Gift Card Revenue: The Gift that Keeps on Giving

‘Tis the season of gift giving. And in a holiday season like no other, it’s more important than ever to factor gift cards into your restaurant’s strategy. Gift card revenue is a great way to generate immediate cash flow, boost your brand, build your customer base and encourage repeat visits from new and existing customers (a win-win-win, right?).

But before you rush off to make a big push for gift cards, it’s important to do your homework. Here, we’ve compiled the good, the bad, and the technical when it comes to implementing gift cards for your restaurant.

Benefits of Gift Cards

Attract New Customers

Gift cards are a great way for your loyal customers to introduce your brand to their friends and family. Word of mouth is an important marketing tool for any restaurant, especially with limited foot traffic this holiday season. Empowering your supporters to give the gift of a meal is a great way to grow your customer base.

Increased Revenue Opportunities 

Generating gift card revenue is essentially risk-free for your restaurant. Unlike when you offer coupons or run promotions, you don’t risk shrinking any delicate margins by selling gift cards. When a gift card is redeemed, customers generally still pay full price for your food and drinks (and actually spend an average of $59 over the gift card value).

Some customers won’t use the full amount of their gift card during one visit, leading to return visits and more opportunities to impress and upsell. Ideally, for every gift card that is redeemed you can expect to add a new, loyal customer to your base.

Immediate Cash Flow

As demonstrated by the popularity of restaurant gift cards during the pandemic, selling gift cards can help generate cash flow for your restaurant. The holidays require extra expenses like decorations and specialty ingredients. Selling gift cards can help offset the high seasonal expenses.

Things to Consider when Implementing Gift Cards

Accounting Considerations

While gift cards present an opportunity to generate revenue, it’s important to note that the revenue should not be recognized when the gift card is sold, but should be instead accounted for when the gift card is used.

According to Alexia Fimmano, an xtraCHEF by Toast Product Manager, restaurants must hold all gift card sales as a liability on their balance sheets until the gift card is used. Once used, the sales revenue can be recorded and the liability balance sheet account reduced.

“This is not only a best practice, it’s a rule,” says Alexia. “Doing so incorrectly would not only mess up your Cost of Goods Sold numbers, but it would cause you to falsely report your revenue since you’d essentially be counting it twice.”

Alexia knows a thing or two about restaurant accounting. She has spent over 14 years working in Operations and Finance for restauranteurs including Stephen Starr and Bobby Flay.

Unused gift cards are another important consideration, but rules vary by state. When it comes to accounting for unused gift cards there are a few standard best practices regardless of the laws in your state. You can also check out this post that focuses on accounting considerations when selling restaurant gift cards.

Going Digital is a Must

In previous years, restaurants had to make a decision of whether to sell physical or digital gift cards based on their clientele, POS system, etc. These days, offering digital gift cards is a must. Not only are buyers more likely to purchase gift cards online, but gift exchanges are more likely to happen virtually and the gift cards are more likely to be redeemed online.

POS Capabilities

Before implementing any type of gift card, it’s essential that you understand how to manage them in your POS. Some POS systems administer gift cards via third-party. Other POS systems such as Toast have fully integrated restaurant gift card programs.

Considerations include whether it can handle physical or digital gift cards (or both) and whether or not your POS will allow tipping on gift cards. You’ll also want to check if gift cards integrate with takeout systems, like with Toast TakeOut.

How to Promote Gift Cards

If you’ve decided that selling gift cards is the right move for your business, the next question is how to get the word out.

Promoting gift card sales through your website, social media, and email list are a great, low-cost ways to reach your loyal customers. If you’re trying to reach an even wider audience, posting gift cards on an aggregation platform like Rally for Restaurants or working to get your restaurant featured in a local publication is a great way to drum up business.

The Gift that Keeps on Giving

Gift cards can be a great addition to your business, especially around the holidays, providing a myriad of benefits and little risk for your business.  But when launching any new program it’s important to have all the pieces in place before rushing head on into the holiday rush.