When using a stepper motor, integrating an incremental encoder is relatively straightforward. Still, there are some general guidelines to consider.

Incremental encoders (like any encoder) all function as part of a feedback system — providing closed-loop operation. Using information from the encoder, the drive system alters motor operation.

However, incremental encoders don’t keep track of position once power is lost. They also need a reference position to return to every time upon startup.

Read the related encoder FAQ:

What is the difference between an absolute and incremental encoder?

Keep this in mind when using and driving a stepper motor, because the machine design must set to a reference position when using incremental encoders.

Incremental encoders are often useful when speed control requirements are part of a system. If there’s less concern over the position of the shaft — and more of a concern over how fast it is moving — then the fact that incremental encoders don’t track position once off is less critical. In fact, here their simple operation and low price benefit the design.

Incremental encoders keep track of speed where only the difference between two positions is necessary.

There are a few different methods to mount an encoder to a stepper motor. Each of them is useful for various situations, and the choice depends on the motion system.

Incremental encoders with shaft mounting …

A coupling connects the encoder to the shaft. This creates mechanical and electrical isolation, but also adds cost because the coupling is an extra part and because this method requires a longer motor shaft.

Incremental encoders with a hub or hollow-shaft setup …

The encoder directly mounts to the motor using a spring-loaded tether. This is a design that is easy to install and requires no alignment. The only caveat is that this geometry requires careful electrical isolation.

Incremental encoders with a bearingless or ring mount …

Here, the sensor is in the form of a ring that mounts to the motor’s surface. A wheel mounts to the motor’s shaft. There are useful for heavy-duty applications.

For more information on incremental encoders

Summary from Anaheim Automation: Basic Encoder Guide

Dynapar: Motor Encoder Overview