Small businesses can increase sales with a gift card. Here’s a look at local gift card options, benefits of each, and ways to grow your business.
Whether you own a cupcake shop, a dental practice or an online party supply store, I believe every small business should have a gift card program–one that includes plastic gift cards as well as egift cards. With a range of gift card programs available, there’s almost no excuse for not having at least some type of gift card to offer your customers. In this guide, I’ll explain why having a gift card program is important, how to pick the one that’s best for you and ways to market your small business gift card to maximize the program’s potential.
How Small Businesses are Affected by the COVID-19 Pandemic:
Can We (Should We) Buy Gift Cards to Support Small Businesses During Disaster?
Why Every Small Business Needs a Gift Card
The most important reason to start a gift card program is to increase sales. It’s that simple. While gift cards are certainly convenient for customers, effective in reducing gift certificate fraud and look professional sitting on the counter, the primary benefit of investing in a gift card program is to make money. Below are five ways small businesses can profit from a well-placed gift card program.
1. Compete with National Stores
When it comes to gift-giving, consumers naturally consider gift cards, but they value convenience over uniqueness. Though your mom and pop restaurant may support local growers and serve the best omelet in town, time-crunched holiday shoppers will turn to the gift cards that are easiest to buy. So, if you have a gift card available in your store and on your website (and ideally, a few other places as well), then you have a chance of vying for those precious gift card dollars.
2. Outsell Gift Certificates
For security reasons, most small businesses keep their stash of gift certificates out of sight–in the cash register, in a lock box under the counter or in the backroom. (Ever asked for a gift card and been presented a dusty, handwritten gift certificate instead?) Although a few owners advertise gift certificates with a sign near the checkout line, many simply expect customers to inquire within. Thus, it’s no surprise to find that businesses that switch from paper gift certificates to plastic gift cards increase gift card sales anywhere from 35% to 50% to (some sources say) even as high as 100% over gift certificate sales. Move the gift card display to the point of sale, and sales increase even further.
3. Get the Uplift
Customers shopping with gift cards are less price-sensitive than those spending their “own money.” They often pay full price for products and services rather than rummaging through clearance racks and sticking to the deals. A 2010 study by First Data published in 2011 reported that 72% of gift card shoppers spent more than the original gift card value when redeeming their cards. The study additionally reported, “When redeeming their gift card, 25% purchased an item they had not planned to spend money on, 8% bought a more expensive version of an item they already planned to buy, and 3% purchased an item from a store they don’t normally shop at for such an item.”
4. Bring in New Business
A well-placed gift card program has the potential to bring at least two customers into your store–the giver and the receiver. In the same study referenced above, First Data showed that “11% of gift card receivers noted they had never or rarely visited the merchant’s location” before receiving the gift card and over a third changed their purchasing behavior in order to redeem the card. With incentives for the giver (e.g. buy $100 gift card and receive $10 promotional gift card) and the receiver (e.g. redeem gift card this weekend and receive 15% off your total purchase), you can reward both parties and encourage return visits.
5. Build Relationships
With an egift card program–and especially with a reloadable egift card–you have the opportunity to connect with gift givers and receivers in a new way, with multiple touch-points. Recipients may visit your site to activate the gift card, check the balance, reload the card, see what’s on sale, check store hours and so forth. If the card is also tied to a loyalty program, then you can reward customers with each visit, purchase and reload. Rewards, tailored to customer buying habits, lead to repeat business and brand fans. (Read more on the benefits of reloadable gift cards.)
That’s just the money-making side of the gift card program. Other benefits include reduced fraud by eliminating the ability to photocopy gift certificates and issuing gift cards as store credit instead of cash when merchandise is returned without a receipt. (Plus, there’s the benefit of unredeemed gift card revenue. State laws vary on how to treat this money, so talk to your accountant for specifics.)
