One of the things that make online reward programs such a useful business and marketing tool is how flexible they are. The goals you set, the behaviors you reward, the amount of money you invest and the way you communicate to participants can all be tailored to your unique business needs and objectives. You even have options when it comes to the way you pay for your rewards program. In this article, we’ll walk you through the value of digital reward points, as well as five different billing models commonly used to pay for them. When you’re through reading this piece, you’ll be more informed on reward program cost options and better able to determine which billing model would work best for your business.

A reward point in the hand is worth…how much, again?

The basic idea of an online rewards program is this: along with rewards program software and services, a program provider sells you digital currency in the form of online reward points. Your program participants earn these points as their rewards, then spend them on items available in an online rewards catalog.

It’s usually at this point (no pun intended) that people ask us, “Okay, how much does a point cost?” Well, that depends. You can set your reward points’ value at whatever you want. The beauty of online points is that they’re a form of currency separate from salary, so they can motivate participants to go above and beyond the status quo performance or set you apart as a business in a unique way the competition can’t match. But setting the point value too low or high can interfere with participants’ engagement and interest in earning rewards.

“Some people may think, ‘Two hundred reward points for a dollar sounds like a great value for us!’” says Incentive Solutions Senior Account Manager, Sydney Coleman. “But for their program participants, that means a movie ticket costs 4,000 points, which isn’t too enticing. We recommend keeping points at a value that doesn’t seem too low or high, so participants still see them as being valuable, but not so valuable that they’re too hard to earn.”

So what are the different reward points billing models?

Once you know what you want the value of reward points to be, you can decide how you want to pay for those points. Some program managers like the idea of paying for their points upfront. Others prefer paying for points after their “job” is done—ie, participants have spent them on reward catalog items. You can choose between five different billing models to suit your particular preference:

The Redemption Billing Model

DefinitionIf you want to wait until participants redeem their points for merchandise, travel, or event ticket items in your reward catalog, a redemption billing model is a way to go. With this model, you’re not charged for points until they’re spent and gone.

Pros You only pay for what’s redeemed, when it’s redeemed. There’s no liability for points your participants don’t spend. The redemption models is a great way to earn ROI for a program even if it has low redemption rates. The redemption model is a safe option to go with if your program is new or experimental and you’re not sure what activity levels will be like.

Cons It’s harder to plan ahead with the redemption billing model—costs could vary month to month, for example, as participant redemption habits change. A redemption billing model results in higher program set-up costs in the beginning. You may need to set point expiration rules—ie, participants lose their points if they don’t spend them after a set amount of time. This can encourage faster, more reliable redemption rates.

The Issuance Billing Model

DefinitionAn issuance billing model is the opposite of a redemption billing model—you pay for reward points upfront when you issue them to participants. This model relies a little more heavily on participants redeeming their points.

Pros You can plan ahead when budgeting, as the cost of points is already covered even if 100% of participants redeem them. There’s no need to instate point expiration rules—participants can save up points as long as they want and you don’t risk making them dissatisfied by expiring their hard-earned points. With the issuance model, the initial cost of your reward program is lower, and you pay no monthly administrative services fees.

Cons You pay for all points; even those participants don’t spend. You may need to put extra elbow grease and investment toward reward program marketing, to ensure participants redeem their points.

The Hybrid Billing Model

DefinitionThe hybrid billing model is a combination of redemption and issuance models. With the standard billing model, you pay a small portion of points’ cost when they’re issued (20%, for example) and the majority of the cost after they’re redeemed (80%).

Pros Your initial program set-up fee is discounted. You incur no additional monthly administrative fees. You pay most of your points’ cost only when they’re redeemed, drastically lowering the liability of unspent points.

Cons You pay a small portion of the cost for points that aren’t redeemed. You may require point expiration rules to ensure participants redeem points.

The Face-Value Billing Model

DefinitionWith a face-value billing model, you pay for reward points with no additional mark-up.

Pros Easier to transition to face-value from cash rewards—participants see the exact value of points. The face-value model works well for quick incentive plans or sales promotions because participants easily understand reward value.

Cons The face-value model is less effective for long-term reward schemes such as customer loyalty incentive programs, which are designed to maintain and retain customers more than boost performances. You will likely need separate budgets for the cost of reward points and the costs of your administrative services and incentive technology, rather than the convenience of a bundled cost.

The Subscription Billing Model

DefinitionWhen you use a subscription billing model, you pay a monthly subscription cost per user, per month. This is the most reward neutral of all options, focusing on investing in the cost of engaging and motivation each participant, rather than the cost of rewards.

Pros Subscription billing puts the focus on people, not rewards. You pay for a complete incentive strategy (including training, personalization, dashboards, reports, software, etc.). This model appeals to the Millennials generation, which is used to and prefers subscription models (Netflix, Spotify, Blue Apron, etc.).

Cons The “whole package” approach could include the costs of features and tools you don’t need.

Choosing the right online rewards program provider means you bring a truly flexible marketing and operations tool to your business strategy. You should be able to pay for the program in the way that works best for your business. Have an Accounting Department of sticklers who want you to pay for points as they’re issued? Want to test-drive a pilot program to see how much participants will redeem? Whatever your current business situation or objectives are, your rewards program should be able to complement them nicely—that includes your reward points billing model.

Want to know more about online rewards points billing models or other reward program economics topics? Feel free to call us at (866) 567-7432 or fill out our quick contact form.