The Pros and Cons of Selling Gift Cards

by Teresa Harris

The Pros and Cons of Selling Gift Cards

According to PwC Canada’s 2020 Canadian Holiday Outlook report, 59% of survey respondents don’t plan to travel during this holiday season. With that, there’s a good chance many individuals are spending the holidays away from family and friends and will opt to purchase gifts online and ship them directly to the recipient, or they will purchase something small that can be mailed. 

You know what’s small and can be mailed, by snail mail or email? Gift cards!

Now before you install a gift card Shopify app and start selling, it’s important to consider the potential effect offering gift cards could have on your business — goodand bad. 

Here are the pros and cons of selling gift cards on your Shopify store. 

Pro: It’s easy

Setting your Shopify store up to sell gift cards is pretty simple. Here’s a handy tutorial on how to sell gift cards that can get you started. If you want to add more personalized gift card design options, there are lots of great apps to choose from. Best of all, the product listing for a gift card doesn’t require much in the way of design, copy, or product photography, so it takes very little investment on your part to start selling them and bringing in additional revenue.

Pro: Spreads the word about your business

When most people purchase a gift card, it’s with the intent to give it to someone else, usually under one of two scenarios: the gift-giver knows their friend or family member loves your store, or they love your store themselves and want their friend or family member to enjoy it as well. Either way, by offering the option to purchase a gift card, you’re creating brand evangelists and attracting new customers to your business.

Pro: Opportunity to upsell

When customers redeem a gift card, there’s a good chance that they’ll spend more than the value of the gift card itself. This is huge because when the gift-giver purchased the card, they likely had a set budget in mind and if they had opted for a physical product instead of the gift card, they would have probably stayed within that budget or even spent less. However, when someone redeems a gift card to purchase an item for themselves, they will generally spend a bit more because they know they already like or need that specific thing and are thus willing to make the extra investment. By shifting the product selection from the gift giver to the gift receiver, you increase your chance of making a higher value sale.  

Pro: It makes shopping simpler for your customers (and reduces returns)

This time of year, everyone is looking for ways to reduce stress and simplify their holiday shopping. When you give your customers the option of purchasing a gift card rather than having to pick something out, you’re letting them off the hookand reducing the chance of products being returned by unsatisfied recipients once January comes around.

Pro: Extends the holiday shopping season

January is the top month for gift card redemption. While this means you may have a higher number of customer service inquiries well past Boxing Day, extending your holiday sales period gives you the opportunity to keep engaging and potentially upselling customers, preventing a January slump in sales. 

Con: They require some extra book-keeping

Unlike regular products, you wouldn’t record a gift card sale as revenue. Instead, the sale of a gift card should be recorded with a debit to ‘Cash’ and a credit to a liability account such as ‘Gift Cards Outstanding’. In other words, you record the sale of a gift card as an obligation to provide merchandise or services for the value of the gift card. Only when the gift card is redeemed for merchandise is it recorded as revenue. 

If you currently do all of your accounting yourself, you should read up on these practices before committing to selling gift cards.

Con: You might see customer service inquiries rise

Any time you add a new product or system to your shop, you open the door to glitches and confused or upset customers. During the busy holiday shopping season, any amount of added work — particularly time-consuming customer service or tech troubleshooting — can feel overwhelming. To prevent an onslaught of inquiries or technical difficulties, test and re-test your gift card fulfillment and redemption process before you start advertising them, ensuring the customer experience is as smooth and straightforward as possible. 

Con: There is a risk of fraud

Gift cards are anonymous. This means a scammer could purchase a gift card and then any additional activity tied to that gift card — like buying merchandise for unauthorized resale — would be untraceable.

The primary ways fraudsters use gift cards to commit financial crimes are tied to stolen payment data. In other words, scammers get ahold of an innocent individual’s credit card information and use that info to purchase untraceable gift cards which are often then resold for cash or used to purchase high-value items online. In some cases, hackers will use phishing, SQL injection, employee manipulation or accidental data exposure to steal gift card numbers in bulk.

Now before you rule out gift cards altogether, there are lots of ways you can prevent your business and your customers from being victims of gift card fraud. They include tracking your gift card data; strengthening internal controls and paying closer attention to employee activity; monitoring brand mentions on gift card trading sites; and making data security a priority. 

All in all, gift cards are an excellent way to increase sales, please your customers, and create a new source of revenue in your business that doesn’t require much upfront investment. That said, there are some things you need to consider before launching this new product. We recommend brushing up on Shopify’s latest security guidelines to ensure your business and customers are protected, as well as enlisting the help of a professional accountant to prevent any confusion or headaches when you go to balance your books. 

Teresa Harris
Teresa Harris