How to Choose the Gift Card Program That’s Right For You
From a fully-deployed, closed-loop plastic and egift card program to a simple, branded open-loop card, there are a range of gift card programs available for small businesses. Some require a commitment, some can be tested for a time and others can work in tandem with another gift card solution. Each should be carefully considered before making a choice because once you start selling gift cards, you’ll have to honor any that are outstanding. Below are the various types of gift card programs to consider and the pros and cons associated with each.
Closed-Loop Program from Merchant Bank
The easiest place to start looking for a small business gift card solution is with your existing credit card processor or merchant bank. Though gift cards aren’t their primary business, most will have a closed-loop card (one that can only be used at your store) available. Just be sure to consider the features you want before making a commitment because these gift cards are often easy to get but lack the customization and features needed to really maximize a gift card’s potential.
- Free or Inexpensive. Merchant banks don’t make much money processing gift card transactions–they make the bulk of their profit processing credit cards. So they will throw in a gift card program for little or no cost simply to keep your credit card business.
- Easily Integrated. When I worked as a small business gift card vendor, I found reprogramming bank-supplied credit card terminals to be challenging…sometimes even impossible. In theory, it should work. In reality, it sometimes doesn’t. Selecting the gift card provided by your merchant bank means you probably won’t have to deal with integration issues. If the terminal you have doesn’t work, you’ll likely get an upgrade for free.
- Works Across Locations. Because your merchant bank is probably already set up to track transactions by location, your gift card program will work that way as well. If a third-party solution is implemented, you’ll have to set up different accounts for each store or create an internal system to balance gift card sales and redemptions, by location.
- Limited Card Design. Large banks typically offer a bland gift card with little more than a logo or your store’s name printed on the front of the card. (Seriously, I’ve seen some bank-supplied gift cards that are plain white with the store’s name printed in black ink on the front. That’s it. No logo, fancy font or even a stock image to go with it.) I’ve worked with customers who initially thought they’d be okay with a lackluster card who later felt trapped by a program that didn’t allow customization.
- Few Features. Not only is the gift card boring, but the rest of the program is as well. Customers can simply buy gift cards, redeem them and get a balance check. Beyond that, the bank may provide minimal reporting. Typically, there is no other gift card support, signage, advertising, display or anything else available to maximize the program.
- No eGift Card or Social. Sell your egift card on Facebook? Forget it. Gift cards offered by merchant banks are very basic. Few have any electronic or social integration available. While the gift card is inexpensive and easy to put in place, you’re on your own trying to make it a profitable sales tool for your small business.
- Locked In. When hitting the pavement to find small businesses in need of a gift card program, I found several owners disgruntled with their lack of choices. Because their Point of Sale (POS) systems were closed to third-party gift card solutions, they were locked into the only one offered. Some believed the costs were too high, others were frustrated with the lack of features, but all of them had no choice but to accept the gift card available or completely replace the POS–which couldn’t be justified.
Closed-Loop Program from Gift Card Vendor
There are a variety of third-party gift card vendors that offer full-featured, closed-loop gift card programs for small businesses. You can contract directly with a gift card vendor or ask if your credit card processor has existing partnerships–the latter being the easier of the two because, like above, making sure the gift card works with your existing credit card terminal is key.
- Custom Card Designs. The vendor I previously worked with offered custom gift cards including 4-color processing on the front, plus logos and store addresses printed on the back. They had a designer in-house to do more work as needed and you could order matching gift card holders and display racks as well.
- eGift Cards and Social. Being that gift cards are their primary business, these vendors often have electronic gift cards, social apps, smartphone readers, QR code gift cards and more. Many even have loyalty cards that could be integrated into the system too. A robust gift card vendor can help you deploy a myriad of tools to help grow your gift card business.
- Reporting Tools. Analyzing your gift card business will help you look for opportunities to reward loyal customers, remind shoppers to come back to the store to redeem their gift cards, offer gift card incentives and more. While having a gift card available can enable you to build relationships with customers, having reporting tools can make your efforts more effective.
- Flexibility. With a third-party gift card program, you won’t feel trapped if you want to switch credit card processors. Since the gift card solution is independent, you’re always free to look for better rates.
