There are two main ways of purchasing eGift cards. One method sees the manual ordering of individual rewards to be held as inventory in a virtual warehouse, just waiting to be sent. Each eGift is for one specific brand and value (e.g. £100 for a supermarket) and cannot be changed.
The other option is to procure your eGifts instantly, on-demand, through a gift card API. Forward-thinking companies are increasingly taking advantage of this route, which does not require an inventory, as the cards are purchased only when they are needed.
Each side has its pros and cons, but there is a major difference between the two methods in terms of the impact they have on your cash flow. Let’s explore the first option in a bit more detail.
The problem with holding stock
Some providers maintain that a stock-based system is the logical way of ordering rewards. In theory, if your business sends thousands of eGift cards on a given week, it could make sense to build a library of options to choose from. You then already have the rewards at your disposal.
This level of ownership does, however, come at a significant cost. Here are a few points to consider:
Stock… Ties up cash
‘Warehousing’ eGift cards usually mean paying up-front and waiting for someone to need them. Due to manual ordering processes and long delivery times, you might have to make your purchase a week or two ahead of when they’re expected to be used. After that, who’s to say the original order will even come through?
Your money is then completely tied up until someone else decides they need a batch of eGift cards, which is by no means guaranteed. Every stage brings uncertainty and problems for your cash flow.
Stock… expires
As each eGift card has to be used within a certain timeframe (typically of around 18 months), you are essentially putting an expiry date on your own cash. It’s not the smartest of decisions, particularly when that money could go towards growing your business. Instead, it holds you back.
That money is also non-refundable, which brings damaging consequences if the retailer goes out of business. Figures from PwC reveal that 14 shops close every single day as a result of the current retail climate. And when they do, gift cards are among the first things to be declined.
Given the number of big-name retailers that entered administration in 2018, it’s near impossible to know where and with whom your money is safe.
Security risk
All of your eGift cards have to be stored somewhere. This is like a red rag to a bull, and an invitation for cyber attackers to roll up and give it their best shot.
We know of one company that is so fearful of being targeted, they actually store their eGift cards on a “cold”, offline laptop, which is held in a safe each evening.
In 2019, holding ‘money’ in an online database is the virtual equivalent of putting a big “open” sign above your front door, encouraging the criminals to “try here next”.
Stock… cost
Placing or processing manual orders for eGift codes is repetitive and inefficient. It requires plenty of back and forth between the retailer (seller) and corporation (buyer) and that’s without mentioning the huge cost to human resource. Days can be spent invoicing, reconciling payments, chasing orders, forecasting demand and uploading files over the course of a busy month.
Some companies do analyse the financial impact of their processes. However, there is a huge opportunity cost in the time spent ordering stock, rather than improving and optimising other parts of the business. In one estimate, the opportunity cost of cash being tied up in eGift card stock on interest alone comes in at around £20,000 per year.
Companies that transition to an automated, API-driven system typically report a six-figure cost saving, added to an 80% reduction in hours spent on their eGift operation, which averages at £72,000. They also have the luxury of repositioning staff to other revenue-generating and cost-controlling activities.
The new revenue opportunity is worth a mention on its own. Companies offering instant, open-value eGift cards report a sales increase of around 40%, as the product engages a whole new audience. For established programmes, this can generate a minimum of £10 million in new sales, which at a 1% margin equates to a further £100,000 in revenue. With a possible total value of £200,000, real-time eGift card programmes offer a large and positive contribution to the top and bottom lines.
Stock… is unpredictable
Truthfully, it’s impossible to forecast the precise amount of rewards you need over a given period, and there will always be some degree of uncertainty. This applies to the type of cards you’re buying as well as their value. For instance, do you buy 50 gift cards worth £50, or 25 worth £100? Attempting to gauge and predict demand can be unnecessarily stressful and ultimately wasteful.
Forecasting stock also brings pressure you could really do without. We’ve heard so many stories of businesses anticipating a busy quarter, only to be left with huge amounts of unsold cards. This has a knock-on effect on cash flow and budget for the year ahead.
A sizeable investment
When we refer to the money required to hold and manage an eGift card inventory, we’re not talking small change.
Let’s say I’m an employee benefits provider with rewards from 100 retailers. I want to give my clients a good amount of choice, so I decide to offer eGift cards in five denominations: £10, £25, £50 and £100.
As I want to be able to provide rewards to my clients when they need them, I’m required to order 100 cards in stock for each value. I’m looking at spending nearly £18,500 on my options for one retailer. When multiplying this by 100 brands, my rough outlay is £185,000.
Regardless of how many eGift cards you sell, there is no telling how much of this money could be locked into rewards that don’t get used. Retailers go bust, gift cards expire, and some options do not sell. It equates to a risk that you simply don’t have to take.
How on-demand helps your cash flow
Instant, open-value rewards are on hand to ease the financial burden of an eGift card programme.
For one, they don’t require you to hold stock. You simply put your budget into an account and order the rewards you need, precisely when you need them. Bulk ordering features on platforms like Runa can have you delivering hundreds of cards in the space of a few seconds. By providing quick and easy access to rewards from a global network of brands, they’re decimating the idea (and risk) of owning and holding value. Here is how this system aids your cash flow:
Open value… is rapid to deliver
Stock used to be the only way of sending eGift cards quickly and effectively. However, thanks to new API technology, you can now fulfill your eGift orders as easily as sending an email. This gives you all the benefits of having readily available stock, but without the impact on your cash flow.
Open value is… flexible
As none of your budget is assigned to a specific reward, you don’t have the pressure of selling 25 x £100 eGift cards for a fashion retailer. You just assign budget to a reward as and when you need it.
Open-value also helps you sell more eGift cards, as proven by our client Sodexo, which enjoyed a smooth transition from pre-denominated cards to instant, open-value rewards. Within one week, its customers were placing orders for £1,032 and enjoying optimum levels of flexibility and freedom. The switch eventually led to a double-digit lift in eGift card sales.
Open value is… simple to manage
When you transition to open value, you say goodbye to your forecasting woes. The only figure to concentrate on is your budget, and provided you have enough in your account to see you through a busy period, you’re all set. If you don’t, you can always top-up.
You can also circumvent the headache of managing paper vouchers, as moving to an API puts everything in a system which is quick to access and easy to organise. Digital formats can save you a small fortune on fulfilling orders of physical cards, while improving satisfaction among your customer base.
Open value is… refundable
Runa is among a small cluster of providers that allow you to exchange your cards for other options. That means you’re never stuck with rewards you can’t use due to expiry dates or issues with the retailer in question.
We should also mention the added simplicity that open value brings. Runa uses an API to give companies instant access to our market-leading technology. Our documentation is made to be understood by all of your team, whether they’re technical or non-technical. You can integrate with hundreds of retailers in multiple languages and currencies, all in one hit. And if you have a specific use for our platform, we can adapt to your requirements.
Final thoughts
Stock used to represent the de-facto method of purchasing rewards. But times and technology have changed.
Nowadays, this can have huge repercussions on your cash flow and wider business. Retailers go bust, eGift cards expire, and you could be left with hundreds of thousands of pounds worth of stock that cannot be sold, all through a risk you didn’t need to take.
If there’s one point which really fires home the benefits of open-value rewards, especially when talking about cash, it’s flexibility.
By moving away from inventory and onto a top-up system, you only need to spend what is necessary to fulfill your orders. Given the current business climate, this is definitely an advantage worth having.