If you’re running a restaurant and have not yet made the decision to use gift and/or loyalty cards, let’s take a moment to look at some numbers.

More gift cards are purchased for restaurants than any other business type, except for department stores. Most gift cards require the recipient to visit your business at least twice to redeem the value of the card. Businesses that switch from paper gift certificates to gift cards typically see a 50-100% in sales of gift items. Customers that spend more than the amount purchased on the gift card (about 60% of them) generally spend about 60% more than the value of the card. And, finally, about $41 billion in gift cards went unused between 2005 and 2011. What does that mean for you, the business owner? Statistically, it means more sales and incentives for customers to visit or return to your establishment.

While some owners harken back to the old days of paper gift certificates with ornate designs and plenty of room for a personal message, this model is not-so-slowly going away. Modern consumers are less concerned with the “keepsake” quality of a gift certificate than they are with the convenience of a plastic gift or loyalty card. The question is not should you use gift or loyalty cards, it’s a matter of which service best fits your business.

Let’s begin by distinguishing between gift cards and loyalty cards (though they may be the same physical card!). Gift cards are credit-card sized plastic cards that hold a pre-purchased value for redemption at a specific retailer. The value of an individual card may be stored locally at the restaurant level, a low-cost option we will discuss further below, or they may be redeemed through a gift card service, which stores and maintains the data related to your gift cards. The big upside of using such a third-party service is that the gift card may be tracked and redeemed at any location you choose. Loyalty cards, on the other hand, are based on a points system, where the user gains rewards based on items purchased or dollar amounts spent. These points may then be redeemed for discounts or free items, based on predetermined levels. Just as with gift cards, this data may be stored locally or through a third-party, web-based service.

The local gift card option is attractive because of its low cost. Generally, a POS system will have a custom method of dealing with the need for gift cards. Through POSitouch, one need only to purchase the gift card module (a one-time fee) and the actual cards you will be selling. Be sure to consult with your POS dealer before purchasing gift cards, as there are requirements for the numbering of the cards that must be confirmed for the POS system to recognize them. Once you have your license and gift cards, a few minutes of programming later, you’ll have working gift cards! All the data – which gift cards have been issued, which have been redeemed, what values remain on the cards – is stored locally to your POS system’s main computer. There are no recurring fees, other than the purchase of new gift cards. There are, however, limitations to this setup. Because the data is stored local to the business, the cards will not work at any other location. So, if you have two or three locations, the gift card may only be used at the location from which it was purchased. Our general rule of thumb is this: POS-based gift cards are a great option if you have a single location and have no plans to ever operate more than one location for your business. If you think that, someday, you will open a second location, it is to your benefit to use a third-party gift card from the beginning.

But what about these third-party providers? They’ll be sure to charge a monthly fee, so what’s the benefit? Unlike the locally-stored gift cards, these third-party providers are retaining all this data on their servers, securely and safely, so that your customers are able to look up remaining values on their card at any time without your involvement. A computer crash in your restaurant would never result in the loss of gift card data, an unfortunate possibility with POS-based gift cards. Despite the fact that using a third-party provider, such as Givex or Paytronix, will cost more than the POS-based alternative, it allows your customers easy access to information about their gift card and provides the flexibility for the cards to be used at any location you choose. The majority of our customers use a third-party provider for these reasons.

Loyalty programs have the same limitations as their gift card counterparts. While POS-based loyalty is certainly possible, third-party providers will offer more flexibility. Regardless of whether the information is stored locally or on the servers of a loyalty card provider, it is still up to you, the business owner, to determine the rules for your loyalty program. What items will be used to count towards rewards? How much should they count? What are the rewards? Will you be running a special program, such as a special dessert based on your customer’s birthday or anniversary? All of these things are possible, but you must have a clear vision of how you want your loyalty program to operate so that your customers and your POS support staff have an understanding of how your program works. The same card can be used for both gift and loyalty, but you may choose to consider these two programs separately. Also, you may decide to incorporate tiers into your loyalty program, where recurring visitors may be entitled to greater discounts. In many cases, your loyalty card provider may charge more for services that use these kinds of tiers, so be sure to inquire what services are available and what price structures are associated with each.

A recurring theme in these discussions has been the need for you, the business owner, to have a precise vision of what works best for your business, and the use of gift and loyalty cards is no different. Gift card usage is rising, and shows no sign of going away. If you’re not using gift cards, statistics would imply that you are allowing a revenue stream to pass you by. But, before diving into those waters, be certain what limits the types of gift cards pose, as well as the cost. For loyalty, be aware of what types of services are provided by different outlets, and decide what fits your business best. And, as always, use your POS dealer as a resource to help you navigate the process and advise on the best solution for you.