How Magento Loyalty Points Can Increase Average Order Value (AOV)

Every online retailer dreams of increasing profits without having to overspend on acquiring new customers. And there's no better way to achieve this than by focusing on building customer loyalty. This is where Magento loyalty points come in. By implementing a points-based rewards program in your online store, you can incentivize repeat purchases, enhance the customer experience, and effectively increase Average Order Value (AOV).

Before diving into how loyalty points affect performance, it's important to understand how Average Order Value (AOV) is calculated and how it differs from other metrics like Average Selling Price (ASP). According to MetricHQ, AOV is “calculated by dividing total revenue by the number of orders,” whereas ASP focuses on product-level revenue. Knowing this distinction is critical when aligning your loyalty program goals with your revenue strategy.

| Bonus read: Learn how AOV affects business strategy and how to use it to drive smarter decisions.

If you're new to loyalty systems or simply want to learn how Magento loyalty points can transform your business, this article is written to help. By the end of your reading, you'll have a clear understanding of loyalty points, how they work in Magento, and step-by-step guidance to set up an effective program. Plus, we'll explore real-world tips and best practices to help you maximize success in your Magento store.

What Are Magento Loyalty Points?

Magento loyalty points are a rewards system that incentivizes customer loyalty by offering redeemable points for certain actions, such as spending a dollar, signing up for a newsletter, or making repeat purchases.

How They Work in a Typical Store:

• Earning Points: Customers earn points for actions like purchases, referrals, account sign-ups, reviews, and more. For example, earning 1 point per $1 spent.

• Redeeming Points: Points can later be redeemed for rewards such as discounts, free products, or exclusive perks.

• Custom Rules: Within a good loyalty program for Magento, you can create specific rules, such as points that expire or restrict rewards for certain product categories.

Benefits of Loyalty Points:

• Improve customer retention by rewarding repeat purchases.

• Drive higher Average Order Value by encouraging customers to spend more to earn points.

• Build stronger emotional connections with your customers through exclusive perks or personalized rewards.

To build an effective Magento loyalty program, you must understand how this system impacts your sales metrics, like AOV.

Benefits of Loyalty Points in Magento 1 & 2

Wondering why loyalty programs are such a big deal in the Magento ecosystem? Here's what they bring to the table.

1. Boost Customer Retention

It costs five times more to attract a new customer than to retain an existing one. A loyalty program encourages repeat visits by rewarding customers for their purchases. According to Statista, e-commerce orders completed via direct navigation (from existing/loyal customers) had the highest average order value globally between 2023 and 2024. This reinforces just how valuable keeping repeat customers can be.

2. Increase Average Order Value (AOV)

Consumers are more likely to spend more if there's an incentive to do so. For instance, you can offer bonus rewards for orders exceeding $150 or create tiered rewards where higher spenders receive more points. By doing so, loyalty points effectively motivate higher-value purchases.

3. Build Emotional Connections

An effective loyalty program fosters long-term brand commitment by making customers feel valued. Emotional connections lead to stronger brand loyalty, increased word-of-mouth referrals, and higher lifetime value per customer.

Implementing Magento Loyalty Points: What You Need

With Magento's flexibility, building a loyalty program can be tailored to fit your store's needs. You'll need a few tools and strategies to get started.

Best Loyalty Extensions for Magento

These powerful tools integrate seamlessly with Magento and offer comprehensive functionality:

• Magedelight Loyalty Points Extension: Ideal for customizable point rules and reporting.

• Lootly Magento Plugins: Known for robust loyalty, referral and VIP tier functionality.

• MGT Commerce Rewards App: Excellent for customer engagement via gamification.

Backend Setup Overview

Getting started involves integrating an extension like Lootly, which syncs with your Magento store's existing features (e.g., customer login, order management). From here, you'll:

1. Define earning rules (e.g., point-per-dollar ratios).

2. Set up redemption options (discounts, free shipping, etc.).

3. Design your loyalty dashboard for customers to track points.

4. Implement restrictions, such as expiration rules or excluded product categories.

For businesses with advanced requirements, opting for a custom API allows you to develop tailored rewards systems with full flexibility.

Best Practices for Setting Up a Loyalty Points Program in Magento

A great Magento loyalty program requires smart rules. Here's what to keep in mind:

1. Assign Points Per Dollar Spent

Set a simple points-per-dollar structure, such as "1 point for every $1 spent." This straightforward approach ensures customers easily understand how they can earn rewards.

2. Use Expiration Rules

Points that expire within a set timeframe create urgency and encourage customers to make faster purchases. For example, “Your rewards will expire in 90 days. Use them on your next purchase.”

3. Include Tier-Based Rewards

Introduce VIP tiers based on spending behavior (e.g., Bronze, Silver, Gold) that unlock exclusive perks for higher-tier members, such as double points or free shipping.

4. Combine Loyalty With Promotions

Consider stacking loyalty rewards with other marketing tactics (like bundled products) for even greater impact. For example, "Earn extra points when you buy product bundles."

Real-Life Use Case: Increasing AOV with Loyalty Points in Magento

Let's look at a real-world example. A Magento-based retailer used a points-based loyalty program by Lootly to increase AOV. Here's what they did:

• Boosting Upselling Opportunities: They offered 2X points on product bundles, like selling a coffee machine with accessories, to incentivize higher-value purchases.

• Engaging Customers: Customers who redeemed more points became more likely to shop again. For instance, 60% of buyers returned within 3 months.

By integrating loyalty points Magento tools like Lootly and focusing on targeted campaigns, this business reported a 15% increase in AOV over six months. This demonstrates the power of leveraging data-driven insights and utilizing integrated tools to enhance customer engagement, leading to tangible results.

Promoting Your Loyalty Points Program

To ensure success, you'll need a solid promotional strategy. Focus on visibility and education.

Key Promotion Channels:

• Email Campaigns: Announce the program via email with a clear CTA, such as “Sign up today and earn 50 points on your first order!”

• On-site Popups or Banners: Use popups highlighting the benefits of being a loyalty member during checkout.

• Customer Account Pages: Include a prominent loyalty section on customer dashboards to track points.

Measuring Success: KPIs to Track in a Magento Loyalty Program

To understand how well your loyalty points program is performing, monitor these key metrics:

• Redemption Rate: How often customers redeem their earned points.

• Repeat Purchase Rate: The percentage of customers making multiple purchases.

• Average Order Value (AOV): Track spending before and after launch to evaluate ROI.

For reference, increasing AOV by just 10% can lead to significant profitability boosts, especially when paired with optimized advertising campaigns.

Create Long-Term Customer Loyalty with Magento

A loyalty program does more than just increase AOV; it creates a sense of community and fosters deeper relationships with your customers. Magento loyalty points are the perfect tool to boost retention, generate repeat purchases, and give your customers an engaging reason to shop with you again.

If you're ready to take the leap or optimize an existing Magento loyalty program, discover tools like Lootly’s Magento 2 loyalty platform, which offers customizable solutions for every Magento e-commerce store.