Work out loyalty redemption cost instantly with clear inputs, formula shown and shareable results.
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.
Gross liability
Liability = Points issued x Cash value per point
Net cost
Net cost = Liability x Redemption rate x (1 - Gross margin on redemptions)
Under revenue standards the fair value of points is deferred from the original sale and recognised as the points are redeemed or expire.
Because a 30% breakage rate reduces the economic cost by nearly a third. Estimating it well is the single largest judgement in loyalty accounting.