Gift Card Breakage: What It Is, Why It Matters, and How to Handle It

When you sell a gift card, you expect the customer to eventually redeem it. But not all of them do.

That unspent value? It’s called breakage — and it can have a major impact on your business’s finances, customer experience, and growth strategy.

In this blog, we’ll break down what gift card breakage is, how it works, when it becomes a liability, and how to manage it without leaving money on the table.

What Is Gift Card Breakage?

Breakage is the portion of gift card balances that are sold but never redeemed.

Let’s say someone buys a $50 gift card from your store. If the recipient never uses it — or only spends $42 and forgets the rest — that unused amount counts as breakage.

This happens more often than you’d think. Estimates vary, but industry averages put breakage between 5% and 15% of total gift card sales.

Why Breakage Matters for Your Business

1. It Impacts Revenue Recognition

Just because someone buys a gift card doesn’t mean you can immediately count it as revenue. In accounting terms, gift card sales are deferred revenue — you only recognize the revenue once the card is redeemed (or legally expires).

Breakage affects how and when that revenue hits your books.

In some cases, especially at scale, unredeemed balances create a financial liability on your balance sheet.

2. It Creates a False Sense of Profit

High breakage might look good in the short term — but it can be misleading.

Unredeemed gift cards mean missed opportunities:

• No customer engagement
  
  
• No product usage
  
  
• No word-of-mouth or referrals
  
  

The real value of gift cards is when they drive new purchases, not when they sit unused.

3. It’s Regulated by Law

In many regions (including the U.S.), there are rules about how and when you can recognize breakage as revenue — especially if the gift card never expires.

Some states require that breakage be reported as unclaimed property after a certain period.

When Can You Recognize Breakage?

According to U.S. GAAP accounting rules, businesses can recognize breakage if it’s considered “probable” and can be reasonably estimated.

That usually happens when:

• A long enough time has passed with no redemption activity
  
  
• You have a history of predictable breakage rates
  
  
• Your terms clearly state that the card doesn’t expire
  
  

Work with an accountant or financial controller to determine the timing and percentage that fits your model.

How to Handle Breakage Strategically

Instead of hoping customers forget about their gift cards, it’s smarter to optimize redemption while tracking breakage properly.

Here’s how:

1. Track Breakage Separately

Keep clear records of gift card sales, redemptions, and outstanding balances. Don’t lump them in with normal sales.

2. Use Smart Reminders to Nudge Redemption

Email or SMS reminders like “You’ve still got $18 to spend” can boost redemption while still leaving you in control of breakage margins.

3. Set Clear Terms

Make sure your gift card terms address expiration, partial balances, and refundability — especially for promotional or bonus cards.

4. Focus on LTV, Not Breakage

A redeemed card might feel like a cost. But if that customer sticks around, you’ve gained long-term value — far more than a few dollars of unspent balance.

How Ncentiva Helps You Track and Manage Breakage

Ncentiva makes it easy to track breakage and redemptions in real time, so you’re never guessing at your numbers.

With Ncentiva, you can:

• Monitor redemption rates and breakage trends automatically
  
  
• Customize your expiration rules and balance policies
  
  
• Set up reminders to boost redemptions (and customer satisfaction)
  
  
• Report breakage properly for accounting and compliance
  
  

It’s a smarter way to run your gift card program — and make every dollar count.

Want to turn your breakage into better business outcomes?

Talk to Ncentiva