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How to Start and Manage a Restaurant Gift Certificate System

With so many benefits to having a gift certificate system, you'll soon wonder why you haven't already launched your own. If you already know about these benefits, maybe the numerous gift card programs made you pause. Open-loop, closed-loop, restricted, unrestricted – which one is best? Read on for a full description of the benefits, as well as your gift card program options.

The Benefits of Offering Gift Cards

The top benefit of offering gift cards or certificates to your customers is increased profits. You may wonder, "How do I increase profits with a gift certificate? I sell it for $20, the recipient spends $20." True in theory, but not in practice.

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A 10-year study by First Data reveals that 72 percent of gift card recipients spend more than the face value of the gift card. At fine dining restaurants, the overspend amount averaged $24, casual restaurants was $16, while coffee shops and fast food places saw bumps of $6 and $4 respectively. This is because gift certificate recipients frequently splurge with gift money, purchasing items they normally deem too expensive. At a restaurant, this frequently presents as purchasing cocktails or dessert with their meal.

Another way a gift card program increases profits is by growing your customer base. In that same study, 11 percent of recipients said they never or rarely visited that location.

If you run a small restaurant, offering gift cards helps you compete with large franchise operations. Restaurant gift cards are popular choices for anniversary and wedding gifts as part of a couple's night out gift, for parents to give their college-aged kids, and for anyone looking for a gift for someone when they just don't know what to buy.

Choosing a Gift Card Program

Carefully consider the following choices to determine which program works best for your restaurant.

Closed-Loop Programs

A closed-loop program features gift cards only good at your location. Your first stop should be checking with your merchant bank or current credit card processor, which often offer closed-loop cards. These cards lack some of the customization features available though a gift card vendor (option two), but you know for sure whatever card you choose will work with your existing credit card terminal. If you choose to go through a gift card vendor's closed-loop program, make sure the vendor's cards works with your terminal. Ask your credit card processor about any partnerships it has with gift card vendors.

Open-Loop Restricted Programs

Open-loop gift cards have no ties to a particular location, instead working anywhere that accepts a particular network, such as Discover. You may also pay a premium that restricts usage to your own location. Some businesses choose to operate a combination of closed-loop and open-loop gift card programs.

Open-Loop Unrestricted Programs

This program removes all restrictions (as the title indicates), functioning as a gift card with your logo on the front, but which may be used anyplace that accepts the associated credit card. It requires no system integration, and your cost is practically nil.

Open-Loop Branded Prepaid Card

If you prefer to offer gift cards as a reward for customer loyalty, order open-loop branded prepaid cards. With these cards, you prepay for the gift cards at the time you order them, and may order small quantities or bulk amounts.

Managing the Gift Certificate Program

The first step to build interest in your gift card program is a prominent display so that customers know you offer them. Smaller businesses tend to hide away their gift certificates as a preventive measure against theft, expecting customers to ask about gift cards if they're interested. Instead, take a lesson from grocery stores and their famous impulse buy displays near the register. No store takes up valuable retail space for something that doesn't work.

You may also choose to run special promotions to encourage customers to buy gift cards, such as 10 percent off their purchase, or a free $10 gift card for every $100 worth of gift cards they buy. You can also offer promotions that benefit the gift card recipient, such as 10 percent Tuesdays, where you offer 10 percent off on all gift card purchases.

Switching from paper certificates to plastic cards typically increases gift sales, as customers prefer the convenience, especially if you also offer reloadable cards. Cards also guard against fraud, since customers can't photocopy a plastic card.

No Time Like the Present

Starting and implementing a gift card program takes time. If you hope to launch before the next big gift-giving holiday, start sooner rather than later. Staff needs training on the new system, and you want time to work out any kinks before being inundated with demand. Happy selling!

Author: Angela Escobar

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