I have a confession that probably gets me kicked out of the hotelier club: for the first stretch of running a loyalty program, I had no idea whether it was working. I knew how many members signed up. I knew points were going out the door. And that was roughly the extent of my visibility. The program was a black box with a logo on it.
The thing that snapped me out of it was a conversation with a friend who runs a small group of boutique properties. He asked me one question — “what’s your redemption rate?” — and I gave him a blank stare worthy of a guest who just found out checkout is at 11. He explained, kindly, that a loyalty program you don’t measure isn’t a loyalty program. It’s a giveaway with extra steps.
So this post is the system I built after that. Three numbers, tracked as ongoing reports rather than a once-a-year panic: redemption rate, breakage, and points liability. If you run an independent or boutique hotel and your “program” is a punch card energy with a spreadsheet attached, this is the upgrade.
Why this matters more for independents
Big chains have entire revenue-management teams obsessing over loyalty economics. You and I do not. We have a front desk, a GM who also does payroll, and maybe a marketing person who is really a marketing-person-slash-everything-else.
That’s exactly why the black box is dangerous for us. The whole point of a direct loyalty program is to give guests a reason to book with you instead of routing through an OTA and handing over a 15 to 25 percent commission on every stay. A program that members never redeem doesn’t pull anyone away from Booking or Expedia. It just sits on your books as a cost with no return.
A loyalty program is one of the few levers you actually own that nudges guests toward direct. But it only works if it’s healthy — and “healthy” is a measurable thing, not a vibe. If you want the full picture on the OTA side of this equation, I broke that down in the book-direct math post and in how OTAs quietly intercept your search traffic.
A loyalty program is the only marketing channel you own that shows up as a liability on your books before it ever shows up as revenue. That’s why you measure it like a finance line, not a feel-good perk.
The three numbers I actually track
Let me define each one in plain language, because the textbook versions are needlessly intimidating.
1. Redemption rate
Redemption rate is the percentage of issued points that members eventually cash in for something. If I’ve awarded 1,000,000 points all-time and 700,000 of them have been redeemed, my lifetime redemption rate is 70 percent.
This is the single best signal of whether members find your program worth engaging with. A low redemption rate doesn’t mean you’re saving money. It means people earned points, looked at what those points get them, and shrugged. That shrug is the sound of a guest going back to their default OTA habit.
There’s a nuance I missed at first: you can measure this two ways, and you should track both.
- Lifetime redemption rate — all points ever redeemed divided by all points ever issued. Good for the big-picture health check.
- Cohort redemption rate — take the points issued in a given month or quarter, then watch what share of that batch gets redeemed over the following 12 to 24 months. This is the honest version, because it doesn’t let a pile of ancient unredeemed points drag the average around forever.
2. Breakage
Breakage is the flip side of redemption: the share of points that are issued but never redeemed, because they expire or members forget they exist. If redemption is 70 percent, breakage is roughly 30 percent of the points that have reached the end of their useful life.
Here’s the part nobody tells you when you launch a program: some breakage is good. A little breakage is what makes the program affordable. If literally every point got redeemed at full value, the economics would probably crush your margin. The industry quietly relies on a slice of points evaporating.
The problem is when breakage gets too high. That’s the tell that your members aren’t getting value — the rewards are too hard to reach, the points expire too fast, or nobody ever reminds anyone they have a balance. High breakage feels like free money in the short run and quietly kills engagement in the long run.
3. Points liability
Points liability is the estimated cost of all the outstanding points your members are holding — the points you’ve awarded that haven’t been redeemed or expired yet. It’s a real obligation. Every point you issue is a tiny IOU.
You calculate it roughly like this:
Outstanding points × your cost per point × your expected redemption rate = your current points liability.
That expected-redemption-rate multiplier is why the first two numbers feed the third. If you assume 100 percent of outstanding points will be redeemed, you’ll wildly overstate the liability. If you assume your historical redemption rate (say 70 percent), you get a realistic figure. This is the number that keeps a generous program from secretly becoming an insolvent one.
