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breakage

The part of prepaid lessons or credits that customers never use. It becomes revenue only when the company can reliably expect it or when the right to use it expires.

Breakage is the part of prepaid value that customers never use: lessons left in an expired package, unspent gift cards, credits that lapse, gym months nobody turned up for. The company was paid, and it will never have to deliver.

It becomes revenue in one of two ways. If the company has a reliable history of how much usually goes unused, it can recognize the expected breakage gradually, in step with the lessons or credits that are used. Without that history it waits until the customer's right expires and recognizes the rest then. For a marketplace that acts as an agent, an unused lesson also means no payout to a provider, so the full price can become the company's revenue, not just its usual commission.

Breakage is real revenue but a poor plan. It is money for value the customer didn't get, and a growing breakage line usually means packages that are too big, expiry dates that come too soon or customers who stopped caring. Those customers are less likely to renew, and expiry terms can attract consumer complaints. Report breakage on its own line, and watch it as a product signal rather than a growth lever.

Example

Klasna's March 2026 packages (530 packages, 9,880 lessons) expired at the end of September with 440 lessons unused: 440 ÷ 9,880 = 4.45%, worth 277,700 UAH at their package prices. No tutor is paid for them, so all of it became September revenue.

The average hides the worst package. In 32-lesson maths packages 140 of 1,920 lessons expired, 7.29%, or 140 × 630 = 88,200 UAH: the exam was in June, and nobody needed lessons after it.

In the autumn quarter breakage was 629,310 of 6,832,760 revenue. Operating profit was 1,704,699 with it and 1,075,389 without it, and September's fell from 352,306.25 to 74,606.25. Most of September's profit came from lessons nobody took.

Common mistakes

  • Planning on it. Shorter expiry or bigger packages lift breakage once and cost trust after.
  • Recognizing it early. Without a reliable history, wait for the expiry date.
  • Hiding it in the main revenue line. Show it separately so profit with and without it is visible.
  • Reading only the average. One package or season can carry most of it; that's where the product problem is.

Learn it in the course