- Cost. Though not exorbitant, the cost of a vendor-supplied gift card program will likely be more than one provided by your bank or one of the open-loop programs listed below. Costs may include one-time setup fees, gift card inventory, monthly fees and transaction charges. Active gift card programs will easily cover the cost via increased business, but owners who put the card on the counter and do little else to promote it may operate the program at a loss.
- Integration. Not all credit card processing terminals can be programmed to work with third-party gift cards. In fact, some larger banks and POS suppliers restrict it entirely. If you really want to have a third-party card, you may have to switch to a merchant bank or POS supplier that will support it. If your bank supports vendors, but your existing credit card terminal doesn’t, you may have to pay to upgrade the machine.
- Commitment. Once the gift cards start going out the door, you’ll need to continue the program in order to honor outstanding cards. While there may be transition options (e.g. new vendor loads old gift card numbers into new system, store owner manually tracks gift cards), the change will only be easy if you haven’t sold that many cards.
Open-Loop Restricted Card Program
An open-loop gift card is not tied to any particular store, but is accepted almost anywhere. Our local gift cards, for example, run on the Discover® network, so they are redeemable wherever Discover is accepted. Some of our local customers pay a premium to have us restrict their card so that it is only redeemable at their designated merchant locations. A restricted open-loop gift card is a viable gift card program for a small business and, frankly, it doesn’t have to be an exclusive choice. Merchants might opt to have both a closed-loop gift card as well as an open-loop gift card available—creating more ways to bring in gift card shoppers.
- No Integration. Because the gift card runs on the open network, the merchant’s existing credit card processing system will be able to accept the card–in stores, over the phone, and online. This is simply a very quick way to get a gift card into the hands of your customers.
- Third-party Fulfillment. With our local gift cards, the only thing the merchant has to do is put a link on their website to direct traffic to a landing page on our website. Then, we handle the rest. We take the customer’s order, ship the gift card, provide customer service and more. Cards are printed on demand, so there is no inventory to buy ahead of time. Other third-party local gift card programs work similarly and some provide local egift cards too.
- Low Cost. Our restricted local gift card program costs less than $200 annually. Other gift card programs charge a nominal monthly fee and others simply take a cut out of gift card sales. Typically, all of these options are less expensive than what you would pay for a closed-loop gift card solution.
- Works with Other Programs. Because the gift card runs across a credit card network, this open-loop solution will not fight with an existing closed-loop program you might already have in place. Many merchants, particularly those that have a website that is not ecommerce-enabled, (think mom and pop restaurant), put a plastic gift card in their physical location but offer an open-loop gift card on their website. Customers can get a gift card from either location, but the store owner doesn’t have to invest in an online store simply to sell gift cards and egift cards online.
- Increased Visibility. Most open-loop local gift card suppliers have an online listing of local businesses participating in their program. Being listed may increase your website traffic and introduce new customers to your store. For example, a person living in Seattle may find your restaurant while looking for a gift card he can send to a San Francisco-based friend. Without the listing, the giver might select a national brand card instead.
- Merchants Can Band Together. Since there is no integration required, merchants can band together to make a restricted gift card redeemable at all stores in a neighborhood shopping center, in a farmer’s market, at businesses across a community or at like-minded shops (e.g. independently owned fitness centers).
- Merchants Can Limit Buying. Restricted cards can also be used to filter the types of products that can be purchased with a gift card. For example, a salon may allow customers to purchase hair care products with a gift card (sale goes to the salon owner), but not use it to pay for services where individual stylists are typically compensated. This restriction gives customers some flexibility while still benefiting the gift card issuer.
- Great for Online-Only. For website owners, a restricted gift card program is an ideal solution because the card can be ordered online, shipped from a third-party location (or electronically), and used on the website owner’s existing shopping cart. The only thing you’ll need to do is upload a logo and customize the landing page to match your website.
