Growing a small business is tough. With so many other merchants in your area offering similar products and services, attracting and retaining customers can be quite the challenge. In many cases, your loyalty and incentive programs are the main opportunities you have to set your business apart from the rest. Among the most impactful are gift cards for your business.
Running a gift card program serves two purposes: increasing revenue and improving customer loyalty. When you’re seeking a new and creative way to give yourself a leg up on the competition, a gift card program may be the solution you didn’t know you needed.
Buckle up: we’re going to teach you everything you need to know about gift cards. In this post, we’ll cover:
- How does a gift card work?
- What is a gift card program?
- Why gift card programs?
- How to start a gift card program for your business
- Your options for the types of gift cards
- How to run a gift card program
- How to increase gift card sales
- How to measure to success of a gift card program
- Common gift card questions (and answers)
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How do gift cards work?
Using a gift card is extremely simple.
When customers purchase a gift card in-store, typically:
- An employee collects payment up front, as in any other transaction
- The employee then selects the gift card program from the POS and swipes a new gift card through the terminal
- The employee keys in the dollar amount on the POS system to processes the payment
- A receipt with the card value is printed, which can then be presented with the card to the customer
When a customer chooses to redeem a gift card in-store:
- An employee will take the card, as with any other payment type
- The gift card option is selected on the POS interface
- In similar fashion to chip-less credit cards, the gift card is run through the card reader with its magnetic stripe
- The merchant account processor takes care of the approvals and the purchase balance is removed from the card
- A receipt prints to indicate the remaining balance
- If the purchase depletes the full balance of the gift card, an alternate payment method such as a credit card may be required for the remaining transaction balance
- The customer receives their card back, or, if the balance is used in full, the employee may dispose of or recycle the card
When a customer wants to purchase (and redeem) a gift card online (an egift card):
- A shopper visits your online store and adds a gift card to their cart, either selecting a value or inputting a custom value
- They pay for their cart as usual
- If they bought a digital egift card, an email with the code will be sent immediately
- If they bought a physical gift card, you’ll ship it to them the way you’d ship any other order
- Using either the digital code or the numbers associated with the physical gift card (either on the card or on the accompany receipt), the shopper pays for their next purchase online by selecting gift card at checkout
What is a gift card program?
A gift card program allows customers to buy cards that carry a small balance to be used in your business, usually at a later date. Similar in size and appearance to a credit card or debit card, gift cards are typically made of recyclable PVC plastic and can be loaded using a POS system with gift card capabilities.
In the grand scheme of commerce, the gift card concept is relatively new. While gift certificates have had a long history in retail shops and restaurants, cards themselves are only several decades old. The original gift cards, introduced in the 1980s, were thin pieces of plastic that could be used to track purchases and redemptions.
The appeal of this type of loyalty program began to gain momentum in the 90’s, replacing previous gift certificate systems, as stores quickly realized that these loyalty cards not only enabled the tracking of sales, but they provided free revenue from the volume of cards that went unredeemed and customers who spent over the value of their cards.
Gift card programs are popular with shoppers. Global gift card sales are expected to reach $1 trillion USD globally in 2020 alone and $2.7 trillion USD by 2027. Gift cards can be found in businesses of all shapes and sizes, from restaurants to retail boutiques.
Why gift card programs?
With so many other ways to drive business, from successful marketing campaigns to loyalty and discount programs, you might be wondering how a gift card program would benefit your business.
Do businesses make money on gift cards?
Yes—for two reasons.
First, someone using a gift card isn’t getting something from your shop for free. The item was prepaid, and now they’re cashing in. Businesses don’t lose money by honoring gift cards.
Second, and most important, 65% of gift card users spend more than the face value of the card. Gift cards are a way to get shoppers in the door, at which point they’re likely to want more.
Do gift cards help small businesses?
Small business gift cards help with customer acquisition. They’re a way to introduce new customers to your business and to reinforce loyal customers.
If a shopper has never visited you before, a gift card provides them a reason to. Once they’re in the store, you have the chance to make sure they come back again and again. And, with well-designed gift cards, featured on the front and/or back will be your brand—so you’ll reinforce your business’ identity every time they see your card.
Even if a gift card recipient isn’t a new customer, getting a gift card can help remind them of why they like your business and give them an excuse to visit sooner rather than later.
Why are gift cards the best for business?
