If you have been reading articles on Forbes Advisor, perusing personal finance forums or engaging in deep discussions with managerial accountants at retailers that sell gift cards, you might have heard the term “breakage.” Breakage may sound like a concept that only figurine collectors care about
Source: What Is Breakage And Why Does It Matter?
weird that a generally negative word (“breakage”) is used for what is profits for the companies; perhaps it’s from the buyter’s perspective?
seems similar to the deadweight loss of xmas?
fta:
“Breakage is an accounting term that identifies revenue recognized from services that are paid for but not used.”
“Retailers and sellers of gift cards understand that some percentage of gift cards they sell will never be redeemed. Some sources say that breakage rates are typically around 2-4%, but they can be much higher than that.”
“Blackhawk Network reported commissions and fees of $1.26B on gift card activations of $16.6B, which represents a 7.6% commission. If retailers are willing to pay Blackhawk Network an average of 7.6% commission on their gift cards, there is a good chance that their breakage rates are higher than that.”
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