other half, and when all the aspects are put together, they can go an incredibly long way.

Here are some other ways to encourage customer loyalty:

 

Loyalty programs are an important tool for coffee shops just like yours to make your customers happier and to set yourself apart from competitors. By offering perks to customers, rewards programs for small businesses can encourage those customers to continue doing business with you and drive overall growth for the business. So grab that cup of coffee, kick up your feet, and brew up your new loyalty program.

Paige Newberry
Paige Newberry is a content writer and marketing consultant and has had her work published in Forbes, BBC, CNN, and ABC News, among others. She works with The Glorious Company, a content marketing agency.

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