Why Prepaid Point Programs Hurt Performance

A pre-paid point program operates under a structure where the company offering a loyalty program—whether to customers, channel partners, or sales teams—is required to pay the program administrator upfront for the full value of all points issued. These payments occur regardless of whether program participants ever redeem those points for rewards.



At first glance, this might seem like a straightforward way to manage rewards programs. However, taking a closer look, this model poses significant challenges for companies aiming to drive customer loyalty or channel sales and influence purchasing or selling behaviors effectively.

The pre-paid point system represents more than just a logistical or financial framework; it highlights a fundamental misalignment between the goals of the company running the program and the motivations of the program administrator. Here’s why:

To achieve maximum impact, loyalty and incentive programs must be performance-driven. This means rewards are only earned when participants meet specific goals or exhibit desired behaviors. For example, a channel partner incentive program might reward distributors or resellers for achieving sales targets, increasing order sizes, or promoting specific product lines. Similarly, a customer loyalty program could incentivize repeat purchases or larger transactions.

This performance-based approach ensures:

Just as program participants should be rewarded for achieving specific goals, program administrators should also operate under a performance-based compensation model. Administrators should be incentivized to design and manage programs that drive engagement, increase redemption rates, and deliver measurable business results.



A performance-based fee structure eliminates the conflict of interest inherent in the pre-paid point model. Instead of profiting from unredeemed points, administrators are motivated to ensure that participants engage fully with the program and derive maximum value from their rewards.

Point redemption is a critical metric in evaluating the success of any loyalty or incentive program. High redemption rates indicate that participants are engaged and finding value in the program, which translates into increased loyalty and stronger purchasing or selling behaviors. Conversely, low redemption rates often signal disengagement and a failure to deliver the desired outcomes.

A high redemption rate suggests that participants view the program’s rewards as attainable, relevant, and worth their effort. When participants redeem their points, they experience a tangible benefit from their engagement, reinforcing positive behaviors such as repeat purchases/sales, larger order volumes, or greater product advocacy. This cycle of earning and redeeming creates a virtuous loop of engagement that benefits both the participant and the company.

In contrast, low redemption rates can stem from a variety of issues, including unclear reward structures, unattractive reward options, or an overly complicated redemption process. Companies that monitor and optimize these factors can significantly enhance program performance. For instance, simplifying the redemption process, offering a diverse and appealing catalog of rewards, and regularly promoting redemption opportunities can drive higher participation and satisfaction.

By eliminating pre-paid point models and focusing on performance-based strategies, companies can:

• Encourage greater participation and engagement among customers and channel partners.
• Ensure that reward programs drive meaningful behavior changes.
• Build stronger, longer-lasting relationships with their participants.

Ultimately, redemption is not just a metric; it is a reflection of a program’s ability to deliver on its promise of value. High redemption rates are a clear signal that the program is achieving its goals of fostering loyalty and influencing desired behaviors.

To avoid the pitfalls of pre-paid point programs, prioritize a reward program design that emphasizes alignment, engagement, and performance. This involves:

By implementing these strategies, companies can design loyalty and incentive programs that not only meet but exceed their business objectives. The key is to focus on creating an ecosystem where participants feel valued and motivated to engage, driving the behaviors that lead to sustainable growth and stronger relationships.

The pre-paid point model is an outdated approach that undermines the effectiveness of loyalty and incentive programs. By shifting to performance-based strategies and compensation models, companies can drive meaningful program engagement, ensure resource efficiency, and achieve their desired business outcomes. Reward programs should motivate behaviors that lead to success, not create opportunities for program administrators to profit from disengagement.



In today’s competitive B2B environment, effective loyalty and incentive programs are essential for building strong relationships with customers and channel partners. It’s time to leave antiquated models behind and embrace strategies that truly deliver results.

Lift & Shift™ offers a powerful B2B reward platform that can help your company leverage its sales data to drive incremental purchases with customers and channel partners or motivate sales staff. We work with manufacturers, distributors, and service providers to analyze sales data, identifying purchasing gaps and other valuable targeting opportunities. 

We create and deliver highly relevant offers to customers, in-house sales staff, or sales associates, motivating your target audience to respond, using a wide array of appealing reward options as influencers. Our performance-based reward structures deliver an unparalleled return on investment with absolutely no wasted budget. 

Our customizable reward platform enables clients to easily benefit from a robust loyalty reward program. It's affordable and includes Lift & Shift’s turnkey professional program administration. We take care of everything so you can focus on your key initiatives.