Loyalty Register glossary
Breakage
Points or rewards that members earn but never redeem. Programs estimate breakage to plan the real cost of their rewards.
Breakage is the share of points or rewards that members earn but never redeem. Every point a program issues is a promise of a future reward, so the business carries it as a cost it still owes. When a point is never used, that cost is never paid, and the program eventually releases it.
Updated · By Loyalty Register Editorial TeamRelated terms
Why does breakage matter to a program’s finances?
Points are recorded as a liability until members use them. Starbucks, for example, defers revenue for the Stars its members earn toward free products and records a liability for them. Because some points will never be redeemed, programs estimate how many and plan their reward budget around that estimate. Earn rates, reward prices and the cost of the whole program are usually set with a breakage assumption in mind.
Is breakage the same as profit?
No. Breakage is a forecast of behavior that has not happened yet, and it can be wrong. If more members redeem than the program expected, the cost comes back. It also rewards the wrong thing: a program that counts on breakage is counting on members who quietly lose interest. Those members look the same as engaged ones in a liability report, but very different in next year’s sales.
A hypothetical example shows how sensitive the number is. A program that owes $8 million in rewards and assumes 20% breakage expects to pay $6.4 million. Change the assumption to 25% and the expected cost falls to $6 million, although no member did anything differently.
What moves breakage up or down?
Expiry rules set a floor. Sephora Beauty Insider points, for instance, expire after 12 months or more without a purchase or a redemption, so inactive balances lapse on a known schedule. Friction raises breakage without anyone deciding to: reward thresholds set too high, a catalog members do not want, or a redemption process that is hard to find. That kind of breakage is a design problem, not a saving, and it usually shows up later as churn.
How should you track it?
Read breakage together with the redemption rate and the points liability, review the assumption at least once a year, and look at which members are not redeeming. If the members who never redeem are also the ones who stopped buying, the program has a retention problem that the breakage number is hiding.