- Not Available in Store. Because these gift cards are printed on-demand, merchants cannot place inactive cards on the counter. Though they can be easily purchased and made widely available online, customers coming into the store to buy a gift card will not be able to do so. You’ll have to provide a plastic gift card from another resource in order to service in-store customers.
- Older Credit Card Machines. Some older credit card processing machines erroneously increase transaction totals to include a 20% tip at restaurants and other service merchants. Customers paying for a meal with an open-loop gift card (that acts like a credit card) could have the card declined if the cashier is not aware of this practice. (Credit cards will typically allow a transaction greater than the purchase amount, but gift cards cannot be overcharged.) Though systems are increasingly upgraded to make this problem obsolete, small businesses are the ones most likely to have outdated payment processing software on their machines.
Open-Loop Unrestricted Card Program
Removing all restrictions and filters, this local gift card program is just an open-loop gift card with your company’s name on the front. Although the card can be used anywhere that the associated credit card is accepted, customers are more likely to redeem it at the store or restaurant listed on the card. Compared to the Open-Loop Restricted Card above, this option has many of the same benefits, but a few more limitations. Like above, there is no system integration required and you don’t have to handle card sales or fulfillment. Your business will be listed alongside other similar stores or restaurants on the issuing company’s website, and the cost is basically free. Additional considerations are as follows:
- Do Nothing. For many local gift card services, Main Street merchants are automatically listed. Customers ordering a gift card for your shop will receive a gift card with your store name printed on the front of the card. Some services (such as curated gift card websites) require an application to be listed, but most simply include all businesses within a geographic area.
- Works with Other Programs. Like the restricted open-loop gift card, this program is best used as an extension of the gift card program you already have. If possible, “claim” the business listing or landing page and link to it from your website to encourage visitors to buy your card.
- Increased Visibility. Though you won’t get “upper fold” placement, your business will still be listed among those merchants in the neighborhood or within relevant categories.
- Not Available in Store. While not a robust, feature-filled gift card program, linking your website to an open-loop gift card that is redeemable at your store gives customers a way to buy and give your gift card to others.
- Doesn’t Have to Be Used at Your Store. Though customers are likely to visit the store listed on the gift card, the fine print (and any customer service representative) will explain that the card can be used at any merchant that accepts the credit card shown on the card.
- Older Credit Card Machines. As explained above, credit card machines with outdated software may add a gratuity to the bill amount when a gift card is run like a credit card. If that dollar amount exceeds the value of the gift card, the transaction may be declined. Customers can avoid this problem by asking the cashier to run a split-tender transaction or to run the bill for a specific amount. Though this problem is less and less of an issue, small merchants are more likely to have outdated software than larger companies that run a higher number of daily transactions.
Open-Loop Branded Prepaid Card
For Main Street businesses that don’t want to sell gift cards (or that already have a gift card program) but want to give cards away as customer rewards, branded prepaid cards are the best choice. Unlike the other solutions where money is loaded onto a card when the customer buys it, this alternative requires the store owner to prepay for gift cards in advance. If ordering less than 50 cards, business owners can order personalized or predesigned consumer Visa® gift cards. If ordering more than that, bulk gift card ordering is better.
- Small Orders. Some business owners really just want a professional way to reward loyal customers or to create incentives for employees. They don’t want to implement a full-blown closed-loop program, aren’t interested in marketing to the masses and don’t need to expand their online presence. They just want to use gift cards as rewards. By ordering a small number of gift cards to selectively give to clients, those needs can be met quickly and cost-effectively.
- Open Loop. Though your logo is on the front of the gift card, customers will be able to redeem it anywhere they want. So the money you invest in giving someone a branded gift card could be used (will most likely be used) at another merchant’s establishment. If the intended purpose of the gift card is to reward customers with a flexible product that carries your logo, then this solution is perfect. If you really are hoping to have a gift card that drives business, the other options would be preferable.
