Breakage

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For the general concept, see Break (disambiguation). For the musician, see Breakage (musician). For the Breaking Bad episode, see Breakage (Breaking Bad).

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.[1] Revenue from breakage is almost entirely profitable, since companies need not provide any goods or services for unredeemed gift cards. It should not be confused with Shrinkage (accounting) (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.[2]

In telecommunications[edit]

In Telecommunications, breakage can occur in several ways. The key elements in maximizing revenue vs. service via breakage are:

The following examples are given in terms of voice calling, although they may also apply to data, short message or other services.

Careful research and planning can maximise some forms of breakage. For example, if a high percentage of mobile voice calls on the network are less than one minute in duration, then a rating plan could use an initial quanta of 60 seconds, followed by 1 second quanta. The plan appears to use a low quanta, but in fact many calls will be hit by the initial 60 second quanta.

Similarly, if many users are shown to use 14Gb of data per month on a data plan, then offering data plans of 10Gb or 30Gb will force many users to pay for much more data than they need, which will expire at the end of each month.

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