How Is a Loyalty Program Budget Calculated According to TFRS 15?
Customer loyalty programs are one of the most powerful customer retention strategies for brands in today’s competitive market. However, building a loyalty program is not just about marketing decisions; it also requires significant financial and accounting planning behind the scenes.
The true cost of a loyalty program is not limited to the rewards distributed. Under TFRS 15, points awarded are considered a potential future liability. Therefore, a successful loyalty program should be planned not only from a marketing budget perspective, but also from an accounting perspective.
This is exactly where the TFRS 15 (Revenue from Contracts with Customers) standard comes into play. When rewards such as points, miles or discount coupons are issued, brands are legally required to reflect these obligations in their financial statements based on proper accounting principles.
In this article, we will explore the critical importance of TFRS 15 for loyalty programs, discuss the key metrics you should consider when calculating your budget, and introduce our Loyalty Program Annual Budget Planning Tool, developed based on TFRS 15 accounting principles.
What Is TFRS 15 and Why Is It Important for Loyalty Programs?
TFRS 15 (Turkish Financial Reporting Standard 15) determines when and how companies should recognize revenue arising from contracts with customers.
From a traditional marketing perspective, loyalty points awarded to customers may simply be considered a "marketing expense." However, according to TFRS 15, when you award a customer earned points or rewards, a portion of the original sales price must be allocated to the future redemption of those rewards.
In other words, loyalty points issued should be recorded as "deferred revenue" or a contract liability as part of revenue recognition. Revenue is recognized when the points are redeemed by the customer (redemption) or when they expire (breakage). Failure to comply with this standard may cause your company's revenue to be overstated or understated, potentially creating serious issues during audits.
Critical Metrics That Affect a Loyalty Program Budget
To perform an accurate TFRS 15 calculation and create a realistic cash flow plan, certain metrics must be carefully analyzed:
- Active Member Rate: Not all registered members shop regularly. For a realistic budget, you should determine what percentage of your total members actively use the program (for example, 60%).
- Reward Earn Rate: This indicates what percentage of a customer's spending is earned back in points or rewards (e.g. a typical reward rate of 5%).
- Breakage (Unused Points Rate): One of the most critical concepts under TFRS 15 is the breakage rate. Customers never redeem all the points they earn. Based on industry averages, this rate can range from 10% to 30% and directly reduces your company's outstanding points liability. When calculating the accounting provision, the amount expected not to be redeemed should be deducted.
- Year-1 Redemption Ramp-up: In a newly launched program, the redemption rate is typically lower during the first year. Therefore, the cash outflow in the first year will differ from the cash outflow once the program reaches maturity (steady state).
Meet the TFRS 15-Based Loyalty Program Budget Planning Tool
We developed a comprehensive Loyalty Program Budget Planner to help you calculate both the first-year cash requirements and long-term TFRS 15 liabilities of your loyalty program without getting lost in Excel spreadsheets.
Based on the member, spending and reward scenarios you enter, our tool provides the following outputs based on industry data:
- TFRS 15 Points Liability: The accrued reward obligation calculated by deducting breakage (points expected not to be redeemed) from the monetary value of the total points issued by the system. (For example, if you issue TRY 120 million worth of points and estimate 30% breakage, your net TFRS 15 liability is calculated as TRY 84,000,000.)
- Year-1 Cash Budget: The cash cost of rewards that are expected to be actually redeemed during the first year, before the program reaches maturity.
- Steady-State Budget: The stable annual cost you can expect once the program reaches full maturity.
Why Should You Use This Tool?
While marketing teams typically focus on the revenue generated by campaigns, finance teams want to keep costs and liabilities under control. Our budget planning tool helps marketing and finance teams speak the same language.
With its user-friendly interface, you can:
- Simulate rewards earned through product/service usage, special occasions and campaign modules separately.
- Set a point valuation (1 Point = x TRY) and clearly see your annual reward cost per active member.
- Build a sustainable customer loyalty infrastructure while protecting your business from unexpected future costs.
Start Calculating Your Budget Now
You can use our budget planner free of charge to clearly see how much long-term value your loyalty program can add to your company and what your financial liabilities will be.
For more complex program requirements and end-to-end loyalty program design, let's design it together with Loyetta!
Calculate your loyalty program's annual budget and the most efficient point valuation with our free Loyalty Program Budget Calculator.
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