Don’t wait until the holidays to decide you need a gift card for your small-town store or online shop. Although most of these programs can be set up quickly, the end of the year is crunch time for many reasons. Merchants who already have gift cards may be ordering new holiday plastics or stocking up on everyday designs to make sure they don’t run out of inventory the week before Christmas. The systems that support gift card technology will be heavily taxed and your staff will need to be trained as well. Better to get a gift card program in place, work out the bugs and learn how to use it before you have a line of impatient customers standing at the register. Plus, you’ll want to see what strategies sell the most gift cards possible. Give yourself a little lead time before the year-end rush so you can experiment.
10 Ways to Maximize Your Gift Card Program
Maximizing the amount of money you can make from a successful gift card program requires doing more than simply putting the plastic on the counter—though that is a great place to start. You’ll definitely sell more gift cards through impromptu sales from customers who intended to shop for gifts and you might find that loyal customers that see a gift card is available will now give your card in lieu of others. While profits from these sales are good and might even cover the cost of running the program, there is so much more you can do to market and use a gift card. Below are ten ways small businesses can make money (or save money) with a gift card program.
1. Put Your Card Out There
I dare you to find a major retailer that isn’t selling a gift card online. Then, also think about everywhere else you see their cards. Macy’s, for example, sells gift cards in their stores, online, at gift card kiosks, in apps and more. This popular department store makes it easy for customers to find their gift cards and so should you. Put your gift card on the counter, put signage on the door and on end-cap displays, put plastic and egift cards on your website, add a link to your gift card in newsletters and post it in your social media profiles. In short, make sure customers know you have a gift card and know all the ways they can buy it.
2. Make it Gift-Ready
Don’t just plop the plastic on the counter and expect shoppers to do all the work. At the very least, give customers a free envelope or gift card holder with the purchase of a card. Better yet, offer ribbon and cellophane bags to customers who buy small items to go with their gift cards.
Sephora does a fabulous job of packaging their gift cards at retail. When you buy a Sephora gift card, the cashier carefully places it in a compact mirror, puts the compact into a black gift bag and tucks in red, accordion-folded tissue paper. A customer could literally take the gift card directly from the store to the birthday party. You can do something similar for your customers, but you don’t have to give the contents away for free. Display your nail salon gift card next to a selection of nail polishes or hand lotions that cost less than $10 a piece. Place your restaurant gift card next to your famous barbeque sauce. Show the items packaged together in a cute bag that customers can buy as well. (Or give a branded bag away for free.) If you don’t have small items to sell, order seasonal merchandise like Christmas stockings for the holidays or chocolates for Valentine’s Day. Candles or picture frames work year-round. Taking this step gives you the opportunity to up-sell other products in the store and it helps customers envision your gift card as a complete, presentation-ready gift.
3. Sell eGift Cards
As customers move towards mobile payments, they will increasingly look for ways to send gifts electronically. Since you’re setting up a gift card program anyway, make sure you select a supplier that can move you into the future with a digital solution. Sell both plastic gift cards that you will ship and egift cards that you will send on your website. With a mobile-enabled website, customers don’t even have to come into your shop to buy and send your cards.
4. Build Relationships
One of the great advantages of electronic and mobile gifting is that the merchant has to gather contact information for both the giver and the receiver. Without being obnoxious, you can use that opportunity to invite both parties to receive email newsletters, special offers, sale notices and other marketing messages. Since you will also know whether or not a gift card has been redeemed, you can reach out to the holder of the card and with additional offers–“Redeem a gift card this weekend and save 10% off your entire purchase.”
5. Reward Loyal Customers
Many gift card programs also have customer loyalty programs that can be added or integrated into a gift card system. However, you don’t need an official loyalty program to take care of your best customers. Reward frequent shoppers with gift cards when they reach a spending threshold, send a gift card in the mail to a big spender you haven’t seen in a while or email a bonus egift card to customers who send egift cards the day before Christmas.
6. Make “Buy One, Get One” (BOGO) Offers
Large retailers often advertise BOGO deals around major holidays. For example, you might give a customer a free $10 gift card when a $100 gift card is purchased. Rewarding the giver creates the opportunity to bring two gift card shoppers back to your store. If the person buying the gift card buys it solely for the purpose of getting the extra $10 in spending power, then so be it. The customer is obviously a brand fan and likely to overspend the sum total anyway. (You can also give out coupons with purchase, but gift cards carry more prestige.)
