Gift Card Breakage: Which Statistics Matter?

If anyone has ever left an outstanding balance on one of your company's gift cards, then you probably know what gift card breakage is.

In our last blog post, we covered how to evaluate gift card breakage. After reading that post, you should understand that evaluating gift card breakage is one of the most important factors to building a high-performing gift card program for your business (if you haven’t read it yet, check it out!).

We’ve compiled a list of the gift card breakage statistics that matter — and the ones that don't — so you can get started on the path to predicting gift card breakage and optimizing your gift card portfolio.

1. Assessing escheatment

Before you start tracking gift card breakage, you’ll want to determine what percentage of your gift card portfolio is subject to escheatment laws.

Escheatment refers to the government's right to take custody of the outstanding balance on gift cards after a determined amount of time. The laws surrounding escheatment vary across different states and can change often, so you’ll want to stay updated on them.

Escheatment presents a financial risk for your company if you don’t plan accordingly. Nobody wants to be surprised when the state comes looking for money you had already counted as income (with additional penalties piled on top). That’s why tracking the impact of escheatment on your portfolio should be your first concern when tracking gift card breakage statistics.

2. Redemption value over time

After determining how escheatment will impact your gift card portfolio, you’ll want to start tracking gift card redemption value over time. To do this, you should monitor:

  • The total value of customer gift card redemptions
  • Any fees levied on the gift card (such as inactivity fees)
  • Any value that has expired or deteriorated over time

With this data, you can start tracking the percentage of your gift cards’ value that goes unused, leading to breakage. Over time, you can use this data to build a predictive model for gift card breakage behavior.

A predictive model for gift card breakage behavior will allow you to more accurately forecast your company's income and prepare for trends in redemption habits throughout the year. For example, you could predict that 20% of the gift cards issued in Q4 will still be unredeemed after a year, helping you create more accurate income forecasts for the year to come.

3. How long to track redemption trends

If you want to accurately assess gift card breakage statistics, you’ll need to start tracking your customers’ gift card redemption trends. But before you get started, you’ll want to remember that the longer you collect data, the more accurate your findings will be.

The amount of time that you will need to collect data to see reliable trends will vary depending on your business. For example, some businesses have quick gift card redemption cycles, reducing the amount of time it takes to forecast breakage trends. For businesses with long sales cycles, gift card redemption might take longer, meaning it will take longer for them to accurately forecast breakage trends.

The most important thing to remember is that you cannot have too much data. By tracking gift card redemption statistics over time, you’ll be able to get the clearest picture of your gift card breakage statistics.

If combing through all of this data sounds daunting, don't worry — you can leverage the support of an automated gift card analytics platform. This software will monitor your gift card breakage statistics, generate reports, and help you identify trends.

4. Gift Card Breakage Statistics that don't matter

Although tracking gift card redemption value is important, you’ll want to avoid focusing too narrowly on the value of redemptions over a single period. Specifically, you’ll want to avoid tracking the total value of gift cards issued in a single period against the total value of gift cards redeemed in the same period. These two figures might seem related at first glance. But if you look deeper, you’ll find that neither variable influences the other.

For example, if you run a promotion on gift cards, this will inflate the total value issued in that period, but it has no impact on the total value redeemed in the same period, artificially lowering the redemption to earn ratio.

Instead, you’re better off tracking the redemption value of individual gift cards over their lifetimes and aggregating this data across all of your gift cards to view trends.

Key Takeaways

Incorrectly forecasting gift card breakage can have serious financial implications. Primarily, gift card breakage can impact income volatility and lead to inaccurate financial statements. If you fail to track this data, you could be unprepared if the government comes knocking due to escheatment laws.

The main benefit of tracking gift card breakage statistics is that you will be able to build a predictive model for gift card breakage behavior (remember, it's impossible to have too much historical data for this). A predictive model can help you forecast your income more accurately and safeguard against unexpected upticks in gift card redemptions.

Tracking gift card breakage statistics can be a pretty large undertaking, but you don't have to do it alone. Schedule a demo to see how KYROS can help you track gift card analytics and take your gift card portfolio to the next level.

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Len Llaguno
By Len Llaguno
Founder and managing partner of KYROS Insights. I'm an analytics nerd and recovering actuary. I use machine learning to help loyalty programs predict member behavior so they can identify their future best customers, and recognize and reward them today.

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