The Ins and Outs of Gift Certificates for Restaurants
If you think a restaurant gift certificate or gift card is just another holiday stocking stuffer, think again.
For modern restaurants, gift certificates and gift cards are some of the smartest, lowest-lift ways to drive revenue, grow brand visibility, and bring both loyal fans and new faces through your doors.
Whether you’re running a trend-forward snack bar or a busy local coffee shop, a well-run restaurant gift card system can give you upfront cash flow, boost average ticket sizes, and unlock valuable customer data.
In this guide, we’ll break down how restaurant gift certificates and gift cards actually work, their benefits, and how to account for them properly. Plus, we’ll answer common questions to help you launch or level up your own program with confidence.
How Do Gift Card Programs for Restaurants Work?
Gift card programs for restaurants are a powerful way to boost revenue and build customer loyalty. Here’s how:
1. A Customer Buys a Card, You Get Paid Up Front
When someone buys a gift card (physical or digital) or gift certificate for restaurant use, your restaurant receives that money instantly. That’s cash in your pocket before an order is even placed. Many customers won’t use the full balance right away, or at all, which means more revenue is retained.
We’ll dive deeper into it later, but this is called breakage revenue. Companies like Starbucks use this breakage revenue as an interest-free loan for credit, amassing over $200 million in 2024.
2. The Recipient Becomes a New or Returning Customer
Gift cards and certificates bring people through your doors. Whether it’s a loyal regular treating a friend or someone trying your spot for the first time, gift cards and gift certificates create a low-risk, high-reward reason to visit.
3. Easy Redemption at Checkout
Modern POS systems make gift card and certificate redemption seamless. You can scan them from a phone or swipe them at the counter, making it a smooth, staff-friendly process.
4. Built-In Loyalty Potential
Gift cards and certificates can also tie into your loyalty program. With the right tech, you can track usage, follow up with tailored offers, and even reward the person who bought the card in the first place. Some loyalty programs will help you pair gift card purchases with mobile wallet credits and special promos to keep both givers and recipients engaged.
5. Valuable Customer Data
Gift card and certificate transactions can help you collect contact information and learn about buying behavior from customers. That’s fuel for future marketing, more foot traffic, and smarter promotions.
What Are the Benefits of Offering Gift Cards at My Restaurant?
Gift cards and gift certificates are a proven revenue booster and marketing tool for restaurants. Here are some statistics that show why more and more restaurants are using them:
- People Spend More Than What the Card Is Worth: Customers often spend 500% of the value of their gift card or gift certificate for a restaurant. When someone walks in with a $20 gift card, they’re not aiming to hit exactly $20. They’ll likely grab an extra drink, dessert, or upgrade, possibly spending up to 5X more than the card’s value.
- Unused Balances Mean Extra Revenue: On average, people are sitting on $240 worth of unspent gift cards and gift certificates for restaurant use. Many cards go partially or completely unused, which means your restaurant keeps the money.
- Younger Generations Use Gift Cards: 45% of Gen Z and 35% of Millennials prefer digital gift cards and gift certificates. Getting in on the ground floor and offering something of value to this younger audience is essential to long-term growth.
- Gift Cards Get Used Quickly: 76% of consumers report redeeming gift cards and certificates within the first month of receiving them, meaning they are a reliable way to drive visits sooner rather than later.
- More Gift Cards, More Margin: Starbucks makes around 10% of its income from unredeemed gift cards. This helps them collect invaluable data on their customers. However, you don’t need to be Starbucks to think like Starbucks. Use gift cards to do double duty: drive income and feed your marketing engine with actionable insights.
Do Gift Cards Increase Restaurant Revenue?
Yes, in fact, a gift card or gift certificate for restaurant use can contribute to 5% of a business’s revenue. Here’s how:
- Instant Cash Flow: When someone buys a gift card or certificate, you get paid up front, even if the meal doesn’t happen for weeks (or ever). That means more predictable revenue and fewer slow days.
- Upsells and Group Orders: Customers rarely spend just the gift card amount. They treat it like “free money,” making it easier to say yes to premium menu items, add-ons, and even extra meals for friends.
