Point Breakage in Loyalty Programs: Rates, Causes and Fixes

Point breakage is the share of loyalty points issued that are never redeemed, because they expire or sit unused. Breakage lowers the cost of rewards and the liability a business carries, but high breakage can also mean members do not value the program or cannot reach its rewards.

Breakage sits between finance and member experience. Finance teams estimate it to account for points correctly; program teams watch it as a sign of whether rewards are reachable and wanted. This guide covers how to calculate breakage, what a "normal" rate means and why published averages are scarce, what causes high breakage, how it is treated in accounting, the rules on point expiry, and how to manage it.

Key Takeaways

What is point breakage?

Point breakage is the share of loyalty points that members earn but never redeem, either because the points expire or because members stop using them.

Researchers Marcel Goić, Ricardo Montoya and Isamar Troncoso, in a study of a large regional airline's loyalty program, describe breakage as "the fraction of accrued reward points that expire before being redeemed," and note that managers "carefully monitor breakage" to judge the long-term effect of point expiration (International Journal of Research in Marketing, 2025). In practice, programs track two related numbers: points that have already expired, and points still outstanding that are expected never to be redeemed. The term is also used in B2B incentive programs for rewards that partners earn but never claim.

How do you calculate a breakage rate?

Calculate breakage by cohort: take the points issued in one period and measure the share that expired or went unredeemed over a window long enough to capture redemptions.

A simple version is:

Breakage rate = points from the cohort that expired or are not expected to be redeemed ÷ points issued to the cohort

Illustrative example (hypothetical figures). A program issues 1,000,000 points in the first half of the year. Eighteen months later, 720,000 have been redeemed, 180,000 have expired and 100,000 are still in members' accounts. Breakage to date is 18%. If history shows that about half of the points still outstanding at this age are eventually redeemed, the expected breakage for the cohort is about 23% (180,000 expired plus about 50,000 of the 100,000 outstanding).

Five choices change the answer:

• Window: measured too early, breakage looks low because points have not yet had time to expire. For points that never expire, breakage is only ever an estimate; PwC notes that estimating it "could be complex, particularly for customer loyalty programs, which may extend for significant periods of time, or never expire."
• Cohort: mixing points issued years apart blends different rules and member behavior; measure by issue period, and by tier or segment where possible.
• Points counted: bonus points, partner points and points awarded for non-purchase activity can behave differently from purchase points, so report them separately, and leave out tier-qualifying credits that cannot be redeemed.
• Rewards that expire after conversion: where points convert to a reward or certificate that has its own expiry, as at Dutch Bros and Guess, count reward expiry too, or breakage will be understated.
• Which points a redemption uses: cohort figures depend on whether redemptions draw down the oldest points first, as Starbucks' terms specify, so state the rule you apply.

What is a normal breakage rate for a loyalty program?

There is no reliable published cross-industry average for loyalty breakage; rates depend on a program's expiry rules, how often members earn and how far rewards are from reach.

Most companies do not publish their rates, and figures circulating online rarely show a source. Some public companies disclose the inputs to their estimates in annual reports. Dutch Bros, a coffee chain whose Dutch Rewards program launched in February 2021, reported in its 2022 annual report that "Approximately 16% of the points collected in 2021 expired and were unredeemed." Those 2021 points expired on December 31, 2022. For points collected in 2022, which expire if not redeemed within 180 days, the company said that "Based on two quarters of activity," expired points "represented approximately 8% of points collected from purchases in 2022," a figure measured before all of those points had time to expire (Dutch Bros 2022 Form 10-K). The same filing notes that no breakage estimate was made for an earlier quarter because "the information was considered insufficient to make reasonable estimates," which shows how much history a new program needs before its breakage can be estimated.

Program type changes where to look. The drivers below are common places to check, not measured averages:

The airline study found "significant variations in the estimated breakage among customers and across markets" within a single program, so a program-wide rate can hide very different groups.

What causes high point breakage?

High point breakage usually comes from points expiring too fast, rewards out of reach, too much effort to earn or redeem, or rewards members do not want.

Expiry should fit the purchase cycle. A coffee buyer may visit weekly, while a hotel guest may stay once a year, so the same window can be reasonable for one and punishing for the other. Some members also save points for a larger reward on purpose, so a growing balance is not always a problem; look at whether those members are still active.

Is breakage good or bad for a business?

Breakage is both: unredeemed points lower reward costs and liabilities, but high breakage can mean members do not value the program, which weakens the reason it exists.

The financial effect is real: points that are never redeemed do not have to be fulfilled, and the revenue deferred for points expected to go unredeemed is recognized under the accounting rules described below. But a program that depends on members forgetting or losing their points can feel unfair to them, and members who see no value have little reason to come back. The research on point expiration notes the tension directly: expiration "can incentivize point redemption and purchases but may affect customer engagement." Rather than targeting a breakage number, set rules that members can understand and reach, and judge breakage alongside redemption, repeat purchase and member activity.

How is breakage treated in accounting?

Under the US revenue standard, expected breakage is recognized as revenue in proportion to redemptions when a company expects to be entitled to it, or otherwise when redemption becomes remote.

