Design an effective cashback policy for your business
Cashback can be seen as a perk earned on spending some money.
This concept gained a lot of popularity as a customer attraction in 1986 when Discover Financial Services, a division of Morgan Stanley, started a credit card that was available with no annual fees, a more than usual credit limit, and cashback rewards on certain purchases.
A cashback policy is used when companies want to keep their customers loyal by providing them extra benefits on the purchases they make. However, you cannot just jump into the game and randomly make a cashback policy.
To create an effective policy you will be required to analyze your funds and also evaluate all the resources available to you. This is not just created for the customer's benefit but also brings major advantages to the businesses themselves.
Businesses themselves can immensely benefit from cashback business cards. Corporate credit cards are specially designed for businesses to help them carry out every transaction conveniently and maintain a separate account for all business finances.
The ones which are the most advantageous are business credit cards with cashback rewards as the company gets the opportunity to get back some cash on every transaction.
What is a cashback policy?
Cashback basically refers to two kinds of financial transactions which are associated with debit and credit cards. There is no denying that these have gathered extreme popularity, especially in the last two decades.
Usually, cashbacks are offered as credit card benefits. The particular amount is refunded to the user's account. Mostly the amount is a small percentage of the total money the cardholder has spent on a purchase (that needs to be above a certain limit).
However, cashbacks are also earned on debit cards, where the cardholder gets some amount of cash or money in their account on the purchase they made. This is generally a small amount given over the cost of the item.
Since Discover Financial Services launched this policy and card, credit cards and the general customer rewards program have become omnipresent. Today, almost all major card issuers provide the cashback feature, if not on all then at least on one of their products.
It is given out as an incentive to customers who use the card early or frequently. The cashback policy is used to acquire new clients or maybe snatch away clients from their competitors.
The cashback policy does not work like the traditional rewards points which can only be used when the customer buys goods or services or even gift cards that are offered to the cardholders.
Cashback rewards literally mean as it is named: Cash. these rewards are generally given to the cardholder on their credit card statement which is monthly recorded.
The users usually get the cashback reward directly in their linked bank account through either a reduced credit card bill or a gift card or through a cheque.
How does the cashback business model work?
B2B cashback can be an immediate or little delayed return given by the offering company under the cashback policy program.
This is basically given out of a part of the business fund which is set aside to be given to the customer companies on the purchase of goods and services sold by the offering company.
Till a few years back, B2B companies weren’t eligible to get cashbacks in the form of regular service.
This is because the normal cashback services have a certain limit when it comes to receiving cash rewards that are given for large purchases, as it is more B2B market-focused.
The major difference between the cashback policy working between the B2B and B2C services is that B2B companies give out cashbacks on any amount of purchase made by the customer companies.
This is a colossal advantage for businesses as there is no such limit on the order amount. Along with this, B2B cashback services have successfully partnered with convenient business suppliers.
Why cashback is an effective reward program for your business
1. Motivates customers to make regular purchases and maintain loyalty
The marketing world is built on the theory of reciprocity. This is because humans have the innate want to give something back when they get something.
Cashback is just another kind of reward made for customers to return back to your business and stay loyal.
This can be either in the form of actual cashback on every purchase they make or an extra cash reward when they visit a local branch in a certain time period.
Customers will, of course, be attracted when they know that they will be rewarded in cash when they make any purchase.
2. Cashback policy can prove to be cheaper than other reward forms
There are various different approaches to offering rewards to your customers; however, it is essential to consider all your business resources.
Statistically, 31% of existing customers are more likely to make purchases with businesses. So it becomes an essential strategy for any business to convey to their customer how much they mean to them.
If you set up regular loyalty programs, your customers will know that you are frequently giving returns to them on a certain purchase amount limit or for visiting at certain times.
3. Fewer discounts on your products
Giving discounts on purchases is an ancient technique to allure customers to the business. Both cashback and discounts are profitable incentive techniques for your clients.
However, it is a known fact that customers are more attracted to cashback offers. The thought that they get something in return for making purchases is quite exciting.
Looking from the business perspective, you get the full amount of your product and with a systematically planned cashback policy, you can significantly improve your cash flow.
The appropriate time to consider implementing a cashback policy
Before committing to offer a cashback policy, it is extremely essential to evaluate the results of the policy.
Cashback offers are comparatively more cost-effective than discounts because it requires the company to give the customer back a percentage of the amount spent on the purchase.
By offering cashbacks you become eligible to save a huge sum of the money that is usually spent on advertising and marketing.
This is because customers usually are more attracted to companies that give cash rewards instead of going to a particular brand. This can be used as an amazing technique to acquire major chunks of the customer market.
There are online tools available to help you calculate the results of your cashback policy before you launch it. However, to use the policy you will have to use promotional websites to which you might have to pay a small amount of money as commission.
A strategically calculated cashback offer can significantly improve your brand image and marketing. Although, you will also have to take care that the offer doesn’t last for too long because even then it poses a risk to cause damage to your sales margin.
After a certain point in time, the offer won’t even be profitable. Also, before putting the policy in place, make sure to get a cashback account with a profitable provider.
Once you have carefully considered all these aspects, then your business is ready to offer cashbacks.
How to set the right cashback rates without losing money?
The basics of a cashback policy are very simple; you need to carefully weigh your assets and liabilities and then evaluate the results of implementing a cashback policy.
As an entrepreneur, you get the whole amount of your product and then you give out a little back to the customers.
Here is the thing you need to be cautious about: you cannot set a cashback percentage that cuts downs your profit or doesn’t even get you the price of your product.
It depends on the type of your product or service and your business type on what percentage of cashback you can offer to your customers.
Most companies offer from 2%-10% on the purchase of certain products or visit the store a certain number of times. Although, if you set a much higher percentage than this, you will end up spending more instead of saving.
Again, be careful about the fact that how much the offer benefits your company and if there is any extra useless cash you are spending under the policy — if yes then try to find alternate solutions.
For example, if you find out that the websites you have been using to market your cashback offer are charging more than some others, make a smart move and switch to the ones which have a more competitive price.
Just be mindful to take care of the views and clicks the other websites have to offer and only then make a shift.
Design an effective cash back policy
A Cashback policy can reap extremely beneficial long-term effects. However, the pre-requisite here is that the cashback policy needs to be cautiously and strategically planned.
A cashback policy works a little differently from a discount offer. A discount offer basically markets that the price of your product has been reduced. A cashback policy instead advertises that the customers get cash rewards in exchange for buying your product.