Gone are the days when gift cards were just an afterthought or a last-minute present solution. Today, gift cards are the pillars of many top brands' business strategies. Starbucks is the name that comes to mind for most but they are not alone. You can see success with gift cards with many other brands and e-commerce is falling behind. In this article, we are going to dive into why e-commerce brands should sell more gift cards.

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1. Create Positive Cashflow: Every business strives for financial agility and resilience. After all, cash is king. Anyone that has run an e-commerce business for a while understands this. Positive cashflow and profitability are two different things.

Gift cards play a crucial role in improving your positive cashflow. When customers buy a gift card, they essentially give you money for a piece of paper that says "I owe you".

This upfront money is huge for business owners. It allows for you to invest into inventory, purchasing Facebook ads and much more!

The way I look at it, gift cards are a 0% interest loan. In a world where the average business loan interest rate is between 6% - 30% being able to get a 0% interest loan is a HUGE win.

2. Improve Return Customer Rate: Building loyalty in e-commerce is not easy. One of the biggest challenges merchants talk about is "how to increase repeat purchases". After all, it is great to get a customer but long term value (LTV) is how you build generational company.

Increasing customer loyalty increases LTV and gift cards are loyalty magnets!

They are a gentle nudge that encourages previous customers to revisit and reengage.

This is especially powerful if you give discounts to incentivize people to buy them. An example of this could be "buy a $120 gift card for $90”. I watched this exact deal 20x one of our merchants gift card sales during the 2022 holiday season vs 2021.

This is just one example but it is an innovative way to attract and retain new customers for your store. By giving them an offer you almost guarantee an additional purchase.

3. Boost Profit Margins

While increasing revenue is essential, the ultimate goal of a business is to make a profit. The more you can increase your margin the greater your profit can be. Gift cards provide an unassuming yet effective way to achieve this.

The goal is to sell gift cards in order to get people to use them but there will always be some of the balance leftover. Imagine you have a Starbucks gift card with $25. If you buy $24 worth of coffee you will have $1 left. $1 isn't enough for another coffee so you never use the rest of the gift card. This money is margin for Starbucks. In fact, in 2021 Starbucks had $181 million of unused gift cards. This goes directly to their profit.

You are not Starbucks, you will not have hundreds of millions of dollars of unused gift cards. That said, consider the iziGift merchant I mentioned above. Their store has more unused gift cards from the gift card sale in 2022 than total gift cards sold in 2021. That alone is huge for their business.

4. Improve Average Order Value:

The psychology behind gift card usage is interesting. For consumers, spending a gift card feels like they are using 'bonus' money. This often leads them to splurge a little more than usual.

According to a study done by First Data, most people spend $59 more than the original value of their gift card. This increase can be huge for a business, especially if the purchases are during slow months. An example of this would be selling a gift card during the holiday season that activated in January. This would increase the average order value and improve revenue when its needed most.

5. Reduced Product Returns:

One of the biggest headaches running a growing e-commerce business are returns. In fact, ecommerce return rates are 2-3x higher than brick and mortar. This leads to increased logistical challenges and eats into profits. This is no good but gift cards are an amazing way to avoid this.

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Here's an example, when someone purchases a gift for someone else there is a good chance they get it wrong. Maybe they purchase the wrong item or the wrong size. This can lead to a return

When a customer purchases a gift card for some else they don’t run into the problem. The person they are purchasing the gift card for is more likely to choose products they want. This reduces the chances of returns and increases happy customers and profits 😁.

6. Enhanced Brand Exposure: Gift cards are more than just a purchasing tool; they act as pocket-sized brand ambassadors.. While the customer might be familiar with your brand, the gift card recipient might not know you at all.

This gives your customers a great way to share a brand they love. This also allows your business to tap into fresh audience segments. Any marketer will tell you, personal recommendations are the best form of marketing. Such gift card purchases lead to enhanced brand trust and loyalty.

7. Increased Urgency to Shop:

Some gift cards have expiration dates. This creates a ticking clock in the recipient's mind which makes them buy quicker.

Beyond the limitations of time, gift card recipients want to utilize the card's value. They know if they don't the value of the card is zero dollars.

The combination of time and value ensure that gift card recipients shop with urgency.

8. Gifting Convenience for Customers:

Selecting the perfect gift for someone is a challenge. As mentioned above people often get it wrong and it leads to an increase in returns. Gift cards are a great solution to this.

Gift cards eliminate the guesswork. Givers don’t have to know exactly what the recipient wants. They don’t need to know their size, they just need to know where they shop. This is especially important during the holiday season when gift cards are the #1 gift.

9. Data Collection Opportunity:

In today's digital age, data is invaluable. Every interaction, every purchase, every click provides insights. Gift cards are no exception.

Each gift card sale or redemption helps you learn more about your customers. This can give you insight into their preferences, contact information, spending patterns, and more. This can allow you to better tailor your marketing to be more relevant, and effective.

10. Reduce Tax Liability:

Navigating the intricate world of taxes is a tough task. Every strategy that can assist in reducing tax liability is always great news. Gift cards can often fit this role.

When customers buy gift cards, they give you cash but you do not provide goods or services. Depending on the way you do your taxes and where your business is this can help decrease your tax liability. This is because you can delay the recognition of the gift card revenue until the gift card is redeemed. Doing this enables gift cards to help businesses reduce their tax liabilities.

In conclusion, gift cards extend beyond mere convenience or last-minute gifting. They're assets for your business. They drive revenue, build brand value, and enhance customer relationships.

For e-commerce brands, they represent an untapped potential, waiting to be harnessed.

If you are a brand that wants to see just how effective gift cards can be for your Shopify sales strategy let us know. We would love to help you experience the power of gift cards through our app iziGift. This will allow you to leverage the best strategies to take your gift card program to the next level.

Click HERE to elevate your gift card game today!