7. Drive Post-Holiday Shopping
Gift cards purchased at the end of the year are most often redeemed at the beginning of the following year. Gift card redemption during this time can boost what is typically considered to be a slow selling season. So, offer customers incentives to come back and spend their gift cards. Gift Card Weekend, for example, “is a once-a-year event where participating retail partners encourage shoppers to use the gift cards received during the holiday season.” This “official” weekend is typically in January, but you can make yours any day of the year. Just be sure to advertise the promotion to customers who have outstanding gift cards.
8. Give Cards Instead of Cash
When a customer returns merchandise with or without a receipt, offer a gift card in exchange. The money stays in your store and the shopper is encouraged to find something else to buy. Posting the store’s new return policy may also decrease fraud since shoplifters will know they can no longer steal merchandise, return it without a receipt and get cash back.
9. Donate Cards to Fundraisers
When schools and charitable organizations ask for fundraiser donations, offer gift cards instead of merchandise or full-value services. You’ll reach more potential customers and don’t have to give away merchandise that might not be appreciated. For example, if you donate a gift basket filled with $100 worth of products, the goods leave your store and you will likely never see the person who won the basket. If you donate a $100 gift card instead, the merchandise stays put and the winner will have to visit your shop in order to redeem the card. Two $50 gift cards will net you two customers, and so forth. (See Gift Card Laws below for additional insight on donating gift cards.)
10. Reward Employees with Gift Cards
Rather than cut checks or buy less useful incentive products (e.g. trophies, logo t-shirts, mugs), where applicable, reward top salespeople and other star performers with gift cards. Not only does the money come back to your business, but employees get the opportunity to act like customers—try the food, buy the fashions you’re selling or use the services offered. You may get valuable feedback in the process. (If a gift card to your store doesn’t translate well as an employee gift, then order prepaid branded gift cards instead.)
That’s just the beginning. I truly believe any business should be able to make a gift card program profitable. For some, that means customers buy their gift cards in droves and recipients quickly return to the store to shop. For others, a gift card is more of a marketing tool that businesses use for sales incentives, customer rewards, “come back” offers and more. I do find that smaller businesses frequently make the mistake of simply putting a gift card display on the counter–or worse–putting a stack of gift cards underneath the register. One store owner told me she removed her card display because kids were taking the cards. I would suggest moving the display to a higher level, replacing it with one that does not hold physical cards or more fully analyzing the tradeoff. Is losing ten cards to kids in a month worth sacrificing what you might earn in potential gift card sales? Not in my mind. When in doubt, I suggest following the example set by large department stores in making sure your gift card is visible and available in as many places as possible.
How Gift Card Laws Apply to Your Small Business
Let me preface this section by saying that I am not an accountant, lawyer or tax adviser and cannot give specific advice for your business. The summaries below should be used for general informational purposes only and are not a legal reference. Please consult professionals in these areas for information on how to apply both federal and state gift cards laws to your business.
Federal Gift Card Laws
In 2009, the Credit Card Accountability Responsibility and Disclosure Act (a.k.a. CARD Act) was signed into law. This law, which primarily addresses credit card issues, also included new rules for gift cards in these key areas:
- No Fees for One Year. The law prohibits charging dormancy fees, inactivity charges or service fees, unless there has been no activity for 12 months. Also, there can be no more than one fee charged per month, and the fee terms must be clearly disclosed prior to purchase. (The law suggests the terms can be written on gift card packaging, but I think you should put it on the back of the card to be safe.)
- No Expiration Less than Five Years. Expiration dates of less than five years are also prohibited. Any expiry date must be clearly disclosed prior to purchase. Again, I would suggest putting the expiration date, if any, on the card itself.
