The Definitive Guide to Gift Card Marketing – Part 4

Return on Investment

Typical gift and loyalty card services can be quite affordable for even the small business owner. Once you understand how great your return on investment can be, odds are you’ll want to implement a gift card strategy ASAP!

Gift and loyalty card programs have four main costs:

  1. Initial set-up cost: $0-$400 fixed, one time cost
  2. Monthly maintenance/system access $19-$59-monthly on-going fee
  3. Gift & Loyalty cards: $0.80-$1.50 – card price depends on artwork requirements (Custom only)
  4. Loading & unloading card transactions $0.20-0.25 for loyalty cards (Custom Only)

These costs can vary depending on your individual business needs. Regardless of specific costs, a small business owner needs to understand that gift cards are profitable and increase sales for two main reasons:

Let’s look at how Breakage” and Uplift” increase profits:

Gift and loyalty cards have indirect benefits. This is where the “REAL PROFITS” lie in gift cards.

Not everyone will use all of the money on their card and many people will spend more than the value of the card in your store.

  • In fact, studies have found that people will usually spend 10-30% more when using a gift card, which is known as “Uplift” in the industry.
  • Add to that the fact that 5-15% of all cards are never fully redeemed – a phenomenon the industry refers to as “Breakage” – and you are left with even more profits from your gift card marketing programs.

Let’s use the worst-case scenario numbers in this example:

Let’s say you sold $7500 worth of gift cards. This is an example of what you might expect:

$7500 X 10% “UPLIFT” = $750 extra profits due to customers spending more because they see the amount on the card as “free money”.

$7500 X 5% “BREAKAGE”= $375 never redeemed due to a percentage of customers that never spend the full amount on the gift card.

Therefore, in this example you just made an extra $1125 in profits from your Gift Card Marketing Program.

Even if these were the only gift cards you sold all year and you never cycled them, you would still stand to profit.

Typical Example Case Study Expense on a Gift Card Program:

$199 in initial costs
$39.99 X 12 months = $480
$480 + $199 = $679 in costs
Potential Profits equaled $1125.

$1125 – $679 = $446 in extra profits on the same product that you would have sold without a gift card program.

In the example above you just increased your sales by 5.9% without changing a thing you other than selling the gift card instead of the product. You can obviously increase your sales much more, but we wanted to use a conservative example to keep it real!

HUGE BONUS: GIFT CARDS CAN ALSO REPRESENT PRE-PAID CASH FLOW

Assuming that you have paid around a dollar a card for a semi-custom-designed card, that is your total cost, no matter what the face value. If you sell a gift card with $500 loaded on it, it has only cost you a buck at the point of sale. You now have $500 in your register and your “Cost of Goods & Services” for that card was 1/5th of a one percent. Need short term capital? One the quickest and easiest ways to raise capital is with a gift card promotion.

I know a merchant who needed a short-term capital loan. Instead of trying to get financing from a bank or an alternative lender, he held a contest with his employees to see who could sell the most gift cards in one week. He offered whoever sold the most gift cards a bonus commission of 5% on the total amount dollars sold on the gift card promotion. He needed an extra $10,000 to play with within a week.

He had 12 employees. The winner sold $3,500 worth of gift cards and the others averaged just under $1000 each. He made just under $13,000 sold in one week on gift cards. He paid the winner a bonus commission of 5% on the dollar amount sold, which was $175. He just received a short-term loan of $13,000 for $175. We haven’t even factored in “breakage” and “uplift” into this equation. Oh, did I mention that loan of $13,000 he doesn’t have to pay back? GET THOSE GIFT CARDS ON THE STREET!!!

SIDENOTE: Know your legal obligations when it comes to Gift & Loyalty Cards.

There are good reasons why many of the big store chains have an aggressive Gift & Loyalty Card Program in place!

Gift & Loyalty Card Services Quote

Fill out this form and we will get back to you with a merchant account quote within 24 hours on business days.
  • Tell us your most important questions about gift & loyalty card services or any important notes you think we should know about.

Tags:

About Admin

Matthew Hunt has been helping small businesses get set-up with Canadian Merchant Account Services since 2007 and helped 1000's do so. Join Matthew on Google+.

No comments yet.

Leave a Reply