Why is it beneficial to offer cashback to your customers?

If there is one word that has conquered many consumers, it is cashback. After all, who doesn't like to receive a refund on the value of each of their purchases? Considering this success, it is not without reason that there are advantages for those who offer cashback to their customers, such as increased consumer incentive, loyalty, and improved competitiveness.

Let's look at the advantages companies can have by adopting this strategy. We will start with the basics, up to explaining how it is possible to offer your own cashback model to boost business.

What is cashback?

The term cashback means nothing more and nothing less than "money back." This very fitting name became popular for the practice of returning to the customer a portion of the price paid for a product or service. The customer doesn't pay less for the purchase but ends up being "rewarded" with part of their cost returned to their account. A differentiated discount, one might say.

And we know that a small discount never hurts, especially when the consumer is planning a larger purchase. According to a consumer habits survey published by the National Confederation of Industry (CNI), 71% of Brazilians say they wait for promotions to make more expensive purchases.

As the main differentiator of cashback, companies adopting the model follow a "bonus" logic. That is: instead of a direct discount, it's "buy, earn." Whether it's receiving discount coupons, a balance, or directly getting a portion of the purchase amount back into their account. We will go over each of these points in this post.

And although the direct discount remains the favorite and, indeed, a more popular option, cashback has won over consumers. It is estimated that in its first six months since launch, the Argentine company Lemon Cash reimbursed the equivalent of $200 million (by returning 2% of purchases made by its users in bitcoins). Fertile ground to explore, isn't it?

How does cashback work?

Depending on the cashback format chosen, a company can offer customers different "returns" of a portion of the purchase value. This can be done with fixed amounts (like $500 for every $3000 spent) or as a percentage of the transaction amount (which can vary significantly).

Some widely used cashback possibilities in the region include:

• Additional balance/discount coupon for future purchases with the same merchant or provider;
• Deposits into the consumer's bank account;
• Automatic deposits into investment funds;
• And they don't stop there: creativity goes further when it comes to thinking about different ways to offer it.

The cashback tutorial

In a practical way, the path until cashback is executed is always similar:

• The consumer selects the products/services (whether in the virtual cart of the e-commerce or in physical stores).
• The cashback offer is activated through a code, a trigger (such as exceeding a minimum purchase value) or is already automatically applied;
• The merchant/service provider releases the cashback, which is available to the customer in the format chosen by the merchant/provider.

It is also common for some platforms to offer cashback in partnership with specific online and electronic stores. That is to say, the customer arrives at this site, sees the cashback offer and, from there, navigates to the e-commerce with the offer already activated.

What varies the most depending on your company's choice is the format of the chosen cashback (how the refund will be given and what the values are), as well as how to implement it. You can opt for a third-party solution, which follows the example mentioned above and has various options in the market, or your own platform, which can be developed with technological solutions like banking as a service.

The advantages of cashback for those who offer it

In your planning, the advantages of cashback for consumers are crucial to consider. Mainly, the possibility for them to save with future discounts, in addition to the ease of the entire process, which can be done online and fully automated.

In your company, there are several advantages and potential benefits regarding business. For example:

• Attraction: With cashback, you make your company more attractive compared to the competition by demonstrating that you offer an organized discount system with good advantages. Additionally, cashback subcontracted services generally advertise their associated stores and services and help increase their visibility. They are interested in gaining more and more partners, as they earn money with cashback through commissions from completed transactions;
• Expansion: Depending on your area of operation, the market may be more competitive, so increasing your customer base is an indispensable weapon. An attractive cashback is a way to draw more and more people to your financial ecosystem, improve your market share, and even encourage customers to recommend your brand more, expanding it organically;
• Loyalty: There's nothing better to consolidate in the market than betting on consumer satisfaction and retaining them! Winning customer loyalty by offering the opportunity to obtain discounts/extra balance is a very opportune way to elevate this level, making your company more resilient to competitive pressure.

How to make money with cashback? Isn't it better to offer a direct discount?

Many people wonder if it wouldn't be easier to make money by offering direct discounts rather than using cashback. However, some advantages may change your mind. With cashback, you get more sales triggers than with a nominal discount. Those who earn cashback are already planning to use it in the same store or service, which increases your sales volume. In other words: achieving more customer loyalty than with a discount!

Oh, and in this model, your average ticket also increases. For example, you have a competitor selling a phone for $80,000, without discounts. You sell it for $90,000. But if you offer a 10% or 15% cashback, the "final" price of the phone ends up being more advantageous than that of the competitor, and it also encourages the customer to return to your store to spend the refunded percentage! It's a true win-win!

Alright, and how to offer cashback?

To have your own cashback system, you first need a lot of planning. After all, a rewards program like this means a loss of profit margin, even if it's short-term (that famous "taking one step back to take two forward").

In this planning phase, it's worth considering:

• Clear objectives: What business objective does your company seek with cashback? Increasing the average sales ticket? Increasing customer attraction? Improving the retention of those already in your customer base? Depending on your objectives, you can choose different market strategies;
• Where this margin will come from: As we showed earlier, cashback reduces the profit margin, whether from the discounts offered, possible fees for outsourcing cashback services, and/or platform development costs. It's worth understanding how you will finance the process, so you're not surprised by the expenses and lower revenue, even if it's just short-term;
• Define how "bold" your objective is: Each offered product can have its own valued cashback. And that is sometimes a super strategic decision. For instance, if you want to increase your market share against competition, it is worth considering a model that offers more generous cashbacks for key products with which you want to compete (or are already competing!).

It's time to implement it in practice!

All planned? Great, let's go.

Should we go with cashback partners, who charge fees but handle all the financial cashback services without you stressing? There are many platforms available. Each has its advantages, fees, technological integration methods, and formats for customizing their benefits (such as values, retention time, etc.).

On the other hand, is it not worth developing your own cashback platform? By partnering with a financial and technology services provider, you can set up your own cashback scheme without intermediaries. It will require more work and attention until it is implemented, but you will not need to rely on any other third-party services, and you will still be able to control everything within your own financial ecosystem.

With this choice made, the next step is to decide on the values and key products that will yield cashback for you, and then implement the plans. Later, of course, it will be necessary to evaluate how useful the adoption of cashback was for your company or services. From there, make adjustments, or move forward!