In this article we’ll be comparing the cost of loyalty programmes from a in-house built and outsourced solutions perspective. With as many as 83% of customers claiming loyalty programmes as a main factor behind their purchase decisions, it comes as no surprise that even more businesses have some form of loyalty initiative in place.
The question is no longer “should we have a loyalty programme?” It’s “do we build or buy one?” The ‘build vs buy’ conundrum is mentioned by many enterprise level businesses during our discovery calls. So, if you’re feeling stuck in the mud about this, just know you’re not alone! Let’s get to it.
Contents:
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What Value Does a Loyalty Platform Bring to Modern Businesses?
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Is There Any Impact on Customer Lifetime Value & Business Growth?
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Conclusion: Making the Right Investment in Loyalty Programmes
- FAQs
See the costs associated with an inhouse built vs an outsourced bought platform. Download the cost comparison guide which includes 12 factors to consider when planning or revamping your loyalty programme.
Key Takeaways
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Digital loyalty programmes drive significant value: 90% of businesses run one, with members generating 16-18% more revenue.
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Build vs buy fundamentally shapes your investment: in-house development demands higher upfront costs while third-party platforms offer predictable monthly pricing.
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Technology investment is critical for programme success, particularly around scalability, user experience and security & compliance
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Implementation costs vary widely between solutions: in-house offers control but requires time, while third-party platforms enable faster market entry.
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Long-term cost management depends on your reward structure and operational approach.
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ROI measurement must consider both immediate gains and lifetime customer value.
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Smart segmentation and tiered rewards can significantly reduce programme costs.
What Value Does a Loyalty Platform Bring to Modern Businesses?
Putting aside the financial benefits, a loyalty platform brings exceptional value to modern businesses. Where programme management once required substantial in-house development, today it can be achieved at a fraction of the cost and without technical headaches. Essentially, advanced loyalty features have been democratised.
What’s more, in terms of operational efficiency, modern loyalty software also improves programme scalability with reduced maintenance costs. APIs streamline integration of the loyalty solution with the business’s existing systems too. This leads to quicker launches but also expands the platform’s user case. As the software provider rolls out new features, they will be plug and play, avoiding the typically-heavy financial commitments of custom development.
To truly understand these costs and considerations, we need to look at how loyalty programmes have evolved over time. Customer expectations have moved far beyond simple points collection, pushing businesses to rethink their approach to programme management. This transformation from traditional to digital systems has reshaped both the investment needed and the complexity of running a successful loyalty programme.
Is There Any Impact on Customer Lifetime Value & Business Growth?
Digital loyalty programmes have been proven to drive measurable business growth time and again. Research shows that successful loyalty programme members generate 16-18% more revenue - but the real impact goes deeper. Through effective programme management and targeted reward structures, we've seen businesses reduce customer acquisition costs whilst increasing customer lifetime value.
Often, this comes down to the business successfully shaping customer behaviour. Analytics play a major role. They need to be analysed for engagement patterns and other behavioural data. With this information, businesses can personalise experiences that encourage long-term engagement. As a result, the loyalty platform becomes an engine of retention and sustainable business growth.
What to Consider When Investing in a Loyalty Programme?
Getting loyalty programme costs right requires a clear understanding of both initial and long-term investments. From our experiences an overwhelming amount of businesses focus on initial setup costs, often underestimating ongoing operational expenses, which is detrimental to scalability and long-term success.
Do In-House Loyalty Solutions Need Upfront Investment?
In short, yes. Where your financial commitment lies in a loyalty programme largely depends on the build versus buy decision. While in-house development offers complete control, it usually demands sizable upfront investments and ongoing maintenance costs.
Third-party platforms, on the other hand, typically operate on cost-effective predictable monthly subscription models.
What are the Initial Setup Costs of an In-House Loyalty Programme?
Here’s what companies must invest in before they launch an in-house loyalty programme:
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Strategic plan for programme design
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Custom software development and testing.
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Technology infrastructure setup.
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Integration plan and method for merging loyalty software with existing systems.
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Staff training and development.
