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An Insiders Guide to Purchasing Recognition
This article is based on interviews with two veteran sales executives in the incentive, rewards and recognition business who asked that their names not be used because of some of the sensitive information revealed. The Recognition Industry’s Most Misunderstood Issue: Total Cost of Ownership
The Hidden Economics of Rewards Markups
Breakage: The Most Controversial Issue in Recognition
Financial Stability May Matter More Than Price
The Real Question: What Value Does the Program Create?
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Recognition and rewards platforms often appear deceptively similar on the surface: social recognition tools, points systems, merchandise catalogs, gift cards, analytics dashboards, and mobile apps. Beneath the demos and marketing claims lies a more complex reality involving pricing structures, hidden markups, breakage exposure, financial risk, long-term total cost of ownership, and actual value created.
This article examines the financial and operational issues human resources and procurement leaders should understand before selecting a recognition provider—including how some pricing models can dramatically increase costs over time, why “low-cost” vendors may create hidden risks, and why pricing transparency matters as much as technology. Vendors have every right to make money, and clients have every right to know how.
Recognition platforms are increasingly evaluated not only by HR, but also by CFOs, procurement teams, IT, compliance, and legal departments. The result is that buyers must now think beyond user experience and engagement features to include vendor economics, financial stability, governance, and measurable business value. Unfortunately, many people in procurement have little understanding of the nuances of the recognition field or how value is actually created or valued.
The Recognition Industry’s Most Misunderstood Issue: Total Cost of Ownership
Most recognition vendors divide pricing into two broad categories:
- Startup and implementation fees
- Ongoing operational and technology fees
- Rewards
Implementation costs can include communication design, employee onboarding, integrations, single sign-on (SSO) or API integrations, reporting configuration, analytics, project management, customer support, and platform customization. Some vendors charge fixed implementation fees, while others bill based on hours or changing scope during deployment.
Ongoing costs become even more complicated.
Some providers charge traditional SaaS licensing fees based on “per employee per month” or “per employee per year” pricing. Others instead charge transaction-based fees tied to points issued or redeemed. At first glance, transaction-based pricing can appear inexpensive. For large global programs, those fees can become substantial as recognition activity scales. This distinction matters enormously.
A company spending $4 million annually on recognition may find a transaction-fee model manageable. A company spending $30 million globally may discover that the same pricing structure becomes dramatically more expensive over time. Buyers therefore need to evaluate not only current pricing, but how pricing behaves as programs grow.
Other frequently overlooked costs include:
- Administrative user fees
- Platform upgrade fees
- API or SSO integration charges
- Communication support costs
- Analytics or consulting fees
- International fulfillment costs
- Ongoing strategic support fees
The Hidden Economics of Rewards Markups
The least transparent part of many recognition programs involves rewards pricing. Recognition vendors often purchase merchandise or gift cards below retail or below face value and then apply markups. Some vendors charge full face value on discounted gift cards. Others add hidden margins to merchandise pricing. All of this is legitimate if transparently disclosed.
One of the industry’s most common tactics is benchmarking rewards against MSRP (Manufacturer Suggested Retail Price). According to industry insiders, this can be highly misleading. MSRP is not necessarily reflective of real market pricing, particularly in a world where products are widely discounted online. Comparing a recognition catalog item against MSRP rather than actual retail market pricing can create the illusion of value while masking substantial margins. A better evaluation method, experts suggest, is understanding the vendor’s actual acquisition cost or gross margin structure rather than relying on MSRP comparisons alone.
Buyers should beware of claims that buying through Amazon is less expensive than purchasing through the incentive, rewards, and recognition business. While it’s hard to compete with Amazon in the consumer electronics category, the IRR industry often benefits from the same wholesale prices retailers pay. Anyone who has been approved to shop on the industry site BMCShop knows that industry pricing is often well below that of even big box retailers. This provides an advantage for corporate clients and program participants, because the markups for program support are based on wholesale rather than retail prices. Again, suppliers should be transparent about how they are compensated for the services offered and value created.
Breakage: The Most Controversial Issue in Recognition
Perhaps no topic in the recognition industry generates more concern than “breakage.” Breakage refers to rewards, points, or gift cards that are issued but never redeemed. At first glance, breakage may appear harmless. In practice, it can have major implications for employers, employees, and vendors alike.
Gift cards, for example, are among the most requested reward options by employees. Yet research has repeatedly shown that a significant percentage of gift cards go partially or completely unused. That creates what some experts describe as “breakage”—the organization spent money rewarding employees, but employees never fully benefited from the recognition. The question becomes? Who keeps the breakage, the recognition company or the client?
More troubling are practices involving points expiration policies. Industry insiders caution buyers to scrutinize whether points can expire, whether employees lose access to points after leaving a company, or whether minimum redemption thresholds create “stranded balances” that quietly disappear over time. This is quite common in consumer promotions: participants can only redeem points for gift cards in specific increments, leaving unclaimed points for breakage. To do this to customers is widely accepted, but doing this to employees signals red flags that the supplier is trying to covertly increase margins.
Even small unredeemed balances can become meaningful when aggregated across large employee populations. Recognition buyers are therefore advised to ask:
- Can points expire?
- Are points available after employee termination?
- Is there a minimum redemption threshold or plateaus that lead to unredeemed points?
- Are partial balances redeemable?
- What percentage of issued points historically go unused?
- Who keeps the breakage?
Financial Stability May Matter More Than Price
The recognition industry has experienced repeated consolidation, private equity transactions, restructurings, and vendor failures over the last decade. That creates a major but often overlooked procurement risk. If a recognition provider collapses financially while holding millions of dollars in unredeemed employee points, the employer may face enormous exposure—not just from replacement reward costs, but also potentially from taxes already paid on those rewards.
Especially for large programs, industry experts recommend that buyers evaluate:
- Auditor-reviewed financial statements
- Cash versus deferred revenue liabilities
- Gross margins
- Debt levels
- Cash burn rates
- Ownership structure and funding stability
The Real Question: What Value Does the Program Create?
Ultimately, recognition programs should not be evaluated solely as procurement exercises. The central question is whether the program measurably improves specific metrics such as:
- Employee engagement
- Retention
- Productivity
- Customer experience
- Safety
- Sales performance
- Culture alignment
- Financial outcomes
The ideal recognition partner is not necessarily the lowest-cost provider. It is the provider whose pricing is transparent, whose economics are transparent, whose financial position is stable, and whose platform demonstrably supports business performance over the long term.
Enterprise Engagement Alliance Services
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- ESM Weekly on stakeholder management since 2009. Click here to subscribe; click here for media kit.
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- EEA YouTube channel on enterprise engagement, human capital, and total rewards since 2020
Management Academy to enhance future equity value for your organization.3. Books on implementation: Enterprise Engagement for CEOs and Enterprise Engagement: The Roadmap.
4. Advisory services and research: Strategic guidance, learning and certification on stakeholder management, measurement, metrics, and corporate sustainability reporting.
5. Permission-based targeted business development to identify and build relationships with the people most likely to buy.
Contact: Bruce Bolger at TheICEE.org; 914-591-7600, ext. 230.
