Gift cards aren't a new or unusual way to promote your business. But did you know it can be a great way to boost your profit margins? The reason? Up to 20% of gift cards are never redeemed. They simply get lost and forgotten. In 2012 gift cards accounted for over $100 billion in sales in the US. That means that roughly $20 billion was free money to stores. To put that in perspective, all of McDonald's globally, generated $28 billion in revenue in 2013. Another trend... gift card buying increases every year. It's a quick and easy gift so lots of people want and give gift cards.
I was speaking with someone who's family owns a Michael's retail store. Michael's is one of those large box hobby and craft stores. He said that 8% of gift cards from their store never get redeemed. Hmmm... so the national average is 20% and a typical big box franchise in my area is 8%. Gift cards seem to have a lot going for them. Based on this alone, gift cards could be an excellent idea for your business whether its merchandise or service.
Here are a few other things to consider.
Gift Card Pros
They can help boost immediate and short term sales - especially around major holidays.
Many cards end up being given to people who aren't your customer and now have a major incentive to try you out.
Gift cards make for very easy promotions (i.e. 15% off a card, etc.) without affecting any specific merchandise pricing, alienating prior purchasers or violating merchandising agreements.
Gift card giving is on a trend increase for the last decade.
A relatively large number of cards are never redeemed.
Gift Card Cons
There is a cost to create and track cards.
Even though a gift card is never redeemed it's still going to be an accounting liability for awhile. Each state has different laws about this but typically it's 5 years until you can account all the cash as revenue. On the flip side, you collected the cash upfront to use in your business so you might not care at all.
You have to protect the cards like cash or have appropriate protections in place to prevent fraud.