- Gift cards increase profits in two ways: when a gift card recipient buys more than the face value of the card, and when there is an unused balance left on a card.
- Most POS systems have a built-in gift card feature, so setting up a program is relatively easy.
- Gift cards paired with a POS system allow you to link purchases to customer accounts, offering insights on their buying habits.
- This article is for small business owners who are considering a gift card program.
Does your business sell and accept gift cards? If not, you could be missing out on an opportunity to increase revenue, strengthen your brand, and improve customer loyalty. Gift cards are essentially a prepayment to your company, giving you the income upfront before the customer starts shopping. A gift card can be physical or digital.
How do gift cards work?
A customer initiates the purchase of the gift card, either in person or online. If purchased in person, the cashier selects the gift card program from the POS system and activates the gift card with the specified amount. The customer pays and receives the gift card as well as a printed receipt with the gift card balance. The customer then gives the gift card to the recipient.
If purchased online, the customer inputs the amount or selects from a drop-down list of available amounts. The customer enters the name and email address of the recipient, writes a note to the recipient, and completes the payment. The system automatically sends the recipient an email with the note, gift card amount, a unique number or barcode for redemption, and redemption instructions.
How businesses process gift card redemptions
Customers can redeem gift cards with a physical card, a printout of a digital gift card, or even a QR code on their mobile device. For the cashier, accepting payment is as easy as selecting the gift card option in the POS system interface. The cashier will then swipe the gift card if it has a magnetic stripe, scan it if it has a barcode, or enter the gift card number manually.
The merchant account payment processor will approve the purchase if there is a balance remaining on the gift card and will deduct the amount of the purchase from the balance. If the purchase costs more than the balance on the card, the POS will alert the cashier that another payment method is required to cover the overage.
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If there is a remaining balance on the gift card after the purchase, a receipt will print to show the remaining balance, and the cashier will return the gift card to the customer. If there is no balance remaining, the cashier can throw away or recycle the card.
Redeeming a gift card online
To redeem a digital gift card online, customers select "gift card" as the payment type at checkout. Alternatively, customers who have a preexisting account can log in and add the gift card balance to the profile. Depending on how your website is set up, purchases will draw from the gift card balance until it is depleted, or the customer can choose whether to use the gift card balance at checkout.
6 benefits of selling gift cards
There are many benefits to selling gift cards, such as increasing brand awareness and improving cash flow. Here are six ways gift cards can help your business:
1. Building brand awareness
Since gift cards are branded with your business name, logo and message, they act as an ever-present ad for your company every time recipients open their wallets. Gift cards are among the most cost-effective marketing you can implement because they offer a compelling incentive to visit your store or website. In addition, the person who bought the gift card acts as your brand ambassador. Their purchase of the card represents a positive recommendation to the recipient.
2. Improving cash flow
When a customer buys a gift card, you get the money immediately and do not have to wait until a holiday or the recipient's birthday to receive that revenue. If the recipient does not use the gift card or only uses a portion of the balance, your business has a lower cost of goods overall.
3. Appealing to younger consumers
According to the Consumer Pulse study by InComm, millennials buy the most gift cards, comprising 37% of gift card buyers. Gen Xers make up another 28%. Also, if your market is married women without children, you're in luck – half of gift card buyers meet this description.
4. Expanding your customer base
Gift card recipients may not even have heard of your business before, but receiving a gift card increases the likelihood that they will shop at your store. If you offer digital gift cards, capturing the recipient's email gives you the ability to send them advertising and promotions.
5. Getting into the corporate gift market
Gift cards are great options for gifts from business owners to employees or top customers. The cards have a high perceived value but leave the specific gift choice to the recipient. According to a study by Blackhawk Network and Murphy Research, employees appreciate receiving gift cards from their employers, with 69% viewing them as a reward. [Read related article: Creative Ways to Show Employee Appreciation]
6. Boosting sales during the holiday season
Even if what you sell cannot be easily wrapped and put under the tree, you can boost your holiday sales by offering gift cards. Gift cards are a boon for all kinds of service businesses, such as gyms, salons, car washes and restaurants. In fact, DealDrop found that gift cards rank No. 3 among the most wanted holiday gifts, with 17% of consumers saying they would like to receive one.
How do you start a gift card program?
Physical vs. digital gift cards
First, decide if you want to use physical or digital gift cards. Physical gift cards give customers something to present to the recipient and also serve as ongoing advertising for your business, but they are costlier and more difficult to implement.
Digital gift cards are growing in popularity, especially in light of the COVID-19 pandemic, and can easily be used for e-commerce businesses. These gift cards are inexpensive and easier to set up.
