Breakage is the part of a loyalty scheme that customers earn and never use. On a stamp card it is every stamp on a card that is abandoned before it fills, and every reward that is earned and never collected. The word comes from gift cards and airline points, where a business sells or promises value and a share of it is never redeemed. Big schemes count on breakage in their sums, because unused points are promises they never have to keep.
A small shop should read it the other way round. High breakage is not a saving; it is a sign that the card is too long, the reward is not wanted, or customers lose track. Each abandoned card is a regular who was on their way to a thank you and stopped. Low breakage costs a little more in rewards and buys a lot more goodwill.
In practice
A cafe hands out 400 paper cards over six months and stamps 2,000 boxes across them. Only 60 full cards come back to be swapped for a free coffee, and those 60 cards held 600 of the stamps. The other 1,400 stamps, 70 percent of everything given out, sit on half-finished cards in wallets, drawers and the wash. That is breakage of 70 percent.
On paper it looks cheap: 60 free coffees at $1.50 cost the cafe $90 in six months. But most of the 1,400 lost stamps belonged to regulars who would have reached a reward if the card had not gone missing, so the cafe saved a few dollars and lost the reason those regulars had to choose it over the place next door.
Two things bring breakage down: a target that fills in six to eight weeks for an ordinary regular, and a card that cannot be lost.
In Counter Club
Stamps do not expire, and a reward code stays on the member's row in the Rewards waiting column until it is used. The only breakage left is a member who stops coming in, and their stamps are still there if they return. See the stamp card.