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Customer support costs and infrastructure.
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Marketing and other essential launch expenses.
What many businesses overlook is human resource investment. You'll need to hire customer loyalty experts, developers for software integration, and dedicated customer support teams - all before your programme generates any value. It’s clear to see why without careful planning and programme management these implementation costs can quickly escalate out of control.
Third-party platforms, on the other hand, offer a different approach. With lower initial setup costs and predictable monthly pricing, they make sophisticated loyalty software accessible. Ongoing maintenance and regular updates are also included and reduce the operational costs of loyalty.
Do Different Types of Loyalty Programmes Have Cost Implications?
Modern loyalty programmes vary in their structures. This is often the result of loyalty experts responding to the expectations of modern consumers. As such, different types of loyalty programmes suit specific business objectives and customer engagement strategies better than others.
For example, points-based systems remain a popular choice for businesses that want to increase purchase frequency. However, careful consideration of reward structure and redemption rates is essential for maintaining cost-effectiveness. Tiered programmes on the other hand, drive upsells but there’s a delicate balancing act between reward value and tier levels.
There’s further cost implications for other digital loyalty programmes too. For example, subscription-based rewards bring in steady revenue but require regular content ideation and rotation to retain paying members.
The key is choosing a structure that balances programme costs with customer lifetime value. Your technology investment should adequately support the model you choose and support future programme scalability.
How Do I Pick the Right Loyalty Technology Investment?
The technology powering your loyalty programme needs to scale, adapt, and deliver real value. Successful technology investment hinges on five critical factors:
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Scalability to grow with your business.
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Purpose-built architecture for your specific needs.
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Full customisation capabilities.
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User-friendly interfaces for both staff and customers.
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Robust security and anti-fraud measures.
Remember, any technology you invest in should also be capable of seamlessly integrating with your existing systems. In fact, the strength of your tech’s API often makes or breaks loyalty programmes.
Are There Any Other Costs to Tech Investment?
While in-house development offers complete control, it demands significant time investment. According to Statista, just over half of businesses who built their loyalty programme in-house, struggle with slow time-to-market.
The loyalty management market is projected to grow by over $4B between 2022 and 2026. This growth signals something important: third-party platforms are increasingly becoming the go-to option for many businesses. And it comes as no surprise. After all, modern platform providers offer solutions that are:
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Built for immediate deployment.
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Highly secure by design.
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Flexible enough to adapt to specific business needs.
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Ready to scale as your programme grows.
While businesses who opt for building a loyalty programme in-house spend months on development, you could launch a fully-functioning loyalty programme in weeks.
Are There Any Integration Expenses in a Customer Loyalty Programme?
While third-party platforms often provide cost-effective solutions, the complexity of integration varies. In-house development, though more expensive, allows for purpose-built architecture that fits perfectly with existing systems. This trade-off between cost and customisation needs careful evaluation based on your tech requirements.
What About Ongoing Costs of a Loyalty Programme?
Programme maintenance will take up most of your long-term budget. Customer expectations evolve, competitors innovate, loyalty trends shift constantly, and your programme needs to respond. Managing these changes needs ongoing investment in:
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Expert staff and training.
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Customer service infrastructure.
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Programme optimisation.
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Platform scaling.
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New feature development.
Your team needs to handle everything from customer support to platform updates. Even adding features like referral programmes involves substantial development time and cost. Whereas third-party platforms (like Propello Cloud) offer an alternative approach.
Our subscription models typically include regular updates, feature additions, technical support, and various types of loyalty programmes. Maintenance costs are reduced, predictable and cost-effective, especially for medium sized businesses that want to focus on quickly building customer loyalty (instead of being bogged down by technology development).
Do Customer Rewards & Incentives Come with a Cost?
Customer rewards and incentives require financial investment, but the costs vary dramatically based on your reward structure and strategy. Therefore, it’s not so much about whether rewards cost money but if you're spending efficiently to drive profitable customer behaviour.
