Gift Card Revenue: The Gift that Keeps on Giving
‘Tis the season of gift giving. And what better way to celebrate than offering gift cards for your restaurant. 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 print hundreds of holiday-themed 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, and 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.
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
Selling gift cards is a great way to generate immediate cash flow for your restaurant. The holidays require extra expenses like decorations and specialty ingredients. Selling gift cards is a great way to get an influx of cash at a time of year when expenses can be high.
Unlike most food and beverage products that you sell in your restaurant, gift cards don’t go bad. This allows you to take advantage of things like bulk pricing if you’re ordering physical gift cards without having to worry about throwing out excess inventory.
But if you’re stocking up on physical gift cards make sure you steer away from seasonal branding. That way, if you don’t sell them all during the holidays you can continue to sell them throughout the year.
Things to Consider when Implementing Gift Cards
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, a Product Specialist for xtraCHEF, 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 world-renowned restauranteurs including Stephen Starr and Bobby Flay.
Unused gift cards are another important consideration, but rules vary by state. Federally, gift cards can’t expire for five years, while states like California have even stricter policies. When it comes to accounting for unused gift cards there are a few standard best practices regardless of the laws in your state.
Digital vs. Traditional or Both?
When offering gift cards, it’s important to decide which medium will be most effective for your restaurant. Technical considerations like the capabilities of your POS system (more on that later), the ease of implementing gift card ordering on your website, and the cost of purchasing traditional gift cards are important to consider.
Additionally, it’s important to think about your clientele. If your customer base skews older it might not make sense to go with a digital-only offering while Millenials and Gen Z are less likely to hold on to physical cards.
Before implementing any type of gift card, it’s essential that you understand how to manage them in your POS. Looking for resources on your POS provider’s website (like Toast’s Gift Card FAQ) is key to preparing to launch a new program. 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.
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.
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