Instant cash flow, long-term loyalty: Gift cards 101

We’ve all gotten a gift card at some point—and likely given a few to friends and family—but have you ever considered selling them yourself? From clothing boutiques to specialty food shops, small businesses use gift cards to boost immediate cash flow, attract new customers, and increase sales. 

This is especially true during peak shopping seasons like the holidays: In 2023, Statista reports, 50% of U.S. consumers said they planned to buy gift cards, and during the holidays, millennials forecasted that they’d spend over $450 on gift cards (in fact, 75% of millennials have used a digital gift card, the most of any generation). 

But how to create your own gift cards? Should you carry physical gift cards or go digital? How should they be designed? Read on for exactly how to create your gift card so you can take advantage of this easy moneymaker. 

The gift card: A quick rundown

Easy, reliable, and popular

When a customer buys a gift card, they pay you upfront, and you add a predetermined amount of money onto the card. The recipient can then use the card to make purchases until their balance—which you can track electronically—is exhausted. 

• Physical gift cards resemble credit cards and are swiped at the point of sale. 
• Digital gift cards are codes sent via email or text message, redeemable online or in your store.

The beauty of the gift card is that it allows you to secure funds in advance and often leads to higher spending. According to a Capital One Shopping Research study, 61% of consumers spend more than the value of their gift cards—on average an extra $31.75! Consumers are also 2.5 times more likely to pay full price when using a gift card. 

Gift cards = Instant capital

One of the most significant benefits of offering gift cards is, of course, the immediate cash infusion. When a customer purchases a gift card, the money is received upfront, often well before the actual product or service is redeemed. This influx of cash can be particularly beneficial during slow periods or offseasons, providing essential liquidity that you can use for various business needs, like stocking inventory, paying staff, or marketing. 

What’s more, a considerable percentage of gift cards are either not fully redeemed or never redeemed at all: 47% of American adults have unused gift cards, and the total value of these unspent funds in the U.S. is around $23 billion. 

Expand your customer base

An easy, cost-effective tool for expanding your customer base, gift cards act as a form of word-of-mouth marketing. Satisfied customers who purchase gift cards are brand ambassadors, sharing their favorite products or services with friends and family. This introduces your business to new potential shoppers who might not have discovered you otherwise. 

Additionally, recipients of gift cards are often more willing to try out a new store or service since they aren’t spending their own money upfront (and because the gifter obviously endorses your shop). This provides an excellent opportunity for you to make a strong first impression and convert these recipients into loyal customers.

Boost sales during holidays

Gift cards are a particularly effective way to boost sales during the holiday season. As gift-giving becomes a priority, customers often seek convenient, versatile options that can suit various recipients. Gift cards are common last-minute gifts, with 32% of people having purchased a physical gift card on the same day as gifting it.

Choosing the right card for your store

Physical vs. digital cards

Physical gift cards can be displayed at the point of sale or mailed to customers. They’re ideal for in-person transactions and can act as an extension of your brand identity and aesthetic, serving as a constant reminder of your store. 

Digital gift cards are conveniently delivered electronically via email or text message, offering instant gratification. Less risky and more cost-effective, they can also be tracked and managed through digital platforms. If you do a digital card, it can be incredibly handy to enable it to be part of any given customer’s digital wallet. If possible, give them the option to design and personalize their cards with notes and photos. 

Open loop vs. closed loop

Closed-loop gift cards account for 64% of cards purchased and are limited to a specific retailer (or group of stores). The revenue generated stays within your store, which is ideal if you’re looking to drive repeat visits and foster brand loyalty.

Open-loop gift cards account for 15% of cards purchased, are issued by major credit card companies like Visa or Mastercard, and can be used at any location that accepts the relevant payment network. These are obviously quite flexible for the recipient but can incur higher fees to your business. 

How to create gift cards for your business

1. Choose a provider

Most cloud-based point-of-sale (POS) systems offer their own gift card functionality or will integrate with a third-party gift card app.

