Loyalty Register glossary
Deferred revenue
Revenue a business has received but cannot record yet, such as the part of a sale assigned to points that members have not redeemed.
Deferred revenue is money a business has received but cannot yet record as revenue, because it still owes the customer goods or a service. It is also called unearned revenue. In a loyalty program, the part of each sale assigned to the points a member earns is deferred until the points are redeemed or are expected never to be used. Starbucks, for example, defers revenue for the Stars members earn toward free products and records a liability for them.
Updated · By Loyalty Register Editorial TeamRelated terms
Is deferred revenue a liability?
Yes. It sits on the balance sheet as a liability because the business owes something it has already been paid for. Under ASC 606 it is called a contract liability: an obligation to transfer goods or services for which the customer has already paid. It is the opposite of accrued revenue, which is revenue earned but not yet billed. Deferred revenue becomes revenue only as the business delivers what it owes.
How is deferred revenue created in a loyalty program?
Under revenue standards such as ASC 606 and IFRS 15, points that give members a meaningful future benefit are treated as a separate promise. When a member makes a purchase, the price is split between the goods and the points, based on what each would be worth on its own. The goods portion is recorded as revenue straight away. The points portion is credited to deferred revenue instead of sales.
When is it released?
Mostly when members redeem. In a hypothetical program, 10,000 unredeemed points carry a deferred value of 1 cent each, so $100 sits in deferred revenue. When members redeem 2,500 of those points, $25 is recognized as revenue and $75 stays deferred. The share of points expected never to be redeemed (breakage) is released in proportion to redemptions rather than all at once. Value that must be handed to a state under unclaimed property rules stays a liability and is never released as revenue.
What should you watch?
For large programs the balance is very large: Delta Air Lines reported SkyMiles deferred revenue of $9.3 billion at the end of 2025. Even a small retail program should track it from the first year.
- Growth in the balance compared with growth in redemptions. A balance that outpaces redemptions year after year means members are accumulating rather than using points.
- How much of the balance sits with inactive members.
- Changes to rules such as expiry or reward prices, which change how quickly the balance is released.