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What cashback means and how cashback works

Posted by Roger Bretau on 07-May-2018 09:00:00
Roger Bretau
how cashback works
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One of the most recognized promotional mechanisms today, cashback promotions benefit consumers and businesses alike. Here is more on what cashback means and how cashback works.

 

The concept of cashback

As the name suggests, cashback means getting money back in exchange for your purchases. So, how does cashback work and how can you use it for your business?

Money paid back to customers in cash after they make a purchase, cashbacks are rewards given to customers for making purchases from a retailer. The amount paid back (cashback) is a percentage of the amount the customer spent on an item. The cashback percentage varies from retailer to retailer, with some businesses offering higher cashback rates than others.

Most businesses today recognize cashback as the ideal promotion.  On the other hand, many high-street shoppers and business procurement departments are seeing value in making cashback purchases.

With cashback, you don’t have to discount your products, which prevents undervaluation of your proposition. At the same time, you are able to provide a financial incentive to buyers. This allows you to satisfy customers without devaluing or discounting your products.

Put simply, cashback promotions are a great opportunity for you to increase sales, drive volume through your channels and reward customers. With the importance of cashback promotions established, let’s dive into the details of what cashback means and how cashback works.

 

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What cashback means for your business

An easy way for consumers to earn cash, cashback is offered by many websites and credit card companies today. Customers shop like normal, and they are paid a small amount of money for it. While cashback does not make anyone rich in a week, month or even year, it does incentivize purchases.

There’s more to gain from a purchase than just the features and benefits of the item being purchased. So, how does this help your business or any business for that matter to grow? We’ll get to that in a bit but first you must understand what cashback means—in the literal sense.

Generally, cashback reward programs are offered by credit cards issuers to customers when they first sign up for the credit card. Customers are given two redemption options: cashback and rewards.

Both rewards and cashback reward customers for making a purchase. However, there is a difference in the reward offered. Reward cards offer reward points for making the purchase, with one reward point per pound spend being the standard. It can vary depending on the issuer and type of customer.

Regarding this, here's an article comparing cashback promotions and rewards.

One the other hand, cashback programs provide customers with a percentage of every purchase they make using the cashback credit card. Often, customers receive cashback monthly and they need to request their cashback as either a check or statement credit. Also, there is a minimum cash requirement for cashback requests.

Often, you’ll see cashback promotions on websites, either for a specific product or general cashback offers which run across a wide range of products. The products on which customers can avail cashback will be clearly displayed to them. Additionally, customers will be provided instructions on how they can claim the cash reward after they complete the order.

Cashback offers need to be claimed within a specified time after an order is placed. Customers that purchase the promotional products online generally receive payment within a couple of weeks after they submit a request to claim the cash back.

Usually limited in time, these cashback offers are subject to conditions and customers need to meet certain criteria to get the money. The main purpose of cashback promotions is to encourage customers to buy a business’ products. With cashback promotion and its purpose understood, you may want some examples of how cashback works and we are going to provide you with just that.

 

How cashback works

A company can offer cashback in several ways, including purchases on cashback sites. However, the most common method is via credit card usage.

The idea is that the more customers spend on their cashback credit card, the more cash they can earn. Provided they make minimum payments on time and stay within their credit limit, cashbacks are an effective way for customers to earn back from their purchases.

Here's how it usually works for our clients:

 

example how cashback promotions work

For example, with a cashback rate of 5%, a customer can get £50 back on a purchase worth £1000. This provides customers with an incentive to purchase a product and helps a business to sell more.

As explained earlier, cashbacks can be offered through cashback sites as well. In this case, cash backs are commissions that a business offers to cashback sites to direct traffic to their website. Cash back sites advertise your business and you pay them a commission when they send a paying customer to your website. Generally, businesses have join an affiliate network to get a cashback site to advertise them.

Once the transaction is confirmed, the business pays the affiliate a portion of the sale, and this portion is passed on to the cashback site, which then provides the customer with a cash reward. The business plays no part in issuing the cashback to customers, which makes it a very hands-off cashback promotion for the business.

Final word on cashback promotions

From young children to mature adults, cashback promotions are understood by and accessible to all types of audiences, which allows them to be applied to almost all markets.

Cashbacks are an amazing way for shoppers to make money they wouldn’t otherwise make and they are a great opportunity for businesses to increase sales and grow. Also, since they require consumers to provide data to process the claim, cashbacks can provide businesses with valuable consumer-related insights.

We end this piece on cashback with one final advice:  If you’re using cashback promotions online, set time limits on them as this will create a sense of urgency and force customers to buy now.

Topics: cashback promotions, digital promotions, sales promotions, online promotions

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