Think about your favorite fashion or lifestyle brand for a second. Chances are, they offer gift cards. The gift cards business model is not just convenient for customers: it’s a proven strategy that helps both big and small businesses drive revenue. By offering gift cards, you can generate instant revenue, improve customer retention, and expand your brand reach all at once.
This is an opportunity you don’t want to miss out on as a store owner. In this guide, we’ll explore what the gift cards business model is, how retailers can profit from it, and easy tips to help you get started! Let’s get right into it.
What Is The Gift Card Business Model?
The gift cards business model is a marketing strategy where retailers sell prepaid cards that customers can use for future purchases. Gift cards can be physical or digital, and they’re often sold in a range of denominations to suit different needs and budgets. They’re a popular gifting option for shoppers year-round due to their convenience and flexibility.
This model leverages the convenience of prepaid value. When shoppers buy gift cards from your store, they pay upfront even before a product or service is delivered. This creates an additional revenue stream and encourages repeat visits once the card is redeemed.
Gift cards are also incredibly versatile. They can be used as loyalty program rewards, upsell incentives, or even as an alternative refund option. For ecommerce store owners, this model is a smart way to grow revenue and improve customer retention.
How Do Retailers Make Money From Gift Cards?
The gift cards business model opens multiple revenue opportunities for store owners. Beyond the upfront sale, they also influence shopping behavior in powerful ways—from increased spend to repeat visits.
Let’s explore how stores make money from gift cards and what makes it a smart strategy.
1. Increased average order value
According to industry insights, 61% of customers end up spending more than the value of their gift cards, averaging $31.75 more than the card’s original amount. This behavior is common because gift cards create a sense of spending freedom, especially when they’re gifted. Since the customer didn’t spend their money to get the card, they’re often more open to spending beyond the card’s value.
When redeeming gift cards, shoppers are more inclined to add items to their carts, upgrade to a premium product, or explore new categories. This naturally leads to higher average order values (AOV), boosting your bottom line.
2. Offers more opportunities to upsell and cross-sell
Shoppers redeeming gift cards are already in an exploring and spending mindset. This gives store owners more opportunities to nudge them towards additional (and relevant) purchases.
To encourage this behavior, consider setting up product recommendations on product pages or during checkout. For example, you can show compatible accessories or upgrade options based on the products your customers are browsing. These subtle cues in the shopping journey make it easy for gift card users to discover related products that can enhance their shopping experience without being too pushy.
3. Some gift cards go unused
Some customers forget to redeem their gift cards entirely—physical cards can get misplaced, or digital gift cards can get buried in emails. According to industry reports, 43% of US shoppers have unused gift cards, amounting to around $23 billion in unclaimed value. This is known as breakage, and it’s a common occurrence in the gift cards business model. For store owners, breakage is essentially revenue without the cost of fulfilling an order or a service.
4. Offers holiday & seasonal sales boost
Gift cards are the perfect go-to gift for last-minute shoppers, making them incredibly popular during the holiday season. According to a recent survey, 56% of holiday shoppers in 2024 reported purchasing a gift card, showcasing an 8% increase from the previous year.
This seasonal demand makes the gift cards business model a great addition to your year-round marketing strategy. To make the most of this, consider highlighting gift cards in your promotions during key shopping periods. You can use homepage banners, email campaigns, social media posts, or even curated holiday gift guides to spotlight your gift card offerings.
By planning ahead and intentionally weaving gift cards into your campaigns, you can unlock an additional stream of revenue during the busiest times of the year!
Want to learn more about gift card promotion? Check out our gift card marketing guide for inspiration and strategies! 🎁
5. Expands customer reach through gifting
Shoppers who purchase gift cards from your store are essentially “gifting” your brand to others. With a card to redeem, these recipients are more likely to visit your store and explore what you offer. If they’re satisfied with their shopping experience, they’re likely to return and become loyal, repeat customers.
This makes the gift card business model a smart strategy to spread brand awareness and attract new customers to your store.
Gift Card Tips And Best Practices To Help You Get Started
Now that you understand how the gift cards business model drives revenue, the next step is learning how to make it work for your store! If you’re just starting out, check out some of the best practices to remember below:
1. Offer multiple denominations
Making your gift cards available in different values can help you cater to different budgets and gifting needs. For example, you can offer options like $20, $50, and $100. This makes it easier for customers to find a card that fits their needs.
💡GOOD TO KNOW: WooCommerce Gift Cards allow store owners to offer variable gift cards in custom amounts. No need to create a separate product listing for each gift card value.
2. Make gift cards easy to find in your store
Consider creating a dedicated product page or navigation menu for your gift card products to make them easier to spot. You can also feature gift cards on your homepage, website banners, and social media during key gifting seasons like Christmas and Valentine’s Day.
Big retailers like Amazon do this well. They have a prominent “Gift Cards” tab in their main menu, leading to a dedicated gift card shop with categories for different occasions.
3. Remind customers of balances
Sending friendly reminders about unused gift card store credits can be what inspires a shopper to come back and make a purchase. Thankfully, most gift card management plugins allow you to automate these emails.
If you’re using Advanced Coupons, for instance, you can set store credit reminders to be sent after a certain period of inactivity, and even choose the exact time the email goes out. This keeps your store top-of-mind and encourages customers to use their remaining balance.
4. Enable personalization
Make your gift cards more appealing by letting customers personalize them! This can be as simple as letting them add a custom message, schedule the delivery date, or choose a card design that fits the occasion. These small touches can go a long way in making the gift feel more meaningful.
💡GOOD TO KNOW: WooCommerce Gift Cards make it easy to allow personalization at checkout. With the “Send To Friend” option, you can enable custom messages and let shoppers choose from multiple gift card variations.
Frequently Asked Questions
Are gift cards good for business?
Yes! Gift cards help store owners attract new customers, bring new faces to their store, and boost average order values. Gift card recipients often spend more than the value of the card, boosting your store’s revenue. They’re also highly versatile for your marketing strategy. You can use gift cards to reward loyal customers, recover abandoned carts, or tie them to your seasonal bundles and promotions.
Do companies make money from unused gift cards?
Yes. This is known as breakage, and it happens when gift cards go unredeemed. In these cases, the store keeps the revenue without needing to fulfill a service or product order.
Do gift cards increase sales?
Yes, gift cards increase sales in many ways. They provide business owners with upfront revenue when sold, and often lead to purchases that go beyond the card’s original value. What’s more, they boost sales during holidays and special occasions, thanks to their popularity with last-minute shoppers.
Start Selling Gift Cards In WooCommerce Today
After learning about the gift cards business model, you’re likely excited to implement this strategy in your own business. Plugins like WooCommerce Gift Cards make this easy.
With our plugin, you can start selling customizable gift card products, allow personalization at checkout, track redemptions, and set automated store credit emails to encourage use.
Dive into our complete setup guide today to learn how start selling gift cards in WooCommerce! 👉
Wrapping Up
If you’re looking for new ways to expand your reach, boost sales, and build customer loyalty, the gift cards business model is worth looking into. By selling gift cards, you help happy customers spread the word about your store and bring in new shoppers who may become repeat customers themselves!
In this guide, we walked you through everything you need to know, including:
- What the gift cards business model is and why it works
- How retailers make money from gift cards
- Best practices to help you get started
- Answers to frequently asked questions
- How to start selling gift cards in WooCommerce
Tools like WooCommerce Gift Cards make it easy for you to start leveraging this strategy to grow your business. Do you have any questions about this topic? Let us know, we’d be happy to help. 🤗
