Reward cost is the real price a shop pays each time it gives out a loyalty reward. For a product the shop makes, it is the ingredients, packaging and a share of the labour. For a product the shop buys in, it is the wholesale price. For a money-off reward, it is the full face value, because ten dollars off is ten dollars less in the till. The customer sees the shelf price of the reward; the shop should always count the cost price.
The useful way to read it is as a share of what the customer spent to earn it. Divide the cost of one reward by the total spend across the visits needed to fill the card. That single percentage lets an owner compare very different rewards on equal terms, and it is nearly always smaller than the owner expected.
In practice
A butcher's regular spends about $48 a visit. The card is six stamps, one per visit, so filling it takes $288 of spending. The reward is a kilo of the shop's own sausages, which sells for $16 and costs $7.40 in meat, casings and time. Reward cost as a share of spend: $7.40 divided by $288, or 2.6 percent.
The owner had also considered "$20 off your next order". That costs the full $20, or 6.9 percent of the $288, and the customer values it at exactly $20, no more. The sausages cost the shop about a third as much and are valued at $16 by someone who already buys them.
Two habits keep reward cost honest. Count it at cost price, never at retail. And put a cap in the wording of any reward that could grow, such as "a bottle up to $25" or "a bunch up to $30", so a member cannot pick the most expensive item in the shop.
In Counter Club
The reward is whatever you write, so a cap goes straight into the wording and appears on the join page for every customer to read. Codes keep the reward they were earned under if you change it later. See setting the card.