Putting it in a monthly report
The magic isn’t in calculating these once. It’s in watching the trend. Here’s the simple monthly table I keep. The numbers below are illustrative — made up to show the shape of the report, not real results from any property.
| Month | Points issued | Points redeemed | Outstanding balance | Redemption rate (cohort) | Est. liability |
|---|---|---|---|---|---|
| Jan | 120,000 | 78,000 | 410,000 | 65% | $2,870 |
| Feb | 135,000 | 91,000 | 454,000 | 67% | $3,178 |
| Mar | 128,000 | 96,000 | 486,000 | 69% | $3,402 |
| Apr | 142,000 | 112,000 | 516,000 | 71% | $3,612 |
What I’m looking for, in order:
- Is redemption rate climbing or sliding? Climbing means the program is becoming more relevant to members. Sliding means something is off — reward tiers too high, points expiring before people can use them, or zero reminder communication.
- Is the outstanding balance growing faster than redemptions? If I’m issuing way more than members are cashing in, my liability is ballooning and my breakage is probably creeping up too.
- Is liability growing in a way I can actually afford? A growing program should grow its liability. But I want that growth to track with revenue and direct bookings, not outrun them.
One report a month. Fifteen minutes. That’s the difference between running a program and being run by one.
What the numbers tell me to actually do
Reports are useless if they don’t change behavior. Here’s how I read the signals and what I do about each.
Redemption rate too low (members not engaging). Usually the reward is too far away. I’ll lower the threshold for the first meaningful redemption — a free night, a room upgrade, a spa credit — so members hit a win early. Early wins are everything. A guest who redeems once becomes a repeat redeemer. I also audit whether anyone is even telling members their balance. A monthly “you have X points” email does more than any flashy relaunch.
Breakage too high (points expiring unused). I extend or soften the expiration policy and add reminder triggers before points die. Sometimes the fix is just making redemption easier — fewer clicks, clearer language, no blackout-date nonsense that makes people give up.
Liability growing too fast (program outpacing revenue). This is where I check my earn-versus-redeem ratio. Maybe I’m being too generous on the earn side. The fix is rarely “take points away” — that torches trust. It’s usually adjusting new earning rates or adding higher-value redemption options that members genuinely want, so the points flowing out create loyalty instead of just draining margin.
The reason I care so much about getting this right is that a healthy loyalty program is a direct-booking engine. It gives a guest a real, personal reason to come to your site instead of the OTA. That’s the same fight I write about in the conversion optimization work we do and the broader direct-booking strategy. Loyalty isn’t separate from your booking funnel — it’s the part of the funnel that brings people back without paying for them twice.
The black-box test
Here’s a quick gut check. Ask yourself these four questions right now:
- What’s my lifetime redemption rate?
- Is my breakage trending up or down over the last six months?
- What’s my current points liability in actual dollars?
- When did a member last get a reminder of their balance?
If you can’t answer all four in under a minute, your program is a black box — and a black box is where money goes to disappear quietly. That’s not a judgment. It’s where I started. The fix is genuinely just deciding to look.
I’m not promising that tracking these three numbers will transform your bookings overnight, because nobody honest can promise that. What I can tell you is that you cannot improve a program you refuse to measure, and a measured loyalty program is one of the cleaner ways to reduce your OTA dependence and win back a healthier share of direct bookings over time.
Where loyalty fits in the bigger picture
Loyalty tracking is one piece of a measurement habit that should run across your whole marketing operation. The same discipline applies to how you show up in search, in your Google Business Profile, and increasingly in AI assistants that recommend hotels — which I get into in the ChatGPT visibility post. Measure the thing, watch the trend, change behavior. It’s the same loop everywhere.
The hotels that win the direct-booking game aren’t the ones with the flashiest program. They’re the ones who know their numbers and adjust in small ways, every month, instead of relaunching from scratch every two years in a panic.
If your loyalty program is currently a black box and you’d like a second set of eyes on the redemption, breakage, and liability picture — plus how it ties into your direct-booking funnel — that’s exactly the kind of thing we untangle on a book-direct conversion engagement. Or just grab a time with me and we’ll open the box together.