- Repeat Visits & New Guests: Gift cards bring in both loyal customers and first-timers. Whether it’s a regular treat for a friend or someone trying your spot for the first time, gift cards turn into real visits, and often start a habit.
How Do You Account for Gift Card Sales at Restaurants?
Selling a gift card or restaurant gift certificate might feel like revenue, but accounting for gift cards doesn’t automatically count towards net revenue. Here’s how it works:
- Liability: When a customer buys a gift card or gift certificate, your business receives cash, but you’re also taking on a commitment to provide food or services in the future. That’s why gift card sales are first recorded as deferred revenue (a liability), not as earned income.
- Revenue Recognition: When accounting for gift cards, you only record the sale as revenue once the gift card is redeemed and the customer gets their meal. This approach ensures your financial statements match up with actual customer activity.
What Is Breakage Revenue and How Does It Apply to Gift Cards?
Some cards or certificates are never fully used. That leftover value is called breakage and can eventually be counted as revenue.
Under ASC 606, which governs revenue recognition in the U.S., breakage should be recognized gradually, based on how likely it is that the remaining balance will ever be used.
That’s why many restaurants analyze restaurant gift certificate usage patterns over time to estimate and report breakage correctly.
What Should I Include in a Restaurant Gift Card Policy?
A clear and well-written gift card or restaurant gift certificate policy protects your business and customers. It sets expectations, avoids confusion, and makes sure everyone understands how the card or certificate can be used. Below are some key phrases you should consider including in your gift card terms:
- Treat this card/certificate like cash. It will not be reissued or refunded if lost, stolen, or used without authorization.
- This gift card/certificate is valid only for purchases at [Your Restaurant Name] locations and cannot be redeemed for cash, unless required by law.
- The card/certificate may be used for goods and services up to the remaining balance. Purchases exceeding the balance will require an additional form of payment.
- This card/certificate is non-refundable and cannot be exchanged for cash, credit, or check.
- By using this card/certificate, the bearer agrees to the terms outlined here.
- If the card/certificate is inactive for more than 18 months, a monthly service fee of [Amount] may be deducted until the remaining balance reaches zero.
- This card/certificate remains the property of [Your Restaurant Name] and may not be resold or used for promotional purposes without permission.
- Card/certificate balances can be checked in-store or online at [website or platform name].
Drive Revenue With Gift Certificates for Your Restaurant
A gift card or gift certificate for restaurant use is a strategic revenue channel, marketing tool, and gateway to lasting loyalty for restaurants. From upfront cash flow to increased foot traffic and actionable customer data, the benefits we’ve laid out are clear.
And with TapMango, you can take it even further!
Instead of a one-time transaction, TapMango turns your gift cards and certificate holders into repeat customers. Issue cards that carry cash value, unlock discounts, or offer specific products. When that card or certificate is redeemed, it automatically becomes an ongoing loyalty card, meaning you keep customers longer and earn more revenue from your relationship.
Ready to turn your restaurant gift certificates and gift cards into your most powerful growth engine? Book a TapMango demo today.
FAQs
Are restaurant gift cards taxable?
Generally, restaurant gift cards or certificates are not taxed at the time of purchase because they represent future goods or services. Sales tax is typically applied when the card or certificate is redeemed for taxable items.
From an income tax perspective, how and when you recognize revenue depends on your accounting method. Cash basis restaurants usually report income when the card is sold, while accrual basis businesses may wait until it’s redeemed (with some exceptions under IRS guidelines).
Unused balances, or “breakage,” may eventually be recognized as income, but the rules can vary. For full compliance, it’s best to consult a tax professional familiar with local and federal regulations.
Can small restaurants offer gift cards without a POS system?
Yes, small restaurants can offer gift cards or certificates without a POS system. Gift cards and gift certificates can be managed manually or through simple digital tools. You can track balances using spreadsheets, issue physical cards with unique codes, or use basic online platforms to sell and redeem digital cards and certificates. It’s an easy, affordable way to generate revenue and encourage repeat visits, even without a full tech setup.
!