Breakage is a term used in telecommunications and accounting to indicate any type of service which is unused by the customer. A good example would be gift cards or calling cards that have been sold but never redeemed. Revenue from breakage is almost entirely profitable, since companies need not provide any goods or services for unredeemed gift cards. It is distinct from shrinkage, which refers to items which are not used by the customer because they disappeared from inventory.

Overview

Breakage is a term used in telecommunications and accounting to indicate any type of service which is unused by the customer. A good example would be gift cards or calling cards that have been sold but never redeemed. Revenue from breakage is almost entirely profitable, since companies need not provide any goods or services for unredeemed gift cards. It is distinct from shrinkage, which refers to items which are not used by the customer because they disappeared from inventory. In 2006, a blog called "The Stalwart" criticized Best Buy for using estimated breakage to improve their revenue numbers. In telecommunications In telecommunications, breakage can occur in several ways. The key elements in maximizing revenue versus service via breakage are: Use of quanta (pay for more than you use). Bundling of mixed services (force purchase of other services). Expiry of purchased service (ideally expire monthly). Inflexibility of plans (with high charges for exceeding arbitrary fixed limits). Low flexibility in changing plans (e.g. upgrade for free, pay to downgrade). Low transparency of service usage and fees.

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