Glossary
What is breakage?
Breakage is the value of loyalty rewards that are earned but never claimed, and it is the gap between what a programme appears to cost and what it costs.
Breakage is why loyalty programmes are cheaper to run than their headline reward looks. If a tenth of earned rewards go unclaimed, the real cost of the scheme is a tenth lower than the arithmetic suggests. It is also why breakage is a dangerous thing to plan around: a business that budgets on high breakage is budgeting on customers not being motivated, which is the opposite of what it is paying for. Treat it as a fact to measure, not a saving to rely on.
Is breakage good or bad for a business?
It reduces cost and signals a problem at the same time, which is why it is so often misreported. The money saved is real; what it indicates (customers who stopped caring before they finished) is not something a business wants more of.
The useful reading is as a diagnostic. Rising breakage usually means the threshold has drifted out of reach or the reward has lost its appeal, both of which are fixable and neither of which shows up in enrolment totals.
How does points expiry affect breakage?
Expiry converts unclaimed balances into breakage on a schedule, which is why a short expiry flatters the cost of a programme while quietly deleting the progress of exactly the customers it was meant to keep.
In a seasonal trade the effect is severe. A twelve-month expiry at a garden centre erases the balance of the customer who buys every spring, the archetypal loyal customer, and records it as a saving.
Should breakage be accounted for?
For an independent business running a stamp card, no formal treatment is needed; the reward is a cost when it is given. Larger schemes that carry meaningful points liabilities do account for expected breakage, and that is a question for an accountant rather than a loyalty platform.
See also
- Redemption rate: Redemption rate is the share of earned rewards that customers claim, and a low rate is a warning rather than a saving: it usually means the threshold is too high or the reward is not wanted.
- Points expiry: Points expiry is the rule that unused loyalty progress lapses after a set period, and it should be set from how often the business's own customers buy rather than copied from a larger scheme.
- Reward threshold: The reward threshold is the number of stamps or points a customer must reach before earning a reward, and setting it correctly determines whether the programme motivates or discourages.
Further reading
How to switch loyalty platforms without losing your customers
Changing loyalty platform means re-enrolling everyone, because wallet cards cannot be transferred. Here is the migration plan that keeps your regulars and their balances.
Why paper punch cards fail, and what to replace them with
Paper loyalty cards lose customers for three structural reasons. Here is what each one costs and how a wallet card fixes it.