Gift Card Breakage Calculator

How the figure is built

Breakage is the share of gift card value never redeemed: (issued − redeemed) ÷ issued × 100, measured once enough time has passed for redemption to be effectively complete.

Breakage revenue = issued value × breakage rate, recognised over time as redemption patterns become predictable rather than at the point of sale.

Typical rates run 6% to 12% of face value, considerably lower than the figures folklore suggests.

A real example

$120,000 of gift cards issued annually with a 9% breakage rate: $10,800 never redeemed.

The remaining $109,200 is redeemed against goods costing $49,140 at a 55% margin, and gift card redemptions frequently accompany additional spend: if the average redeeming order exceeds the card value by $22, that is a further $2,900 of contribution across 132 redemptions.

The cash timing is the larger benefit: $120,000 arrives before any goods are shipped, which for a seasonal business funds the stock the cards will eventually be redeemed against.

Breakage is therefore the smallest of the three benefits and the one most often quoted.

Where the figure deceives

Unredeemed balances are a liability rather than revenue until breakage can be reliably estimated, and recognising them too early overstates profit.

Escheatment rules in many US states require unredeemed balances to be remitted to the state after a dormancy period, which removes breakage as a benefit entirely in those jurisdictions.

Acting on it

Check the escheatment and expiry rules for the jurisdictions you sell into before treating breakage as revenue, since the position varies substantially and the obligations are enforced.

Then track redemption timing, since it determines the cash profile and the point at which the liability can be released.

Why the cash flow matters more than the breakage

Gift cards are prepayment for goods not yet chosen, which means the business holds the money for months at no cost. For a business with a seasonal peak, that is working capital arriving exactly when stock has to be bought.

It also converts a purchase decision made by one person into a visit by another, and the recipient frequently spends more than the card's value.

Those two effects are reliable and large. Breakage is smaller, uncertain and in some jurisdictions unavailable, which makes it a poor basis for the business case even though it is the aspect most discussed.

Digital cards redeem at higher rates than physical ones and cost nothing to fulfil, which makes them better on every dimension except the gifting experience.

For a business where the card is bought as a present, the physical format still carries value that the redemption statistics do not capture.

Sending a balance reminder before a long dormancy period increases redemption and reduces the escheatment exposure, which are aligned rather than competing objectives.

Tracking redemption timing by month of issue produces the pattern needed to estimate breakage reliably, which is what allows any of it to be recognised.

Offering a small bonus on card purchases during peak season raises volume at a cost well below the margin on the eventual redemption.