Skip to content
ENExplore Calculators

Loyalty Redemption Cost Calculator

Work out loyalty redemption cost instantly with clear inputs, formula shown and shareable results.

About Loyalty Redemption Cost Calculator

The accounting liability for loyalty points is issued points at their cash value, but the true cost is lower on two counts: breakage from points that are never redeemed, and the fact that redemptions are fulfilled with goods at cost rather than retail.

Formulas

Gross liability

Liability = Points issued x Cash value per point

Net cost

Net cost = Liability x Redemption rate x (1 - Gross margin on redemptions)

Worked example

With the default values below, Loyalty Redemption Cost Calculator returns Net cost of the loyalty programme of $530,400.00. Change any input above and every figure here is recalculated in your browser.

Inputs used

Points issued in the period
4,800,000
Cash value per point
0.25
Expected redemption rate
68
Gross margin on redeemed goods
35

Results

Net cost of the loyalty programme
$530,400.00
Gross points liability
$1,200,000.00
Expected redemption value
$816,000.00
Breakage (points never redeemed)
$384,000.00

Step by step

  1. 1Values used
  2. 2Gross liability
  3. 3Net cost
  4. 4Net cost of the loyalty programme= 530,400.00
  5. 5Gross points liability= 1,200,000.00
  6. 6Expected redemption value= 816,000.00
  7. 7Breakage (points never redeemed)= 384,000.00

Assumptions and limits

  • The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
  • In particular, this calculator does not take inflation, tax or fees or charges into account.
  • Figures are rounded for display to 2 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Frequently Asked Questions

How is the liability recognised?

Under revenue standards the fair value of points is deferred from the original sale and recognised as the points are redeemed or expire.

Why does breakage matter so much?

Because a 30% breakage rate reduces the economic cost by nearly a third. Estimating it well is the single largest judgement in loyalty accounting.

Related Calculators

Loyalty Redemption Cost Calculator | Calcrivo