It’s no revelation that consumers like to get free stuff. If a loyalty program can convince its members that they’re getting something for free even when they’re paying for it, then it’s got the right stuff.

This “free for a fee” formula is the winning ticket to an emerging number of paid loyalty programs and/or program tiers that charge a regular fee in return for exclusive perks, such as free two-day shipping or unlimited drink refills.

In 2021, 95% of surveyed retailers said they were considering launching a paid program, according to Clarus Commerce. Here’s why: Members of paid loyalty programs are 60% more likely to spend more with that program.

Members of free loyalty programs, meanwhile, are just 30% more likely to, according to McKinsey & Co.

A paid program is a reliable revenue stream that can offset the costs of running the program. Further, programs in which members pay in advance for their privileges are the ultimate form of loyalty, and funding.

Think: members loaded $1 billion onto their Starbucks SBUX cards in 2022. These are essentially interest-free loans. In December 2022, Starbucks said it expected $3 billion to be loaded to Starbucks cards during the holiday season. In its second-quarter earnings call in early May, Starbucks executives said rewards members account for 57% of its U.S. company-operated revenue, marking “the highest contribution on record.” The company recorded $1.66 billion in stored value cards and loyalty program revenue in the fiscal second quarter 2023, compared with $1.64 billion the same period a year before.

A necessity of a paid loyalty option is that it has to profit members and the organization. The benefit, therefore, must have high value to the customer but be cost-manageable, generating additional purchases on a significant number of visits.

Following are some retailers and restaurant chains that appear to have gotten to the paid formula correct:

Panera Bread’s PNRA Unlimited Sip Club. The fast-casual restaurant chain’s membership program is simple: pay $11.99 per month and get unlimited coffees and self-serve drinks, as well as free delivery. The program, with nearly 45 million subscribers in 2021, was credited with boosting monthly store visits to 10 from four, Meenakshi Nagarajan, senior vice president of loyalty at Panera, confirmed in the “Let’s Talk Loyalty” podcast. Renewal rates were quoted at 90% to 95%.

Walmart WMT +. Walmart’s subscription-based membership offers loyalty-like benefits to subscribers who pay $98 a year, or $12.95 a month. Notably, benefits include free shipping (and returns), video streaming via Paramount+ and Pluto TV and early access to special deals. Walmart+, launched in 2020, counts 11.5 million members and, as of November 2022, generated $2.2 billion in fees.

P.F. Chang’s Platinum Rewards. For $6.99 a month, enrollees of this program, introduced in September 2022, earn 20 points per every $1 spent, get priority on reservations, access to a VIP concierge and free delivery. No news on membership numbers yet, but P.F. Chang’s had boosted the points it issues since the program’s launch to 20 from 15. The private-equity firm that owns P.F. Chang’s, Paulson & Co., is investing $20 million to fund overall company growth, Bloomberg Law reported.

REI Co-op. This program is a one-and-done. For a one-time $30 payment, members of the outdoor gear chain get lifetime rewards, including an annual dividend worth 10% of all full-price purchases from the year before, access to special member-only sales and free shipping. Additionally, REI’s data bank ensures members and their purchases are remembered at each transaction. In March, REI reported that it issued $234 million in rewards to its 21 million Co-op members in 2022. (Note: REI’s dividend is a share of the company’s profit. If the company does not make a profit, as in 2020, members do not receive dividends. Instead, REI issued other rewards worth the equivalent of the dividends.)

Sweetgreen Sweetpass+. The bowl-and-salad chain in late April launched an upgraded premium program that, for $10 a month, rewards members with $3 off each daily order. Other perks include free delivery and exclusive “insider” opportunities. Sweetgreen SG executives have said that in the program’s 30-day pilot phase in January 2022, 16,000 customers signed up, and monthly visits rose.

While great for Panera, REI and other companies, paid rewards programs don’t make sense for all companies. These guidelines can help decision-makers determine whether a paid model pays off.

· The “win” is worth the price of admission. The member benefit, from free coffee to a monthly cash giveback, must be fast and worth the subscription price. Four in 10 of paying loyalty members expect to receive benefits within a week, and 31% have cancelled memberships due high fees. The trick for determining a worthwhile benefit is knowing what entices customers to return more frequently. A beauty retailer can give out monthly “mystery” gifts (such as samples). A home improvement chain can offer discounts that only premium members can see, or offer private shopping hours.

It Pays To Have The ‘Right Stuff’ In Loyalty

As more consumers accept the idea of paying for loyalty memberships (thank you, Amazon AMZN Prime), retailers should anticipate the bar to be raised. Demand attracts competition, and cookie-cutter models will quickly become ho-hum.

A paid program has the right stuff when it its analytics can pinpoint precisely what its members will gladly pay for. That “stuff” might change with time, so all transactions should be monitored with added discipline.