The traditional approach to gauging loyalty often relies on RFV—recency, frequency, and lifetime value. While these metrics have their merits, they fail to paint a full picture of a loyalty program’s impact and are not particularly actionable. Sure, boosting all three is a common goal, but they are retrospective measures that are challenging to influence directly.
Many restaurants, even well-established public chains, often rely on flawed metrics to assess their loyalty programs, focusing on surface-level numbers that may sound impressive but don’t necessarily drive meaningful business outcomes, says Zach Goldstein.
“We live in a sea of data, so I break it down into a couple of places,” he says. “One, what’s the reach of your program? How many people can you talk to that you know about them and can personalize your interactions?”
Reach is a cornerstone of any successful loyalty initiative. Even if your program delivers on every promise, its impact will only go so far if it engages just a small fraction of your customer base. So, how do you bring more people into the fold and expand the reach of your program?
There are essentially two paths to consider, Goldstein says. One is what he refers to as the “Walgreens” approach—forcing customers to sign up at the register. This method is often seen as impersonal and does not align well with the guest experience most restaurants aim to provide.
Instead, experts highlight a more effective strategy: driving customers to make their first digital purchase and using that moment to seamlessly onboard them into your program.
“First, ask yourself if the loyalty program is providing enough value for the guests to make it worth their time to sign up,” says Olivia Ross, head of CRM, loyalty, and e-commerce at El Pollo Loco. “Second, what is the barrier to entry? Is it really hard to sign up? Can you make that a more simple process? Nobody wants to go through 10 pieces of a long form. That’s super boring, and their time is more valuable.”
A key challenge with loyalty programs is that incomplete data makes it impossible to determine if you were unsuccessful in activating or retaining a customer or if that customer just stopped engaging with loyalty. This is why enrolling customers in the program is essential and why loyalty initiatives often fail when the barriers to joining are too high. It’s also a major reason why allowing digital consumers to check out anonymously on your website is a misstep that undermines the program’s potential.
“We are doing ourselves a disservice as an industry when we continue to route most of our digital orders through an anonymous guest checkout mechanism,” Goldstein says. “DoorDash doesn’t do it. Uber doesn’t do it. Amazon doesn’t do it. We are sacrificing data capture and long-term personalization for quote unquote ‘near-term ease of use and hospitality for our guests.’ As it turns out, that’s wrong. You can get a customer into your program and their data captured with no more clicks than it takes to check out as a guest, you just have to be willing to express your brand and give them a reason to participate.”
Too often, restaurants get caught up in feel-good figures that look appealing on paper but fail to deliver tangible value for the business. For example, it’s no surprise that loyalty members typically have higher average checks and visit frequencies compared to non-members. That’s why they joined the program in the first place, making this metric more about selection bias than actual program effectiveness.
One of the most misleading metrics is the total number of loyalty members. While it might seem like a measure of success, this figure is heavily influenced by brand size and provides little insight into how many members are actively engaged. A program with millions of signups might sound like a win, but many of those customers might’ve signed up for a discount and never returned—or at least didn’t identify themselves as members in future transactions.
“You talk to most people that own a loyalty program, and the number that their boss often cares about is how many people are in the loyalty program,” Goldstein says. “That number is a terrible number for you to focus on. If they’re not participating, and you’re capturing no data, and they’re not driving lifetime value, it’s an irrelevant number. Literally, who cares?”
Instead, he points to capture rate—how much of a brand’s revenue is tied to identifiable loyalty members—as a better measure of success. This metric evaluates how effectively a program reaches customers by calculating the percentage of total revenue attributed to tracked loyalty purchases.
“We do transitions from loyalty programs where 85 percent of the people in the program have never made a tracked purchase, and the CEO is like, ‘I’ve got 3 million people in my loyalty program.’ Then they wonder why the same-store sales are down,” Goldstein says. “We’ve got to separate those two things and focus on activation because data is the oil, right? It’s powerful, but it’s actually only powerful if you then go on to use it to drive subsequent purchases.”
Is it Working?
After determining a loyalty program’s reach, the next step is assessing whether it’s driving meaningful results. This is where activation, engagement, and retention metrics become essential.
Activation measures how effectively a program converts first-time customers into repeat guests during the early stages of their lifecycle. It’s a key indicator of whether a brand is successfully building customer relationships, says Urvi Patel, SVP of customer experience and engagement at GoTo Foods.
“I think the activation rate is such an important metric because we can spend tons of money to acquire new loyalty members into our programs, but if they don’t come in for the first time, you don’t even have an opportunity to build a relationship,” she says.
By analyzing conversion rates tied to the first, second, and third purchases—and over specific time intervals—brands can refine strategies to turn one-time buyers into loyal patrons.
“All the data shows that the sooner you can get people into the ecosystem again, the impact on customer lifetime value goes exponentially higher,” says Sergio Perez, SVP and head of marketing at Emmy Squared Pizza. “Really focusing on getting that person in the second time makes a meaningful impact on customer value.”
Maximizing activation rates begins with creating reward structures aligned with consumer behavior. Delayed rewards tend to underperform in the restaurant industry, making immediate or near-immediate incentives more effective in driving engagement.