Consider Square, Shopify, Lightspeed, and Clover, which all offer comprehensive gift card solutions for small businesses. Gift card apps—like GiftFly, Gift Up, Tango Card, Givex, and Yiftee—work as a separate system that allows you to create and sell gift cards directly through the app. 

Whichever you choose, make sure you evaluate the fees associated with setup, transaction processing, and any additional services. Look for providers that offer:

• User-friendly management tools
• Robust reporting features
• Customization options to align the cards with your brand identity
• Integration with your existing point-of-sale (POS) systems and e-commerce platforms 

2. Design and order cards

Your gift card should reflect your brand’s identity, leveraging your logo, colors, and font styles to build a cohesive look. If you’re opting for physical cards, consider the quality of the material, as this can affect the card’s durability and perceived value. For digital cards, ensure the layout is user-friendly and makes it easy to redeem. Most providers offer design tools or templates to help you create a professional appearance. 

During the holidays, add a festive touch to your gift cards to increase their appeal: 43% of holiday shoppers prefer gift cards with holiday-themed images, and 24% prefer wintry landscapes. Another thing to consider when offering design options is that 56% of consumers give gift cards for milestone events such as weddings, anniversaries, and baby showers.

After finalizing the design, order the cards in quantities that match your sales projections. 

3. Establish gift card policies

Gift card policies are essential for both you and your customers. Transparency, clarity, and consistency are key: Ensure that all terms and conditions are explained at the point of sale and printed on the card or included in digital communications. Start by defining important terms such as card expiration dates, if applicable, and any associated fees. Some additional policies to consider:  

• Decide whether your gift cards are refundable, and if they can be replaced if they’re lost or stolen. 
• Consider local and federal regulations regarding gift cards, as these can vary by region. 
• Outline how balances can be checked and if partial payments are allowed.
• Note whether you can use the gift card across all channels (online, in-store, and on mobile).

Having well-defined policies not only protects your business from potential disputes but also enhances customer trust and satisfaction.

4. Market your gift cards

To maximize impact, you’ll want to incorporate your gift cards into your marketing strategies. Many digital gift card services and POS systems offer promotional features across social media and on your website. You also add a link on your social media handles to make it easy for those viewing your profile to click and buy.

In your physical store, position your cards near the checkout or create a display that highlights how the cards could be used (for example: buying the fixings for a picnic or getting a recent graduate set up for their first job with all the right office supplies). If you have employees, train them to suggest gift cards to customers who don’t know what to get someone. 

Use email marketing to inform your existing customer base about the availability and benefits of gift cards, especially during holidays. Offering limited-time promotions, such as a discount on gift card purchases or bonus cards for buying a certain amount, can encourage sales. 

To expand your reach to a broader audience and build community credit, you could also:

• Partner with local influencers or bloggers to promote your gift cards.
• Use gift cards as thank-yous to loyal customers, encouraging them to return.
• Instead of offering a promotion, give customers the same amount in the form of a gift card to encourage repeat business.
• Sell your physical gift cards at other stores (you might want to offer them something as well: You could display their gift cards, stock something from their store, or promote their services).

5. Integrate with your point-of-sale (POS) system

To efficiently manage your gift card program, it’s crucial to integrate it with your POS system. This allows you to easily sell, reload, and track gift card balances directly, reducing the risk of accounting errors. 

Additionally, POS systems can provide valuable insights into gift card usage patterns, helping you refine your marketing strategies. Features like automated reporting, customer data collection, and inventory management can further streamline operations. 

Cash in on gift card loyalty

Easy to fold into your sales and marketing strategy, gift cards are pretty much guaranteed to bring in at least two customers: the one buying the card and the recipient. Relatively simple to set up and economical to maintain, a gift card program is a great way to increase cash flow, expand your brand, and build awareness—with both new and existing customers.