- Activation Fees Allowed. Activation or reload fees are allowed if the fee amount (or explanation of how the fee will be determined) is clearly disclosed prior to purchase.
- Phone and Promotional Gift Cards are Not Covered. Prepaid phone cards, promotional gift cards, loyalty cards and paper gift certificates are not covered by these rules. If you donate or give a gift card to a customer (in other words, the customer does not pay for the card), then expiration dates and fees are allowed. However, the terms must be clearly disclosed.
- State Laws That Provide More Protection Take Precedence. If there is a conflict between state and federal law, the more stringent will apply. For example, in California, closed-loop gift cards may not expire. So, even though federal law gives consumers a five-year window to use their gift cards, California consumers have even more time. Please refer to your state gift card laws for more information.
Printing and Practices
The challenge for small businesses is to create a gift card program that complies with the laws, knowing that the vendor you select may not be familiar with the regulations in your area. For example, in California, gift cards with a value of less than $10 that previously had a higher balance can be redeemed for cash. If you are a California-based merchant, than you’ll need to ensure your system allows this function (and will need to train your staff on how to perform it.) Additionally, you’ll want to be sure your cards are printed to disclose how you will treat expiration, fees and so forth. It’s a good idea to speak with your legal adviser prior to printing cards and setting store policies.
Promotional Gift Cards
Many businesses use gift cards for marketing purposes such as donating gift cards to fundraisers or sending free gift cards to customers who haven’t visited the store recently. Because the gift card is issued without charge, the merchant has the option to give the card an expiration date–as long as the expiration date is clearly disclosed. However, since smaller merchants typically only keep one gift card design in stock, printing various expiration dates for each marketing effort isn’t feasible. Rather than print new cards, small businesses simply allow their promotional gift cards to remain valid. However, your accountant will still need to know which cards were paid for and which ones were given away. So be prepared to create a manual system or work with your gift card vendor to distinguish the two programmatically.
Outstanding Gift Cards
What happens with unredeemed gift cards? Though we’d prefer gift card recipients come into your shop to redeem their cards, realistically, the number and value of outstanding gift cards will grow over time. The unused money (called “breakage”) has to go somewhere. The process of legally moving that money to a default owner is called “escheatment” and the laws dictating where the money escheats to vary by state.
With open-loop gift cards, the answer is easy. The gift card provider and the issuing bank is responsible for complying with federal and state laws regarding unused card values. That burden, however, shifts to the small business owner when a closed-loop program is in place. The best thing to do is talk to your accountant and ensure the gift card vendor you select provides accurate and detailed reporting. Whether booked as deferred revenue or as a liability and whether or not the unused money is ultimately yours to keep or has to be given back, your accountant will need to know what gift cards are outstanding at all times. The more information you can provide, the easier it will be to manage.
I hope, by now, any confusion over whether or not you need to start a gift card program has been eliminated. You need one. It’s that simple. Yes, I’ve had small business owners tell me they don’t need a gift card because their service isn’t giftable. I disagree. Carpet cleaning service? That’s a perfect gift card to welcome new homeowners, to celebrate a new baby or to thank party hosts. Dental practice? Perfect back-to-school gift card for families. Gas station? You bet. Send an egift card to your out-of-town college student so she can fill up her tank before she heads home for the holidays. When I say that every business should have a gift card, I mean it. Maybe you don’t need a program with all the features a retail owner needs, but having at least one gift card consumers can buy is a must. Once you have that program in place, then you darn well better tell customers about it and help them see the value in picking your Main Street gift card over one that feeds Wall Street. If YOU don’t think your business is giftable…then nobody else will either.
About Gift Card Girlfriend
|From gift card tips and practical advice, to inspiring ideas and insights into the gift card industry, Shelley Hunter, Gift Card Girlfriend and spokesperson for GiftCards.com, is your go-to guide. As a gift card expert, she can address any gift card question or concern you have, plus share her signature way of turning gift cards into thoughtful, personalized gifts.
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Happy Gift Carding!
~Shelley Hunter, Gift Card Girlfriend