Promotion math
Loyalty points liability.
Enter outstanding points, what each is worth when redeemed and how many you expect to be redeemed. See the deferred revenue balance, expected breakage, and how a period of sales splits between goods and points.
Deferred revenue = outstanding points x value per point x expected redemption rate. The example below carries $3,000 of deferred revenue on 500,000 points with $5,000 of face value.
Your numbers
Result
Worked example
A retailer has 500,000 points outstanding and each is worth $0.01 at checkout, so the face value is $5,000. It expects 60% to be redeemed, which leaves $3,000 of deferred revenue and $2,000 of expected breakage. If rewards cost it 70% of their value to provide, the expected cost to fulfil is $2,100. In a period with $100,000 of sales earning 1 point per dollar, the points have a standalone value of 100,000 x $0.01 x 60% = $600. The sales are split in proportion, so $100,000 x 600 / 100,600 = $596.42 is deferred to the points and $99,403.58 is recognised on the goods.
How it works
Deferred revenue = outstanding points x value per point x expected redemption rate. This is the amount of past sales revenue you have not yet earned because customers hold points they can still use.
Expected breakage = face value - deferred revenue. It is the part of the points you expect never to be redeemed. The redemption rate should come from your own history of how many points ever get used, not a hunch.
Revenue split on a sale = sales x standalone value of points / (sales + standalone value of points). This follows the relative-value method that IFRS 15 uses when points give a customer a material right: part of the price is allocated to the points, and the rest is recognised when the goods are delivered.
This is an estimate for planning, not a bookkeeping entry. The standards also deal with how to estimate the value per point, how often to update the redemption rate, and how rewards for goods are measured, so have your accountant confirm the treatment for your business and year-end.
Sources
Retrieved 2026-10. The formulas are arithmetic on your inputs; the sources below are the rules and standards this page refers to.
- IFRS 15 Revenue from Contracts with Customers (IFRS Foundation): paragraphs B39 to B43 cover customer options for additional goods or services, including loyalty points, and allocate the price to the option by relative standalone selling price adjusted for the likelihood it will be exercised. The full standard text is licensed by the IFRS Foundation; this tool reproduces only the arithmetic idea.
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FAQ
Why is the liability lower than the face value of the points?
Because not every point will be redeemed. The balance is reduced by the share you expect to expire or go unused, based on your own redemption history.
What redemption rate should I use?
Use the share of issued points that have ever been redeemed for cohorts old enough to be finished earning. If your points never expire, the cohort may take years to settle.
Is this the same as the cash cost of the rewards?
No. Deferred revenue is measured at the value customers get. The expected cost to fulfil is shown separately because many rewards cost you less than their listed value.
Does this follow US GAAP or ASPE?
The arithmetic here follows the IFRS 15 material-right idea. US GAAP and Canadian ASPE have their own wording, so ask your accountant which applies to your reporting.