Loyalty glossary · 1. Program mechanics and currency (40)
Burn Rate
Burn rate is the percentage of issued loyalty points or rewards that members redeem within a given period. It measures how quickly a programme's outstanding points liability is drawn down, and it is the operational inverse of breakage.
Burn rate is the number every programme should watch alongside its liability balance. It tells you how fast the promise to members is being called in. A programme with a high burn rate is redeeming points quickly, which usually means members are engaged enough to claim value. A low burn rate means points are sitting unredeemed, which may be breakage in waiting.
The relationship with breakage is direct, not incidental. Breakage is the share never redeemed; burn rate is the share that is. Every point either burns or breaks. A programme that reports a low burn rate as a cost saving is quietly reporting a high breakage assumption, whether it admits that or not. The two numbers must be read together.
Take a programme that issues 120 million points in a year. If members redeem 72 million points in that same year, the burn rate is 60 per cent, meaning 60 points of every 100 issued are claimed. Now let the next year's issuance rise to 150 million points while redemptions hold at 72 million points. The burn rate drops to 48 per cent, and the unredeemed balance grows by 78 million points. That growth is not a saving; it is a future liability that will either burn later or break, and either path has a cost.
Co-brand cards change both sides of the equation. They raise accrual because every card transaction adds points to the member's balance. That higher accrual often lifts burn rate as well, because members see a faster-growing balance and redeem sooner. But co-brand programmes also face lumpy redemption spikes when bonus campaigns end or when cardholders churn. The lesson is to watch burn rate as a ratio of points issued to points redeemed, not as a raw count of redemptions.
The trap is treating burn rate as a target instead of a signal. A programme that pushes burn rate down to protect its P&L is doing the equivalent of hoping members forget what they earned. A programme that pushes burn rate up without checking redemption economics may be giving away margin to look generous. The right position is neither high nor low; it is a burn rate that matches the value of the currency and the cost of fulfilment.
Measure burn rate monthly, compare it to the breakage assumption in the deferred revenue schedule, and question any gap. That gap is where the programme's true health sits.