Offering gift cards to your customers can help you:
- Increase sales and generate cash flow, regardless of whether cards are redeemed
- Bring in new business, especially when given as actual gifts
- Promote impulse buys, as shoppers are more comfortable investing in additional goods or services when part of the purchase is covered
- Improve brand awareness, as most gift cards are branded with logos and business colors
- Offer real-time tracking, simplifying reporting and management
- Possess superior security measures to reduce fraud and minimize duplicate usage
- Offer speedy transactions with immediate benefits to the user
- Track sales trends and monitor outstanding activity
- Offer an easy promotional gift you can use to entice loyal customers to keep shopping
Affordable and practical for you and your customers, gift cards can provide plenty of opportunity for your business. With so many advantages, the better question is: why not gift cards?
How can I sell gift cards for my business?
Starting a gift card program is relatively simple and affordable. Most retailers, especially modern operations utilizing high-tech POS systems and other customer loyalty programs, will have few issues in setting up gift cards for their business.
Despite this, launching a gift card program will require some minor preparation and considerations.
Select a gift card system
Most modern POS systems offer gift card integrations that provide comprehensive tracking such as redemption totals by location or the sales history of a gift card. To ensure maximal functionality, search for programs that come with:
- Transaction reports
- Redemption detail reports
- Outstanding balance reports
Purchase gift cards
Some gift card business vendors will offer access to cards, but others will require you to purchase plastic gift cards from a third-party vendor. If you need to purchase your own cards, be sure to select cards that allow custom designs for branding purposes. Buy cards in an adequate quantity to ensure access for all guests who may want one.
You can also offer digital sales. In this case, you don’t need to sell physical cards. Instead, you issue numbers or barcodes—digital codes—that can be used online or from a smartphone. This is most effective for companies that operate primarily in the ecommerce space, but some companies are beginning to phase out physical gift cards entirely in wake of consumer concerns about plastic gift cards.
Know the laws
All gift card programs run a little differently, but all must comply with local and national laws. For example, federal law in the United States prohibits gift cards from expiring for at least five years from the time of purchase. Similarly, inactivity fees can’t be charged in the US unless the card has been unused for at least one year. Note that state laws that provide more protection override the federal laws—for example, gift cards can’t expire at all in California.
In Canada, most gift cards legally cannot expire at all, though some provinces allow expiration if they’re promotional gift cards (given out as part of a promotion or loyalty program reward instead of purchased), prepaid credit cards or for a specific service, like a haircut. Inactivity fees are not allowed at all either, unless the gift card is actually a prepaid Visa or MasterCard.
Before implementing anything like purchase limits, usage periods or any other stipulations, be sure to review all regulations thoroughly. If your business is a franchise, go over all company policies on revenue treatment and reporting before moving forward.
You should also be aware of your liabilities when certain gift cards are not redeemed. Unfortunately, not every gift card sold will be used, and if those gift cards are closed loop—more on that later—then you’re responsible for legally moving the money involved to a default owner. Regulations vary by jurisdiction, so ask your accountant what you need to be recording.
If you’ve never used a gift card program before, your employees will need to understand the ins and outs to avoid improper use or challenges when working with customers. Be sure all employees know how to run cards, sell and load cards, as well as advertise them to customers.
If you don’t know who’s buying your gift cards or in what quantities, how can you know that your program is working? Rather than looking the other way and assuming everything is going according to plan, spend plenty of time going over the statistics involved with use, like sales versus redemption and total gross sales over specified time periods.
Gift cards for my business: what are the options?
Gift card programs range from small, straightforward operations through your bank to multifaceted offerings from high-tech POS systems. How you choose to proceed is up to you, but be sure you consider all necessary functions before making a decision.
In general, gift card programs come in two distinct forms: closed loop and open loop.
A closed loop gift card for your business is exactly that: for your business. These are cards that can only be spent with you, branded with your logo. Because they’re a distinct payment method unique to your store, you can track their use as long as you have an integrated gift card program.
With integrated cards, you can measure many aspects of your gift card program using your POS system’s reporting tools, rather than those of a separate tool. Reports can be broken out by just about any set of criteria, including employee ID, terminal number, date, transaction amount and type. This helps you to keep track of your program every step of the way.
Closed loop gift cards benefit customers by having a long expiry time (US) or no expiration at all (Canada), and having no fees for use.
There are a few subtypes of closed-loop gift cards:
- Merchant bank cards: these are closed-loop cards issued by your payment processor or merchant bank, if they have that option. They’re sure to work with your payment system, but many have limited options for design and processing options.
- Gift card vendor cards: these are closed-loop cards issued by a dedicated gift card service vendor. They offer you a lot of customization options for designs, but may not work with your POS—make sure the vendor you pick has a connection with your system.
