Does your business run a gift card program? If not, you must invest in it to boost the company’s sales and cash flow. Gift cards have become popular over the years for several reasons. Redeeming a gift card is pretty convenient and easy. Many retail companies offer rewards or points for buying gift cards.
Introducing a gift card business model in your company can generate traffic. Most people purchase gift cards online rather than visiting retail stores. When the eGift card recipients visit your eCommerce store to check the balance or for activation, it will increase the traffic.
The best part about a gift card is it helps increase brand awareness. These wallet-sized billboards are considered the most requested gifts for birthdays or weddings. So, you must start selling gift cards to generate more business revenue.
Let’s learn how businesses with gift card model earn money:
How Businesses Earn Money with Gift Card Model?
Small-large businesses make money in different ways with gift cards. The most obvious way is through selling the customers to earn profits. Since they are extremely cost-effective, many people buy them for their necessary products.
Here is how gift cards increase the businesses’ sales:
1. Remaining Card Balance and Fees
Two types of gift cards can be found in most retail stores – open-loop and closed-loop. Open-loop card issuers charge the buyers an up-front fee to cover the production and processing cost. However, no additional fees are needed to be paid when buying close-loop cards.
Businesses also make money from unspent open-loop card balances. Let’s say you have a $40 balance on your card and haven’t used it before it expired. The company will transfer the balance to their business account in such instances.
When does an open-loop gift card expire? Gift cards usually last for a year and might vary from one issuer to another. Some gift cards expire 3-5 years after the product purchase. The gift card issuer will get the money if you forget to use them within this limited time.
Many businesses charge a penalty fee if gift cards are redeemed after a year of purchase. Companies also make a profit when customers buy something with the gift card.
2. Overspend Gift Card Balance
Gift cards usually have a sufficient balance of $25, $50 or $100. Customers with a gift card find an item which costs more than the balance limit. So, they end up spending the gift card’s whole amount to purchase the product in one visit. The more the balance spent on the card, the more profit the businesses earn.
3. Monthly or Yearly Fee
Some retail companies charge a minimal monthly or yearly gift card fee for using it. Moreover, many businesses charge a transaction fee every time you use the card for in-store or online purchases.
You might be surprised that high-value gift cards sometimes work as credit cards. Businesses earn interest on the money used from these cards. It is a significant revenue source for most leading retail companies.
4. Referral
Gift cards help customers to buy their required products at a low price. They would refer others to purchase the company’s gift cards if they like the item. It ultimately helps businesses to build brand value and increase sales.
Some gift cards offer customers $10-$25 incentive rewards. They will visit the issuing merchant to purchase the product or to collect this incentive. The company also makes money whenever a buyer uses the card for bulk purchases. So, you must add the gift card model to your business to drive new customers and earn profit.
5. Customer Data
Some gift card companies earn money by selling customer data. They claim to collect and store these data for marketing purposes. However, retail companies sell these customer details to other businesses to make money. Some businesses utilise this data to understand customer preferences and requirements.
What are the Different Gift Card Business Models?
If you have a gift card, you can visit a grocery store without cash or credit cards. These cards help businesses to track the buyers’ spending habits. It has become an integral business part and an effective marketing strategy.
Businesses mostly use these two gift cards to generate revenue:
1. Prepaid Debit Gift Card
Most customers look for prepaid debit gift cards for their wide acceptance. You can use this gift card anywhere that accepts debit cards. The best part about the prepaid debit gift card is it is renewable. So, customers can add balance from the store or online whenever they need.
2. Closed-Loop Gift Card
A closed-loop gift card is another popular type of gift card model. This card can’t be used everywhere like a prepaid debit gift card. It can only be used in the retail store from where you have purchased it. Closed-loop gift cards can’t be renewed. So, you must buy a new gift card if the old one has a zero or low balance.
Can You Use All Gift Cards for Online Purchases?
Businesses offer closed or prepaid gift cards for specific purposes. Some retail companies let customers use the gift card for online purchases. Others offer these cards only for buying store items. So, you must check the gift card’s purpose before purchasing it to avoid inconveniences when shopping.
Types of Gift Cards Businesses Offer:
Different companies offer customers different gift cards for purchasing products at discounted prices. Knowing these cards’ functions is essential before giving them to someone. Here are the most common gift card types the businesses offer:
1. Barcode Gift Cards
As the name implies, this gift card contains a barcode which must be scanned for the in-store purchase. Customers can use these gift cards in retail stores and restaurants. These business gift cards have the option to reload the balance. Every gift card has a unique barcode, helping the stores easily find customer details.
2. Magnetic-Stripe Gift Cards
This gift card ensures data safety, as thousands of business owners use it. Customers can add balance to the magnetic-stripe gift cards. It saves the hassle of buying new cards when the existing one has zero balance.
Magnetic-stripe gift cards have similar functions to debit and credit cards. Cardholders must insert and swipe the card in the machine for the in-store purchase. Open the retail company’s site or app to see the deducted amount.
3. Electronic Gift Cards
Electronic gift cards, known as eGift cards or digital gift cards. It provides more flexibility and convenience than magnetic-stripe or barcode gift cards. eGift cards are also easy to use. Customers can buy this gift card only for online purchases.
Digital gift cards don’t have a production cost, helping businesses to save money. These cards enhance the customers’ shopping experience. Companies don’t need to stick to business hours to sell eGift cards. Customers can purchase them anytime from the company’s website.
How to Start a Gift Card Business Program?
Starting a shift card program seems complicated for new entrepreneurs. However, it is pretty easy, simple and affordable. Many companies utilise high-end point-of-sale systems for gift card integrations. It helps to track the sales history and redemption numbers.
Contact a reliable third-party vendor who sells gift cards. If you want to design your card, connect with an experienced expert. Ensure to stock adequate gift card quantities so that everyone can access them.
Besides, you must set a gift card expiry date and inactivity fees. Train your employees about the card activation process and how to sell or advertise them to customers.