Although gift cards have become an integral part of most retail and restaurant locations, many business owners still do not understand the intricacies of them.
Very few merchants are aware of the true return on investment for the design and printing costs they have incurred or that the main way this cost is recouped is through non-redemption.
Non-redemption, consumers purchasing cards but never using them, is the most common way for a gift card program to pay for itself. In fact, a study conducted by The Tower Group estimated that $41 billion in gift card money is currently unredeemed. The majority of large retailers have reported redemption non-redemption rates between 19-26%. (i.e. cards over 3 years old)
Now imagine you were able to buy 500 gift cards in bulk for $1 each and your non-redemption rate on them is 20%. Keep in mind these are conservative numbers.
Here are a few examples of how your business makes money on your initial $500 investment.
- A clothing store sells 50 gift cards at $50 each. The sale of the cards creates $2500 of revenue and the 20% non-redemption rate equals $500 of saved inventory which covers the initial investment.
- A candy store runs a 10% discount on $100 gift cards meaning customers pay $90 but receive a $100 gift card. Selling 50 gift cards plus the value of the 20% non-redemption rate covers both the initial card cost and the discount given. Here it is broken down more clearly:
- Cost of promotion = $500 (50 cards X $100 X 10% discount)
- Cost of Cards = $500 (500 X $1)
- Breakeven Cost = $1000 ($500 promotion cost + $500 card cost)
- Value of Gift Cards Sold = $5000 (50 cards x $100 value)
- Non-redemption Value = $1000 ($5000 card value X 20% non-redemption)
As you can see, the non-redemption rate of 20% has covered the breakeven cost alone. The rest is all profit. Another thing to remember is that the non-redemption also covers a discount of up to 20%.
Gift cards are sometimes viewed as a necessary evil but they should actually be promoted as much, if not more, than the products sitting on the shelf or in your kitchen.
Cloud POS is a full service point of sale company selling gift cards for terminals, Vend POS and Lavu POS . We print and design all cards in house which saves you money and gives you more creative control.
To learn more about gift cards, point of sale or to speak to a POS expert please call 888-773-1222 or email info@theposcloud.com