An open loop gift card can be used anywhere, because they’re actually prepaid credit cards.
While these cards give customers the most flexibility, they’re not enough for businesses to rely on instead of closed loop cards. You have no way of tracking their use, which means you can’t see how well your gift cards are performing. And you have no guarantee customers will come back to you to use the balance of their card.
Open loop gift cards have downsides for customers as well. As they’re legally distinct from gift cards, they’re allowed to expire. They have activation and inactivity fees, which makes them costlier to use than closed loop cards.
How to run a gift card program
Once you’ve picked your gift card program, it’s time to ensure implementation goes smoothly. There are right ways and wrong ways to proceed with gift cards, so take time to consider all aspects of preparation and use.
Establish employee policies
Employees need to know everything about your gift cards, including how you plan to advertise them.
In many cases, your employees will be the most valuable marketing option you have in your arsenal, sharing the perks of your program to everyone they encounter. If you operate a restaurant, have your employees memorize a pitch to give when they mention dessert before bringing the bill—or advertise your gift cards with the bill as customers are paying. If you run a retail store, urge employees to mention gift cards before closing a sale. When advertising becomes part of your process, selling cards will become the new normal.
You’re not investing in gift cards for your business just to have them around. To ensure optimal results, it’s important to set goals that you can use to track performance. For example:
- How much revenue do you want to generate?
- How many customers should buy gift cards?
- What ratio of purchases to redemptions would you like to accomplish?
Provide online access
Customers like to know the ins and outs of their gift cards. Instead of handing over a card, encourage them to get involved.
When possible, allow customers to access cards online, check balances and make online purchases. This expands your cards from a one-dimensional in-store program to an alternative method of engagement.
How can I increase gift card sales for my business?
Gift cards are a great way to drive revenue and bring customers back to your store, but they don’t always sell themselves. Some businesses are content with limited sales, but if you want to build a successful gift card program, a little creative thinking and additional marketing may be required.
While there’s no need to use every method under the sun, changing up your promotions and advertising techniques to account for gift cards can increase sales.
How will your customers know to buy your gift cards if you aren’t making them aware of their availability? Advertising online is an excellent way to market. It offers significant potential in exchange for a small investment, gives you plenty of opportunities to target your key demographic and helps you spread the news in a sharable manner.
If at all possible, make gift card purchases available online as well. When you incorporate a purchase link into your marketing, you’re far more likely to benefit from impulse buys.
It’s often a lot harder to say no to someone in person than it is over the phone, email, or text. As such, marketing in-person can trigger the results you’re seeking.
Whenever you or your employees check out customers, be sure they mention your gift cards. In addition, set up signs in your store, like banners out front or displays on the checkout counter.
Notify all customers
If you want to see sales rise, you should never allow a customer to have an interaction with your business without making your gift card program known (within reason, of course).
Talking to customers in person, sharing on social media and putting banner ads on your website are all great ways to spread the word. Another great way to grab attention is to display physical gift cards by your registers and announce the program in your email newsletter. No matter how you choose to advertise, make sure everyone you encounter knows about the program.
It may seem like overkill to make your gift card presence unequivocally known, but you never know who’s going to make a purchase. To be successful, it’s crucial to let no stone go unturned.
Establish employee competitions
Despite the importance of your employees pushing the gift card program, you may run into resistance. Not everyone is a natural salesperson, and some team members won’t necessarily enjoy the prospect of attempting to make a secondary sale.
To inspire all your employees, consider implementing an employee competition. Offer the employee who sells the most gift cards a small perk, like a cash bonus, a better shift, free vacation days or some other benefit that will be in high demand. Alternatively, consider offering a financial incentive, like a percentage of sales as a bonus, to get everyone involved.
Customers love getting things for free, so give them something to be excited about. When you advertise gift cards, add a little extra motivation with a free giveaway or gift.
Instead of just promoting gift cards, let customers know they can get a little something extra if they make a card purchase of a certain amount. You don’t have to give away anything particularly valuable—a small trinket will work well. Alternatively, you can use this opportunity to move inventory that you’re having trouble selling.
Price is a primary driver for building customer loyalty, ranking above the quality of products or service among a majority of consumers. A discount can help you stay competitive, positioning your company ahead of the rest.
When selling gift cards, sweeten the deal with a promo code for a discount on anything in your store or on your menu. For example, you can provide a 20% promotional code to everyone who buys your gift cards during your pre-specified introductory period.
