How do stores and companies make money off of gift cards?

Question

Like how does the store or company profit off of a $20 gift card that costs $20?

In: Economics

Answer 1

Money in the gift card that can only be spent at that shop.

– It costs SubShop $3 worth of ingredients, labor etc., to make a sub, which they sell for $5.
– You normally spend $10 a month on subs, so SubShop makes $4 from you after expenses.
– Your uncle Bob gave you a $20 SubShop gift card for the first month.
– You spend $20 at SubShop within the month, SubShop has now made $8 from you.

The gift card cost them maybe $0.50 for the card itself, plus all the computer stuff for issuing and tracking. So they actually only made $7.50, but it’s still better than the original $4.

Also gift cards expire. Some people will lose them / forget them, after a while that money goes to SubShop.