Understanding the value of point-based incentive programs

By: John Houlihan
woman viewing points-based incentive program email communication

Point-based award systems are an incentive and recognition best practice. Yet, the “just give them cash” approach prevails in many channel partner programs, despite being less effective. Money can actually de-motivate people if an award is perceived as too low. In a recent survey by Incentive Research Foundation, they found that 50% of survey respondents believe high inflation increases the value of non-cash incentives. 

Point-based incentive programs come with advantages that cash programs don’t. These advantages include:

  • Scalability
  • Memorability 
  • Personalization
  • Flexibility
  • Global relevance

We’ll dig into the advantages and explain how to infuse points into your channel incentive and engagement program to maximize results later, but first let’s look at how point-based programs work.

What is a point-based incentive program and how does it work?

Point-based incentive programs reward participants based on several set criteria:

  • Sales goals
  • Desired behavior
  • Recognition
  • Training
  • And more

The goal is to incent or recognize desired behaviors to achieve key business objectives.

Many programs use an online platform to issue points to participants each time they engage in the desired behaviors. Points allow you to give smaller amounts to incent small behavior changes, with the motivating ability for participants to accrue them over time for bigger awards. 

Each recipient is motivated by different awards, so this gives them the power of choice to redeem points for personally meaningful awards. Options often range from branded swag to high-end merchandise, travel packages to deposits into college savings accounts.

Well-designed point-based incentive programs are easy to understand across all currencies and cultures, too. (“I do X and get Y points to use on Z award.”) Using a points system creates consistency while allowing flexibility.

How to calculate loyalty points

Points can be set to any amount. For example, one point could equal one U.S. dollar. However, there are advantages to setting lower point values, including offering flexibility and providing a more engaging participant experience.

Setting a point value of $.001 (or 1/10 of a cent) gives program designers and owners the ability to reward smaller behavior improvements without diminishing effort (e.g., asking a participant to log in to see their sales goals for the month could earn them 1,500 points).

Smaller tasks and awards generate stronger participant impact when they’re not distilled down to a dollar amount (1.5 points = $1.50) because recipients focus on larger-picture point pooling. Issuing a couple thousand points here and there to achieve the desired award engages participants more than handing them a few bucks at a time. 

When intermixing small cash earnings into everyday spending money, participants generally don’t feel rewarded and won’t remember where the cash went. Points earners perceive their awards as separate from their compensation and more as “gifts of appreciation,” making them more effective as a recognition tool.

So, how much should a reward point be worth?

Setting points at any value is possible; however, half a cent is an industry best practice. The small value still offers weight without making any desired award feel astronomically out of reach.

5 Advantages of a loyalty points program

1. Scalability

Using points to reward behaviors or activities ensures program admins can quickly roll out initiatives across the enterprise while using technology mechanisms already in place.

2. Memorability

Awarding actions in a timely manner supports a direct association between the specific activity or behavior and its benefit.

3. Flexibility

By using points, you can swiftly run a promotion and send earners their awards as soon as they become eligible. And using points allows for more award options. Points can be converted or “spent” on anything available in the award storefront. The power of choice lets earners choose whichever options are most meaningful to them, be it merchandise, travel, cash, marketing opportunities, training, rebates, etc.

4. Personalization

Offering award choices allows businesses to make their programs more valuable to participants. This approach aligns with intrinsic motivation, letting you offer personalization without having to do any guesswork. The power of choice lets earners opt in for the awards they want.

5. Global Relevance

Points can be scaled to match currency and parity values behind the scenes. Each program participant might earn 100 points for an action, but the value of the points will adjust so each participant gets an equal award. The technology allows participants to use points as soon as they’re banked (even if they relocate to a new country), saving you time calculating promotions on the front end.

Transitioning to a point-based incentive program

If you’re looking to build a point-based award program from the ground up, there are several considerations to keep in mind to ensure a smooth transition. For example, if participants see cash-based programs as supplements to their income, a portion of them will come to expect that money as part of their employment package. Fresh audiences with no expectation for cash tend to perform higher with a points-based program than those who were first introduced to cash.

Related: Learn how ITA Group designed an incentive program featuring multiple ways to earn to inject some much-needed enthusiasm and competition into the manufacturer’s independent dealer channel.

That said, if you’re already running a cash-based program, it’s not too late to change! Follow these three steps to smoothly transition and capitalize on a point-based program’s potential.

1. Target top performers first when introducing point-based awards

High performers usually aren’t as reliant on cash awards to supplement their income. Pooling points becomes a more memorable experience for them to save up and acquire a meaningful award from the company. Ensure their buy-in, then have them help advocate for the new program.

2. Leave room for earning potential adjustments as the program becomes more widespread

Once participants get a taste of points and experience the reward loop, it will be easier to shift them away from cash in favor of points. The goal is to steer away from cash over an extended time while making sure participants still feel valued for their efforts. Play with minimum criteria and/or adjust earning thresholds during the transition.

3. Introduce a point-based award program during downtime or after scrapping an existing program

Downtime between programs (which could be between six to 12 months, depending on the program) helps draw a less direct comparison between the old and new programs. Downtime also means business objectives aren’t being incented and organizations can expect a dip in partner performance. Introducing a program during this time means participants are less burdened with other programs to balance and looking for new incentives to remotivate them.

Top 3 point-based incentive program best practices

Keep these three best practices top of mind as you set up (or transition to) a point-based award system.

1. Focus on a key objective or two as you transition.

Point-based awards have a valuable impact on many business objectives, whether trying to improve motivation, increase program flexibility or “move the middle.” Focusing on a KPI will help you evaluate the program’s success and adjust accordingly.

2. Choose appropriate award options for the program length. 

A one-time, short-term promotion might utilize a hit-and-earn award while an annual promotion could feature a combination of travel, merchandise and points.

3. The shift from cash to points should be gradual until you can have a blend of each. 

The combination will bolster your program and motivate participant engagement.

Motivate your audience using a point-based award system

As participants accrue and use their points to pick out awards they’re excited about, their motivation to participate in the awards program will build. Offering awards with personal meaning taps straight into intrinsic motivation, letting you personalize the award experience for each individual without having to do any guesswork about what will get the results you need.

Want to further motivate award program participants to go above and beyond? Find out how gamification combined with a points program motivates participants and changes behaviors. 

Download Now: Ultimate Guide to Creating High-Return Incentive Programs
John Houlihan
John Houlihan

John is a tenured incentive strategist expert, consistently elevating his clients’ programs. He thrives at understanding clients’ challenges and their specific audience(s) to craft custom solutions. His energy is contagious when it comes to strategizing how to engage, motivate and spark action among participants to drive client ROI. John is based in Chicago and is always open to hear good movie recommendations, especially sci-fi, thrillers or westerns.