September 23, 2021

The Do’s and Don’ts of Selling Restaurant Gift Cards

by Jillian Straw

Individual entities across the hospitality industry pivoted in many different ways during the height of the pandemic and associated closures. They went from fine dining to drive-in burger shack. They pivoted from sit-down dining experiences to specialty grocery stores offering meal kits. And they went from complimentary continental breakfast to complimentary COVID-19 testing

But there was one common revenue stream that all hospitality businesses could lean on: gift card sales.

Although gift card sales for restaurants lagged in 2020 (unsurprising, given the uncertainty around reopening and safety measures at the time), they’ve made a major comeback in 2021. Paytronix recently reported that restaurant gift card sales for this year rebounded to 91% of 2019’s sales in May and June alone.

The public is ready to be out and about again. And for restaurants who are looking to make up for the lost time of 2020, pushing gift card purchases is a great place to start. Before you go all in on gift cards, make sure you know the do’s and don’ts of dealing with them.

Restaurant Gift Cards and Accounting

Do: Generate immediate cash flow with gift card sales

Gift card sales can be a great way to generate quick cash flow at your restaurant. You might be most used to promoting them during the holidays back in “normal” times, when decor and seasonal ingredients can cause budgets to burst. With restaurants having felt the squeeze of restrictions for over a year and a half, selling gift cards can help you get an influx of cash while you’re still trying to play catch up.

Revenue from restaurant gift card sales is almost risk-free. They don’t shrink margins, unlike coupons or promotions; and when gift cards are redeemed, customers usually spend an average of $59 more than the gift card’s total value. And if the entire value of a card isn’t used, it’s just more motivation for a customer to return. We’ll talk more about driving customer loyalty with gift cards later in this article.

Don’t: Forget to account for gift cards properly

Yes, gift cards are a quick way to generate revenue. But this revenue shouldn’t actually be recognized at the time when the gift card is sold; instead, it should be accounted for when the gift card is actually redeemed.

Until a gift card is used, it should be considered a liability on a restaurant’s balance sheet. This will ensure your cost of goods sold (COGS) numbers stay correct and help avoid the chance you’ll record the sales revenue twice. At the time of redemption, the liability balance can be reduced and sales revenue can be officially recorded as taxable income on a P&L statement. 

Since gift card sales are liabilities, it’s important to think about the possibility that gift cards might not get redeemed—or at least take a long time to come back onto your balance sheet. On a national scale, gift cards aren’t allowed to expire for five years, but those rules can vary by state

Before pursuing a gift card program for your restaurant, you should seriously examine your motivation. If you need the cash advance for a significant amount of unpaid bills or if you’re depending on gift card sales to keep your restaurant afloat for another six months, you may want to reconsider.

The cash influx from gift cards should be budgeted thoughtfully so your restaurant can still have time to make up the liability; if your restaurant closes after you’ve pushed gift cards, you’ll owe customers money. 

Need more help with accounting? Check out our guide to restaurant accounting software.

Restaurant Gift Cards and Customer Acquisition

Do: Use gift cards to build your customer base

Gift cards don’t just generate cash flow: they offer your restaurant a great opportunity to grow brand awareness, build a bigger customer base, and even deepen relationships with existing clientele. 

If you’ve decided that a gift card program is right for your restaurant, use it as a way to drum up interest in your business. Post about it on your social media channels and encourage followers to tag and share the news; after all, word of mouth is an incredibly powerful tool for restaurants. If the numbers work out, you might even want to offer a promotion, like $20 for a $25 gift card, that makes the purchase more enticing.

As you know, some customers using gift cards won’t use the full balance during their first visit. This leads to a second opportunity for your business to impress. Each time a gift card is redeemed, the restaurant has a chance to acquire a new loyal customer. Make the most of every interaction with these customers to keep them coming back—and to increase the chances they’ll introduce even more new customers to your brand.

Don’t: Overinvest in marketing your gift card program

In marketing, there’s a common phrase when it comes to content distribution: you have to pay to play. But for restaurants, especially those working on a smaller scale, this isn’t necessarily the case.

Beware of any restaurant marketing strategy that depends too heavily on paid placement, like Facebook, Google, or Yelp ads. Depending on the demand for certain keywords (like “pizza shop near me”), your spend can easily get out of control with little to no guarantee on return.

Don’t overinvest in marketing, especially when it comes to gift card promotion. Remember: they’re supposed to help your restaurant with cash flow, not reduce it! Your website, email marketing, and social media platforms are all perfectly fine for you to use to get the word out about your gift card program—but they’ll perform even better if you already have a dedicated, engaged fan base.

Keep checking the blog for more tips about how to market your restaurant at little to no cost.

Restaurant Gift Cards and Accessibility

Do: Meet the moment by offering digital gift cards

COVID-19 forced a seismic shift across industries from physical, paper-based processes to as much automation and digitization as possible. We’ve seen invoice automation become more common in the restaurant industry, credit cards make way for vCards, and ACH payments reach an all-time high. Gift cards haven’t been left behind.

The growth of the physical gift card market is 6% year over year. But digital gift cards are growing by 200%! It’s a win for customers who have grown accustomed to having everything accessible on their phones, including banking information and payment methods, and it’s also a win for restaurants.

With digital gift cards, there’s no need to spend money on printing physical gift cards and associated packaging. Plus, it’s easier to track when they’re sold and when they’re redeemed—making your accounting team’s job a bit easier and your business better prepared for an audit.

Don’t: Make digital gift cards incompatible with your POS

Digital gift cards should make accounting easier in theory. If your program is incompatible with your point of sale (POS) system, you could be opening your business up to a world of issues.

Before implementing any type of gift card program, it’s absolutely vital to understand how they’re managed within the POS. Consult your POS provider—either a website, customer support line, or your assigned account manager—to ensure you know what is and isn’t possible. You may even want to ask if there are any specific gift card providers they work with for smoother transactions, or if they offer the capabilities themselves.

One last thing: don’t forget to ask if your gift card program will allow tipping! Avoid frustration for your staff and make sure they get taken care of by knowing the program’s capabilities to support tips in advance. 

Want to know more about digital tip disbursement? Read all about it on our blog!

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