Traditional discount-heavy programmes can quickly erode margins. However, modern loyalty technology enables smarter cost management through targeted rewards that deliver higher engagement at lower expense. The most successful programmes we’ve implemented focus on rewards that feel valuable to customers but cost relatively little to deliver.
Which Types of Rewards Cost the Least?
The financial commitment for different reward types varies significantly across businesses. While traditional programmes focus on basic discounts and point systems, today's loyalty platforms used by bigger businesses enable more nuanced approaches:
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Points-based rewards with flexible redemption rates.
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Tiered benefits that grow with customer lifetime value.
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Experiential rewards that build emotional connections.
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Gamified challenges that drive specific customer behaviour.
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Partner rewards that share programme costs.
The key to cost-effective programme management lies in understanding that modern consumers value personalisation over pure monetary benefits. Through careful reward structure design, businesses can reduce their financial outlay while increasing customer engagement.
How Does Budget Allocation Compare Between Build v Buy?
Here is a detailed cost comparison between building a loyalty programme in-house versus purchasing an outsourced solution. With an outsourced solution, all essential aspects of a loyalty platform is bundled together in one manageable monthly cost:
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Technology
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Tech support
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Integration
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Ongoing updates and marketing support
As a result, budgeting is simplified. In addition, the business gains access to the latest software provider’s technology releases and expert support. There’s also no need for huge upfront investment.
Assessing Loyalty Programme ROI and Value
Effective measurement of loyalty programme ROI involves analysing several key factors:
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Initial implementation costs versus revenue growth.
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Customer acquisition costs reduction.
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Increase in customer retention rates.
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Programme maintenance costs balanced against member spending.
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Operational costs compared to revenue per loyal customer.
The value of a well-structured digital loyalty programme compounds over time. As your data analytics capabilities mature, you can refine your reward structure and customer engagement strategies for better returns.
The Value of Advocacy
The real power of loyalty platforms lies in their ability to drive sustainable business growth through customer advocacy. Loyal programme members that grow into the biggest brand advocates:
- Make repeat purchases at higher frequencies.
- Actively recommend their brand to other highly-qualified leads.
- Respond more positively to marketing strategies.
- Provide valuable feedback for further programme management.
This network effect of customer engagement creates a virtuous cycle. As your loyalty programme matures, operational costs often decrease while customer lifetime value continues to grow. The key is maintaining the right balance between programme costs and reward structure to ensure sustainable ROI.
What Are Some Strategies for Improving Cost Effectiveness?
After years of implementing programmes, we’ve learned at Propello that success often comes down to how smartly you manage your resources rather than how much you spend.
Segment Your Audience
Effective loyalty programme management starts with understanding that not every customer brings equal value to your business. Through careful segmentation using your loyalty platform's data analytics capabilities, you can:
- Identify different levels of customer lifetime value.
- Understand varying purchase behaviours.
- Target marketing expenses more effectively.
- Optimise reward structure by segment.
The impact is significant - 80% of companies using market segmentation report increased sales. This approach to customer engagement helps control programme costs while driving better results. By directing your loyalty rewards to the right segments, you can significantly improve programme ROI.
Use Tiered Rewards
Building on your segmentation strategy, tiered rewards create a loyalty programme structure that manages costs while driving engagement. This approach offers several benefits for programme maintenance and customer retention:
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Cost Control: Higher-value rewards are limited to top-tier members, reducing overall programme costs.
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Increased Engagement: The desire to reach higher tiers drives customer behaviour.
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Better Resource Allocation: Marketing expenses are focused on members most likely to increase their spending.
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Enhanced Customer Lifetime Value: Members actively work to maintain their tier status.
The social aspect of tiered programmes adds another dimension to customer engagement. Exclusive benefits like:
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Priority customer support.
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Early access to products.
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Special event invitations.
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Free shipping options.
These benefits create strong incentives for ongoing participation while maintaining cost-effective programme management.
Future Considerations & Planning
The loyalty landscape is changing rapidly. While the fundamentals of customer retention remain important, how we achieve it through technology investment is evolving.
Several key trends are shaping how businesses should approach their loyalty programme costs:
- AI and automation are reducing operational costs while improving personalisation.