Gift cards, as the name implies, are most commonly purchased as gifts. By advertising around key holidays, you’re more likely to catch shoppers primed to buy. Promote gift cards heavily around Christmas, Hanukkah, Valentine’s Day and other events that center on gift-giving.
To get customers to buy, consider adding something to sweeten the pot, like a $5 promo card for anyone who chooses to purchase a gift card during the holiday season.
A cool-looking card is far more likely to sell than one with an average look and feel. Instead of scrimping on design and sticking with a name in plain text, use your skills to put together something worth buying.
When you have a pretty package to show off, your sales will reflect it. Gift card suppliers like Plastic Printers enable you to print fashionable custom gift cards no matter what your graphic design skills are.
How to measure the success of your gift card program
A gift card program can offer significant benefits to your business, but only if it’s performing as expected. Measuring success largely depends on the results you wish to see, like revenue increases, profit growth, repeat business or any other metrics you identified before implementation.
Track all metrics
Assumptions have no place in business, and that includes your gift card program. Track all metrics related to usage, such as:
- Total sales: the number of gift cards sold.
- Redemptions: the number of gift cards used.
- Supply costs: the cost of printing and designing your cards.
- Marketing costs: the cost put into marketing your cards, be it through ads or printed materials.
Analyze performance vs. goals
Before starting your gift card program, you likely had goals in mind regarding anticipated overall performance. As such, only proper comparative analysis will ensure you are hitting your targets efficiently.
Rather than eyeballing results, take time to keep data organized in tables, charts and graphs. Monitor performance over time, and watch for month-to-month changes. Honing in on the specifics will allow you to identify shortcomings and come up with plans to correct them.
Run reports regularly
As with other metrics in your business, like revenue, cost of sales and overhead costs, gift card performance should be a part of your regular reporting—be that weekly, monthly or quarterly. Periodic check-ins likely aren’t enough. Instead, incorporate gift card usage and results into all of your financial management practices.
As your business changes, so will your goals for your gift card program, especially if your overall corporate goals are based on growth. Periodically, whether quarterly, biannually or annually, review your progress versus original targets and reevaluate your objectives as necessary. This may mean scaling back if your initial expectations were too aggressive, or stretching goals to accommodate higher performance.
Common merchant Q and A’s
Can you use a gift card to buy a gift card?
One thing merchants who sell closed loop gift cards should keep in mind is that from an accounting perspective, gift cards are recorded as a liability to the merchant, not a sale. In other words, using a closed loop gift card to purchase a closed loop gift card is a revenue recognition concern for small business owners and in our opinion should be avoided.
Can you use a credit card to buy a gift card?
Once you set up gift card processing for your business, you can accept any tender type approved by your processor, like Lightspeed Payments, to purchase gift cards, including cash, credit card or NFC-payments like Apple Pay.
How do I create and design my gift cards?
Most gift card suppliers allow you to upload your artwork or personalize gift cards with templated designs via a web page or online portal, similar to how many business owners order custom business cards online. Once you design your gift cards, you can contact your supplier to place an order or submit the request via their online store.
How do I make a gift card for my business?
So you’ve got your gift card designs ready—now you need to enable gift cards so you can make their codes.
You’ll need to enable gift cards in your POS system so you can make gift cards. Check out your POS backend for a toggle, and make sure to pay attention to any prompts to map gift cards in your accounting software.
You’ll need barcodes for gift cards—we recommend code 128 barcodes, with 6 to 16 alphanumeric characters, non-sequential (to cut down on fraud). You should be able to purchase gift cards with barcodes from your gift card supplier.
How do you activate a gift card?
Once you set up your gift card program, you can sell gift cards the same way you would any other item at the register. POS systems like Lightspeed will prompt you to swipe the gift card through your credit card reader to activate it and complete the sale.
Do I pay credit card processing fees on gift cards?
No, you don’t pay credit card processing fees on closed loop gift cards when customers use them to pay. Your gift card program supplier may charge their own fees, however, and you’ll pay a fee if a customer buys a gift card with a credit card.
Open loop gift cards are actually prepaid credit cards, and will have processing fees.
Gift cards for your business: get started today
A gift card program has plenty of potential for your small business, offering a new way to drive revenue without cutting down on profits.
From expanding purchase options to attracting new customers, a robust gift card program has the potential to take your business to the next level. With these tips and tricks for design, development, implementation and management, it’s possible to see positive results in the momentum of your company.Of course, good looking gift cards are just the beginning—if you want a POS system that lets you sell gift cards easily and track usage, you might just need Lightspeed. We put you in charge of your gift cards, and your inventory, loyalty program, reports and more.
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