Breakage in Loyalty Programs: Meaning and Accounting

By Alva Chew · Updated 2026-11-01

Definition Breakage is the value of loyalty points, gift cards or credits that customers earn but never redeem. Under IFRS 15 and ASC 606, a business that can estimate breakage recognises it as revenue in step with the points that are redeemed, rather than all at once when points expire. High breakage lowers what you pay out, but it usually means members have stopped using the program.

What is breakage?

Breakage is the part of a reward you promised that customers never claim. In a points program it is the points that expire, sit in forgotten balances, or belong to customers who moved away. The term also covers unused gift cards and store credit.

It is the opposite of the share of points redeemed. If customers redeem 80 of every 100 points you issue, breakage is the other 20. Our page on redemption rate explains how to measure that share.

How do you estimate it?

Use your own history once you have some. Take the points issued in a past month and see how many were redeemed over the following year. A new program has no history, so start with a cautious guess and revise it each quarter.

Points issued	Expected to be redeemed	Expected breakage	Value per point	Breakage value
100,000	80,000	20,000	US$0.05	US$1,000

How is breakage treated in the accounts?

Under the two main revenue standards, IFRS 15 (used in most countries) and ASC 606 (US GAAP), points given with a sale are a separate promise to the customer. In plain words:

Part of each sale belongs to the points. You split the sale price between the goods sold and the points, based on what each is worth on its own. The points’ share is not revenue yet. It sits on the balance sheet as a liability, because you still owe the reward.
That share becomes revenue as points are redeemed. Each redemption moves part of the liability into revenue.
Expected breakage is recognised along the way. If you expect some points never to be used, you recognise that expected breakage in proportion to the points customers do redeem. You do not wait for expiry to book it, and you do not book it all on day one.
If you cannot estimate it, you wait. You recognise breakage only when the chance of the points being used becomes remote, for example when they expire.

The wording in the standards is that a business expecting breakage should recognise it “in proportion to the pattern of rights exercised by the customer”. That is ASC 606-10-55-48, as set out in PwC’s revenue guide. IFRS 15 paragraph B46 says the same. PwC’s guide also notes that revising the breakage estimate later does not change the original split of the sale price.

A worked example

A restaurant sells US$100,000 of food in a year and issues 100,000 points, each worth US$0.05. It expects 80,000 points to be redeemed.

Step	Calculation	Amount
Stand-alone value of the points	80,000 expected × US$0.05	US$4,000
Share of sales allocated to points	US$100,000 × 4,000 ÷ 104,000	US$3,846
Recognised at the time of sale	US$100,000 − US$3,846	US$96,154
40,000 points redeemed (half of the expected 80,000)	US$3,846 × 40,000 ÷ 80,000	US$1,923 recognised
Liability still held	US$3,846 − US$1,923	US$1,923

Because the restaurant spreads the US$3,846 over the 80,000 points it expects to be used, the 20,000 points of breakage are absorbed as each redemption happens. Your accountant will set the real method for your business. Small businesses on local standards or cash accounting may treat points more simply.

Is high breakage good or bad?

It cuts what you pay out, but it is a poor goal. Points that are never spent belong to members who got no reward and so no reason to return. If breakage is high:

Bring the first reward closer. A cheaper first reward, a higher earn rate or a welcome bonus helps new members reach one.
Show balances in dollars. “US$7 to spend” is easier to act on than “140 points”.
Be clear about expiry. If points expire, tell customers when, and remind them before it happens.

How Gimify fits

Gimify keeps each member’s points balance on their Google Wallet card, so customers can see what they hold every time they open their wallet.

Questions owners ask

What does breakage mean in loyalty points?

It is the points customers earn and never spend, through expiry, forgetting or leaving. If you issue 100,000 points and expect 80,000 to be redeemed, expected breakage is 20,000 points, or 20%.

Is breakage profit?

In accounting terms it ends up as revenue, because you no longer owe the reward. In business terms it is a warning sign. A member who never redeems got no reason to come back.

When do I record breakage as revenue?

Under IFRS 15 and ASC 606, if you can estimate it reliably, you recognise it in proportion to the points customers redeem. If you cannot estimate it, you wait until the chance of the points being used is remote, for example at expiry.

Do small businesses have to account for breakage this way?

IFRS 15 and ASC 606 apply to businesses reporting under full IFRS or US GAAP. Many small businesses use simpler local standards or cash accounting. Ask your accountant which rules apply to you.