Warren Buffett explains float with insurance: insurers “receive premiums upfront and pay claims later,” so they hold large sums, “money we call ‘float’,” that “will eventually go to others” Reported. A DTC brand has its own float, and the same rule applies: it’s valuable when it’s cheap, and dangerous when spent as if it were yours.

What float costs

Buffett’s test is what the float costs. When premiums cover claims and expenses, “we enjoy the use of free money – and, better yet, get paid for holding it” Reported. For a brand, the cost is whatever you give up to get the cash early: the prepay discount, the gift card bonus, the cost of the program.

Say a subscriber pays $100 a month, and you offer six months prepaid at 15% off: $510 today. As financing, you’ve borrowed $410 and repay it in product over five months, giving up $90: about 7% a month, or 125% a year compounded Derived. As a loan it’s terrible. As retention it can be excellent, because it locks in renewals some customers wouldn’t have made. Judge prepaid plans on retention, as The Standing Order describes, and count the cash as a side effect.

A prepay discount is expensive money and cheap retention. Judge it as retention.

How big float gets

Starbucks is the best-known example in retail. In fiscal 2025 it added $15.2 billion to its stored value card and loyalty program balances, and at year end it held $1.75 billion of deferred revenue from them: money paid but not yet earned Filed. The mechanics are the same for a brand selling $50,000 of gift cards in December.

The four kinds of float in a DTC brand

• Prepaid plans and memberships: the most predictable float, because redemption follows a schedule.
• Gift cards: cash now, redeemed later, some never; heavily seasonal around the holidays.
• Store credit: offered instead of a refund, it keeps cash in the business, and it’s still owed. See the returns guide.
• Preorder cash: float with a delivery date and a federal rule attached.

Breakage, and why not to count on it

Breakage is the share of balances never redeemed, and it’s tempting to count as profit. Under the US revenue standard, ASC 606, a company that expects breakage recognizes it gradually, in proportion to redemptions, and only to the extent a significant reversal isn’t likely; otherwise it waits until redemption becomes remote. Any amount it must hand to a state under unclaimed property law is a liability, not revenue Published. Have your accountant set the policy.

That last point is where brands get caught, and gift cards carry their own rules too.

• Federal rules. Under the 2009 CARD Act rules in Regulation E, a gift card’s funds can’t expire earlier than five years after it was issued or last loaded. Dormancy fees are allowed only after 12 months without activity, at most monthly, and disclosed. Promotional and loyalty cards are excluded Published.
• California, as one example. It’s unlawful to sell a gift certificate with an expiration date or a service fee, and since April 1, 2026, balances under $15 (previously $10) must be paid out in cash on request. Gift certificates covered by those rules are exempt from the state’s unclaimed property law, but any gift certificate with an expiration date is not Published.
• Everywhere else. States differ on whether unredeemed balances must be handed over. Have counsel review before you book any breakage.

Don’t spend it twice

In the 13-week forecast, every float balance appears as a liability with a redemption schedule. December’s gift card sales are January’s orders, shipped from stock you’ll have to buy. Spend the float on January ads and you have two months of revenue and one month of cash.

Do this

• Pull the outstanding balance of every kind of float you hold, and put each in the cash forecast with its expected redemption month. Ask your accountant, in writing, what your breakage policy is and how it allows for unclaimed property law.