July 1, 2025
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.
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.
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.
High breakage might look good in the short term — but it can be misleading.
Unredeemed gift cards mean missed opportunities:
The real value of gift cards is when they drive new purchases, not when they sit unused.
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.
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:
Work with an accountant or financial controller to determine the timing and percentage that fits your model.
Instead of hoping customers forget about their gift cards, it’s smarter to optimize redemption while tracking breakage properly.
Here’s how:
Keep clear records of gift card sales, redemptions, and outstanding balances. Don’t lump them in with normal sales.
Email or SMS reminders like “You’ve still got $18 to spend” can boost redemption while still leaving you in control of breakage margins.
Make sure your gift card terms address expiration, partial balances, and refundability — especially for promotional or bonus cards.
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.
Ncentiva makes it easy to track breakage and redemptions in real time, so you’re never guessing at your numbers.
With Ncentiva, you can:
It’s a smarter way to run your gift card program — and make every dollar count.