Buffering Points

Awardco suggests that companies buffer points. The idea behind buffering is that points need to be an approximation of the dollar value of an item. The point value displayed for Amazon items is the item cost - before taxes, shipping, etc. are accounted for. If a company choses to not include a buffer on the points of their employees, the actual dollar cost of items will usually be significantly higher than the points spent. If the points put in the system represent the budget (which they typically do), you may come in well over budget when all is said and done.

Example:

An employee is rewarded 100 points and they redeem an item that costs 100 points in the Awardco platform.  When this order is processed, the actual cost of the item could end up truly being $100.79, and there is potentially a state sales tax added on top of this. Put these small price changes together and this order may cost your company $107.34 for an order you budgeted $100 for. The $7.34 over budget might seem insignificant for this particular order, but over time that extra cost adds up. 

You need to manage a budget and you need your points to accurately represent the true cost of the order, not the displayed item cost. As illustrated in the case study below, a 6-9% buffer usually does the trick.

There are 2 different ways to buffer: Option 1 is buffering your employee's points. Option 2 is buffering your budget.

Option 1: Buffering Employee's Points

To show a better point representation Awardco has the ability of adding a buffer to all points. The goal of this buffer is to decrease the value of a point so that across the company your additional charges are covered.  Some orders may come in at 10-15% over, while other orders end up costing 0-2% more than expected, or in rare cases the order might even cost LESS than the marked price. By applying a standard buffer, or 'tax', to the employees, you are better approximating the true value of a point.

By applying a 7% buffer, a $100 pre-tax item will display as 107 points. Likewise, a $35 item will display as 38 points (Awardco points are only whole values). When these orders process, the final cost typically will be closer to the $107 amount than the $100 amount.

Option 2: Buffering the Budget

You can set a standard buffer to your overall budget. For example, your company has an annual budget of $50,000.  $3,500 will be set aside and you will work with 46,500 points. Point values will remain in line with the actual pre-tax value of the product. The employee spends 100 points and gets a $100 item that costs $107.34. Since you have buffered the entire budget, that extra $7.34 will ultimately be accounted for by pulling from the $3,500 that was set aside.

Your company is responsible for the actual final cost of the items - not just the point value. The buffer never gives Awardco extra money; it is only there to help you keep under your budget. Applying a buffer helps keep your planned target budget in line with actual dollars spent.

As an illustration of the value a point buffer, check out this case study done on an Awardco client:

Case Study:

An Awardco client's 4-month sample of purchases based on purchases made between December 2016 - March 2017.

This company uses an 8% point buffer to keep costs such as shipping and taxes included in the budget. After their employees have redeemed 20,345 points, the total cost to the company has been $20,120.92. This amount is $224.08 under the anticipated price (points redeemed), or 98.9% of the points redeemed.

If they did not have any buffer applied to their points, the exact same products would have been purchased with approximately 18,840 points. The admins and accountants of this company might anticipate their costs to be close to $18,840 by simply looking at their points redeemed. They would be surprised to find the actual cost of these items is $20,120.92- $1,280.92 over the anticipated price (points redeemed), or 106.8% of the points redeemed. The additional (and somewhat unpredictable) charges of (including, but not limited to) slight price changes, shipping fees, and sales taxes can amount to a significant difference - a difference that could blow a budget out of proportion over time.

This data is real, but due to differences in sales taxes across state lines, as well as other cost factors, these numbers will not necessarily replicate for all companies, or even over time for this company. Across the board, US-only companies tend to see prices that cost 6-9% higher that the listed price.

The goal of buffers is to keep the value of points as an accurate representation of true cost. In this situation, the 98.9% has proven to be quite the accurate representation, while keeping the company slightly under their expected spending.

 If you have more questions, please tell us how we can improve and clarify this topic by commenting below. You can also submit a Support Ticket for more assistance.