Purchase protection is the act of resetting the number of days before points expire, as long as the customer remains active by purchasing as a member during your expiration window. AIQ enforces this methodology to avoid mass support and customer backlash for all redemption types on the platform.

Example: Points expire 30 days after the customer's last purchase.

Purchase protection for non-FIFO based programs should be implemented to achieve high CLTV outputs from loyalty programs.

FIFO (First-In-First-Out) reporting can be outdated for more modern programs. You should not use FIFO when members can choose individual points to redeem from a specific order, or for programs whose points expiration can vary by point (gifted, manually adjusted, multiplied points during time windows for specific audience members, etc.).

Breakage estimates should allocate your redemptions to points earned. When customers deplete their points for redemption, costs should be allocated to specific point earnings.

Your main concern is around breakage: balancing member loyalty and growing revenue, and therefore estimating the percentage of open points that will never be redeemed.

Liability = open points × (1 − % breakage) × the projected cost of each point that is redeemed. This is a constantly updating calculation in quarterly financials.

If your breakage forecast is high then deferred revenue will be too low, requiring a material increase in program liability. The opposite will result in trapped revenue.

Alternatively, some programs will be projected using Fair-Value-Per-Point estimates in order to discover deferred revenue. This is also a dynamic estimate that changes based on tier/reward levels available to members, currency exchange rates, and inflation.

Points earned should be placed in deferred revenue based on the value cost of the points with breakage used to calculate it. Redeemed points should be recognized as new revenue which lowers your deferred liability. Points that expired wouldn't be adjusted unless your deferred revenue incorporates point expiration estimates.