Whatever type of gift card you choose, you will need a POS system that supports gift card transactions. Here's a step-by-step overview of how to set up both physical and digital gift cards.
Setting up physical gift cards
- Research gift card providers. This may be your POS system provider, a merchant bank or a third-party gift card vendor. Look for a provider that offers custom options so you can use your branding and make the gift card appealing to customers.
- Choose a provider, then design and order cards. Once your cards arrive, put them on display and begin selling them. After a gift card is purchased, you will typically need to activate it for the customer.
- Establish gift card policies and train your employees on them. This includes how new gift cards are entered into the system, how they can be redeemed, any limitations you have set for them, and how to promote them to customers. Make sure your policies comply with local and federal laws. For example, federal law prohibits businesses from selling gift cards that expire less than five years from time of purchase, or from charging inactivity fees unless the card has been inactive for at least a year.
Setting up digital gift cards
- Set up digital gift cards in your POS system dashboard. Depending on your POS provider, you may be able to set up digital gift cards for free, or you may pay a monthly fee for this capability.
- Set up your e-commerce site correctly. Make sure you're able to sell gift cards and accept them as payment.
- Train employees on how to accept gift cards. They'll need to scan a printed or digital barcode, or enter a unique gift card number. Make sure all employees know how to use the gift card function in your POS system.
When customers purchase gift cards, you will usually have to pay a payment processing fee, just as you would for credit card transactions.
Tips for running a successful gift card program
Simply ordering a bunch of gift cards does not ensure that you will get the maximum value from your gift card program. These tips can make the difference between a halfhearted program and a spectacularly successful one:
- Enable gift cards to be part of the customer's digital wallet.
- If a physical gift card is ordered online, mail it out within 48 hours.
- Enable purchase, transfer and redemption of gift cards across all channels (online, in-store, and on mobile devices).
- Allow digital gift cards to be sent via text message. Consider working with a top text message marketing provider for this service.
- Give customers the option to customize digital gift cards with personal notes, photos and designs, if possible.
- Set up your website to recognize curated digital gift cards and make appropriate selections. For example, a Mother's Day theme template might prompt your e-commerce site to suggest jewelry or other appropriate gifts.
- Use gift cards as thank-you gifts to loyal or high-volume customers. This will increase their loyalty and encourage them to buy more.
- Instead of offering a discount during a promotion, give customers the same amount in the form of a gift card, ensuring that they will visit your business again.
Tactics to increase gift card sales
Now that you know how a gift card program can benefit your business, here are some strategies for selling as many as possible:
- Display your cards prominently. Place your gift cards near the checkout so customers can grab one for a last-minute gift. You may also be able to distribute them to larger retailers that sell a variety of gift cards in a rack.
- Suggest gift cards to customers. Train your employees to suggest gift cards to customers who don't know what to get someone as a gift. E-commerce sites can also display banners suggesting gift cards, both during gift-giving seasons and year-round.
- Promote gift cards on social media. Use your social media accounts to promote your gift cards. According to research by Mercator Advisory Group, 46% of gift cards were purchased through social media in 2020.
- Sell gift cards at other local businesses. Contact local businesses and ask if you can partner with them to sell your gift cards at their location. Consider offering them something in return, such as selling their gift cards or displaying their brochures onsite.
POS systems that support gift cards
Many POS systems support gift cards. Here are some of our top picks.
Lightspeed Retail POS
Lightspeed Retail POS allows you to accept gift cards, but you will need a third-party gift card vendor to create and purchase them. Although you can use any third-party vendor, the barcode on the cards must be printed using EAN-13 or UPC-A standards to be compatible with the Lightspeed POS system.
Lightspeed can accept physical and digital gift cards if you have enabled Lightspeed eCommerce. Another perk of this POS is that customers can use their gift cards both online and in-store, regardless of whether the cards are physical or digital. One downside is that there is limited customization of the email that Lightspeed sends to gift card recipients. While customers who buy a gift card online can select an image to go in the gift card email, the text of the email cannot be changed.
Square POS
Square's POS system provides everything you need to offer gift cards in-house. You can buy physical gift cards from them with your logo and choice of background template starting at 80 cents each, or you can design your own. The gift cards have a magnetic stripe and are reloadable. Square also offers digital gift cards. You can sell digital gift cards in person or online, but you can only sell digital gift cards online. Square charges 2.9% plus 30 cents for each gift card purchased online, or 2.6% plus 10 cents for each one bought in person.
Clover POS
Clover's POS system also provides physical gift cards in-house, with prices starting at $1 each. They also support digital gift cards that customers can keep on their smartphones. Both physical and digital gift cards can be used in the store, but not for online purchases without a third-party integration. Clover charges a processing fee of 2.5% when the gift card is initially purchased.