Loyalty glossary · 1. Program mechanics and currency (40)
Cost Per Point
Cost per point is the amount a programme pays to fund each loyalty point it issues. It is the baseline unit cost of the currency before any breakage, redemption margin, or partner subsidy is applied. This figure determines whether the programme is solvent.
Cost per point sets the floor under every loyalty decision. It is the amount the operator must pay when a member redeems, and it is set long before that member earns the point. Programmes that do not know this number are pricing their currency blind.
The number is not fixed by a single contract. Accrual rules determine how many points are issued for a given action, and the co-brand card often shifts part of the funding to the bank. The remainder is the operator's own cost per point, and that remainder is what matters for the P&L.
Work the arithmetic. A programme buys points from a hotel partner at 0.5 cents per point. A member who earns 100,000 points from one stay has cost the programme 500 dollars in future redemption value. Raise the purchase rate to 0.7 cents and the same stay now costs 700 dollars, with no change in member behaviour.
Breakage changes the cost per point after the fact, not before. If 20 percent of issued points are never redeemed, a programme that funded points at 0.5 cents each has an effective cost of 0.4 cents per point that is actually redeemed. That is a 20 percent discount, but it is a discount that depends on members not showing up.
The trap is treating cost per point as an accounting detail. Operators that do so buy points from partners at inflated rates, dress up the shortfall with breakage assumptions, and then wonder why redemptions spike. Cost per point is not a line item. It is the price of every promise the programme makes.