- Mobile-first loyalty platforms are becoming essential, not optional.
- Integration with existing systems needs to be more seamless than ever.
- Programme scalability must account for international expansion.
Whether you choose in-house development costs or a third-party platform, your solution must be able to incorporate new features without requiring complete programme maintenance overhauls. The focus should be on solutions that offer both current stability and future adaptability, without demanding massive increases in implementation costs over time.
The Real Cost of Loyalty is Choosing Not to Act
Third-party loyalty platforms provide faster implementation and predictable operational costs, though with some constraints on customisation. The key is balancing the cost of loyalty programmes with your business objectives. Whether you build or buy, success depends on choosing a solution that balances cost-effective programme maintenance with the flexibility to grow.
Want to dive deeper? Our comprehensive guide provides detailed cost comparisons and scores both in-house and outsourced solutions across 12 critical factors.
FAQs
What determines the total cost of implementing a loyalty programme?
Total costs involved include initial setup (technology investment, software integration, staff training), ongoing maintenance (platform updates, customer support), and reward expenses. The biggest factor is whether you choose in-house development or a third-party platform. Each path has cost implications for both short and long-term success.
How do build and buy solutions compare on costs?
In-house development requires higher upfront investment in technology, staff, and infrastructure, plus ongoing maintenance costs. Third-party platforms offer predictable monthly pricing with included updates and support. While in-house provides more control, third-party solutions typically deliver faster ROI.
What ongoing operational costs should businesses expect?
Operational costs include programme maintenance, customer support, staff training, reward fulfilment, and technology updates. Third-party platforms bundle many of these costs into subscription fees, while in-house solutions require dedicated resources for each area. Regular optimisation also affects long-term expenses.
How can businesses optimise their loyalty programme costs?
Cost optimisation strategies include smart audience segmentation, tiered reward structures, and effective technology investment. Using data analytics to target high-value customers, implementing scalable solutions, and choosing the right reward mix helps balance programme costs with customer engagement.
What role does technology play in programme costs?
Technology forms the foundation of modern loyalty programmes, affecting both implementation costs and ongoing expenses. The right investment in loyalty software can reduce operational costs through automation, while enabling scalability and providing crucial data analytics capabilities.
How should businesses measure loyalty programme ROI?
Effective ROI measurement combines financial metrics (revenue growth, customer acquisition costs) with engagement indicators (retention rates, purchase frequency). Modern loyalty platforms provide data analytics tools to track these metrics and demonstrate programme value through customer lifetime value analysis.
What factors influence reward structure costs?
Reward costs depend on programme design, redemption rates, and customer engagement levels. Smart budget allocation through tiered systems and strategic partnerships can help control costs. The key is balancing reward value with programme sustainability and customer satisfaction.
How do integration expenses vary between solutions?
Integration costs vary based on existing systems and chosen solutions. In-house development allows purpose-built integration but requires significant resources. Third-party platforms offer pre-built connections but may need customisation. Consider both immediate and long-term integration needs.
What maintenance costs should businesses plan for?
Long-term maintenance includes platform updates, security measures, customer support, and feature development. Third-party solutions include most maintenance in subscription fees, while in-house programmes require dedicated resources for ongoing development and support.
How can businesses future-proof their loyalty programme investment?
Choose solutions offering scalability and adaptability to new technologies. Consider platforms supporting mobile integration, AI capabilities, and advanced analytics. Balance immediate needs with long-term growth potential to ensure your investment remains valuable as technology evolves.
Mark Camp | CEO & Founder at PropelloCloud.com | LinkedIn
Mark is the Founder and CEO of Propello Cloud, an innovative SaaS platform for loyalty and customer engagement. With over 20 years of marketing experience, he is passionate about helping brands boost retention and acquisition with scalable loyalty solutions.
Mark is an expert in loyalty and engagement strategy, having worked with major enterprise clients across industries to drive growth through rewards programmes. He leads Propello Cloud's mission to deliver versatile platforms that help organisations attract, engage and retain customers.
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