ASC 606-10-55-48, as quoted in PwC's guide to breakage, states: "If an entity expects to be entitled to a breakage amount in a contract liability, the entity should recognize the expected breakage amount as revenue in proportion to the pattern of rights exercised by the customer. If an entity does not expect to be entitled to a breakage amount, the entity should recognize the expected breakage amount as revenue when the likelihood of the customer exercising its remaining rights becomes remote." PwC adds that "The assessment of estimated breakage should be updated at each reporting period," and that breakage should not be recognized on amounts that must be remitted to a government if the customer never claims them.

This is why reliable breakage estimates matter to finance teams: they shape when revenue from points is recognized, and PwC notes that a company that cannot conclude whether there will be any breakage "should consider the constraint on variable consideration." This guidance covers points issued to customers as part of a sale; finance teams running non-purchase earning or B2B incentive programs should confirm which accounting model applies to those points. The guide for CFOs on loyalty program liability covers the accounting in detail. This is general information, not accounting advice.

What rules apply to point expiration?

California law and federal gift card rules treat free loyalty rewards more leniently than gift cards when expiry is clearly disclosed; value bought for cash can face stricter rules.

• California: the state's gift certificate law allows an expiration date on gift certificates distributed through an awards, loyalty or promotional program without any money or other thing of value in exchange, provided the date appears in capital letters in at least 10-point font on the front of the certificate (Civil Code section 1749.5).
• Federal gift card rules: loyalty, award and promotional cards, codes or other devices fall outside the federal gift card rules only when they carry the required disclosures, including a front-of-card statement of their purpose and the expiration date of the funds (12 CFR 1005.20).
• Unclaimed property: PwC notes that legal requirements for unexercised rights vary and that some jurisdictions require payments received for them to be remitted to the government, so check this separately from expiry for the states involved.

State rules differ, so check the states where members live before setting or changing expiry. This is general information, not legal advice.

How do you reduce point breakage?

Reduce breakage by making rewards reachable and wanted, reminding members of balances and expiry, and making it easy to earn and redeem, rather than by removing expiry altogether.

• Make the first reward reachable. Check how long a typical member takes to reach it, and add lower-point rewards if most members never get there. In the airline program studied, the researchers found that "to decrease the breakage rate, it is more effective to promote more frequent redemptions than to favor rewards that require a greater number of points." That finding comes from one high-value, low-frequency program, so test it against your own cohorts.
• Fit expiry to the purchase cycle. Retailers set different rules: Guess says its points "generally expire after six months without additional purchase activity" (Guess 2025 Form 10-K), while Starbucks terms say Green members' Stars expire six months after the month they are earned unless the member makes a qualifying purchase, redeems a reward or makes a Star-earning digital reload of $30 or more in the month before they would expire, and Gold and Reserve members' Stars do not expire while they keep their status. Extending expiry with activity, as both rules do, keeps active members' points safe.
• Remind members. Send balance and expiry reminders, and suggest rewards a member can afford now.
• Add ways to earn. Points for profile completion, reviews, referrals or content keep members progressing between purchases.
• Refresh the catalog. Use redemption and survey data to drop rewards nobody chooses and add ones members ask for.

Lower breakage means more rewards fulfilled, so budget for the higher redemption cost and liability that follow. Removing expiry entirely leaves breakage to be estimated rather than observed, which the accounting section shows is harder.

BLOYL™, the Brandmovers loyalty platform, supports these levers with earning and redemption rules by product, channel, segment and time window, non-purchase earning, and a rewards catalog of more than 100,000 options. The redemption rate guide covers redemption in more depth, and the loyalty currency design guide covers point value and expiry policy.

How should you track breakage?

Track breakage by cohort, tier and segment over a fixed window, alongside redemption rate, active members and repeat purchase, so a change can be traced to its cause.

Report breakage to date and expected breakage separately, and show expired points by month so the effect of an expiry rule is visible. Compare segments: a low overall rate can hide one group losing most of its points. When you change rules, such as a new expiry window or lower thresholds, compare cohorts issued before and after the change, and allow for members redeeming ahead of an announced change. Treat a sudden fall in breakage with the same scrutiny as a rise: check that redemptions from long-inactive accounts are legitimate. The loyalty KPI dashboard shows how breakage fits with other program metrics.

Conclusion

Point breakage is the share of points that are never redeemed. Calculate it by cohort over a long enough window, and be wary of published averages: the reliable figures that exist come from individual companies and research, and they vary with expiry rules, earning frequency and reward thresholds. Breakage lowers costs and liabilities, but high breakage can signal a program members cannot use or do not value. Fit expiry to the purchase cycle, keep rewards reachable, remind members, disclose expiry clearly, and track breakage alongside redemption and activity. What share of your members never reach their first reward?

Sources

• Goić, Montoya and Troncoso, "Breakage analysis for profitability management in high-value, low-frequency loyalty programs," International Journal of Research in Marketing (2025)
• Dutch Bros Inc., Form 10-K for fiscal 2022
• Guess?, Inc., Form 10-K for fiscal 2025
• PwC Viewpoint, Revenue from contracts with customers, 7.4 "Unexercised rights (breakage)"
• California Civil Code section 1749.5
• 12 CFR 1005.20, Requirements for gift cards and gift certificates (Cornell LII)
• Starbucks Rewards Terms of Use