“We are not very good as a nation at deferred gratification,” says Graham Humphreys, president of The Culinary Edge, a consultancy for restaurant and hospitality brands. “Waiting for stuff? Not a strength. Think about that as you’re designing your reward system.”
Humphreys discusses effective loyalty program strategies, such as offering early rewards for upgrades or add-ons that provide perceived value without heavily impacting margins. Structuring rewards to be earned quickly—such as after just a few purchases—helps customers feel recognized and appreciated promptly in their journey. Visual, real-time point tracking within apps can also create an immediate sense of progress and engagement.
For customers who cross the threshold of three purchases, engagement becomes the next area of focus. Highly engaged guests can be further motivated through challenges, such as earning unique rewards for elevated spending or frequent visits. Gamification techniques like these add excitement to the loyalty experience and encourage continued participation.
Retention, meanwhile, plays a crucial role in preventing customer churn. Loyalty programs can help re-engage at-risk segments by tracking how often known customers return month over month. Brands that analyze when and how to message lapsed customers can strategically boost retention and ensure the program remains effective across different stages of the customer journey.
What’s the Cost?
The primary objectives of loyalty programs are universally recognized: transforming unknown customers into known ones, collecting valuable data, and leveraging that data to drive higher customer lifetime value. When executed effectively, these programs can identify the top 20 percent of customers responsible for 80 percent of revenue.
Historically, restaurant loyalty programs have often relied on discounts, which come with hidden costs.
“The third thing that no one talks about, but everyone should be talking about, is what it’s costing you to do all of this,” says Goldstein. “It doesn’t really matter what results you’re producing if you’re giving away all of your margin to make it happen.”
Understanding and managing your program’s effective discount rate (edr)—a measure that accounts for menu prices, cost of goods sold, and behavioral changes during reward redemptions—is critical for profitability. For instance, a straightforward buy-10-get-1-free program typically results in an EDR of 5 percent, assuming consistent purchase amounts and a 50 percent gross margin. If only half of the rewards are redeemed, the EDR drops to 2.5 percent. It’s also vital to address the accrued liability of unused rewards with clear expiration policies. Alternatively, programs offering a “2-for-1” reward after 10 purchases, where redemption transactions average double the ticket value of earning transactions, can achieve an even lower EDR of 1.25 percent.
However, simplicity is no longer sufficient in today’s competitive environment, where brands vie not only against direct competitors but also third-party aggregators. Modern loyalty programs leverage bonus points, challenges, gamification, and experiential rewards.
Ultimately, loyalty programs hinge on balancing perceived value with actual cost. The airline industry exemplifies this concept, as customers often prioritize perks like seat upgrades and miles over the cheapest fare.
“Value isn’t about dollars and discounts,” Ross says. “It’s about how you feel. Can you save me time? Can I get exclusive access to something I can’t get anywhere else that makes me feel special? Do I as the consumer feel seen and understood by the brand? There are many ways to create value, and discounts are just one lever in a very, very complex machine that is customer loyalty.”
For example, restaurants are increasingly using secret menus or offering members early access to limited-time offers (ltos). These tactics encourage user-generated content, with customers showcasing their exclusive items online.
“Instead of a discount, you’re now getting people to brag about your brand on social,” Goldstein says. “You’re actually test-running a product you’re about to launch, so you’re getting operational insights. You’re not spending money on discounts, and you’re burning down loyalty credits. It’s a win-win-win all around. All your customers are not going to do it. Some people just want the discount. But if you can get 20 percent of people to opt into a hidden menu or early access or something like that, now you’re actually separating perceived value and actual cost in a way that can make your program perform for you.”
Restaurant loyalty in 2025 requires programs to be more engaging and multifaceted, designed to attract and influence the most valuable customers with offerings that go beyond the basics.
Secret menus offering exclusive items are a strong example of non-discount rewards. Other impactful options include a “golden ticket” granting access to a limited-edition branded merchandise store, or perks like a “skip the line pass” or exclusive reservation slots that allow frequent guests to showcase their status and secure a table whenever they choose.
By their nature, most non-discount rewards contribute nothing to the EDR. However, discounts still have their place—it’s about leveraging the right reward for the right moment, rather than relying on discounts alone.
“If you have a guest that is coming in regularly, they’re very activated, they’ve got great frequency and it continues to grow, why give them a discount? Just because they’re a loyalty member doesn’t mean that that’s what they need from that relationship,” Patel says. “They might need something different, or that exclusive treatment, or that recognition.”
At its core, loyalty taps into fundamental human instincts, she added.
“You’re attracted and drawn to a certain brand, and you want to engage with it repetitively,” Patel says. “There are brands that do it so beautifully that you’re willing to pay more. You’re willing to spend more time getting to that hotel because you want to stay at your Hilton property, or taking a longer route to get to where you want to go, maybe taking an extra stop and paying more, because you want your miles or know you’ll get the upgrade, or whatever the case may be. True loyalty drives a different behavior. And it shouldn’t have to be a discount-driven behavior. When you really nail loyalty, people are choosing you and perhaps even going out of their way to engage with you because they like your product. They like the way you make them feel and the way you recognize them.”
