Over the holiday period, consumers have gifts to buy and a limited time to do it in. When you combine this with the shift towards “experiences as gifts,” many tour and activity companies are well-positioned to sell gift vouchers over the holidays.
We’ve seen first-hand how a strong holiday gift voucher campaign can contribute to a tour or attraction’s bottom line and help cash flow in what is often a slow part of the year. We’re approaching $1 million in holiday gift voucher revenue for our clients, and even for smaller family-owned businesses, we’ve seen as much as $100,000 in sales in a single holiday campaign!
In this post, I want to walk you through our process for creating a profitable holiday gift voucher offer that can drive as much as 10-20% of your revenue for the year if you execute your campaign strategically and tap the right marketing channels.
- Terms To Know: Breakage Rate, Yield, and Vouchers vs. Gift Cards
- A Quiz: Should You Even Consider a Holiday Gift Offer?
- Creating an Offer Focused on Profitability
- See Our Full Holiday Campaign Process
Terms To Know: Breakage Rate, Yield, and Vouchers vs. Gift Cards
These two terms will come up throughout this post:
- Breakage Rate: The percent of gift vouchers you sell that ultimately go unredeemed.
- Yield: The percentage of booked tours vs total tour capacity. This is ultimately the percent “sold out” you are on a daily, weekly, monthly, etc basis.
- Gift Voucher: A certificate that can be redeemed for an experience, rather than a specific value amount. This differs from gift cards, which typically carry a value. We’ve found that for legal and financial reasons, gift vouchers are often the better choice. Don’t just take our word and our definition on this; please check your regional laws and your booking platform.
A Quiz: Should You Even Consider a Holiday Gift Offer?
Before we get into the how, let’s use a simple quiz to determine whether this even makes sense for your business.
- Do you have an exceptionally high yield? Are you able to sell out almost all of your tours already, at the price you want?
- Do you have an unusually low breakage rate (under 20%)?
- Do you already have solid enough cash flow during the holiday season?
- Are you in a “destination location” that people travel a fair distance to get to, and rarely revisit?
If you answered “yes” to all of those questions, we typically wouldn’t recommend discounting vouchers during the holidays. You could still recommend them as gifts, but keep them at full price, and you should probably keep any ad spend to a minimum for that holiday push. Send an email to your subscribers, post something on social media, maybe put some money behind the campaign, but leave it at that.
The more times you answered “no” to those questions, the more likely it is that a holiday gift offer might be a good fit for you. Let’s dive in.
Creating an Offer Focused on Profitability
Be Competitive With Your Discount
There are mathematical reasons that you’re probably able to be more competitive with your discount than you think (we’ll get to those), but first we’ll talk about the practical reasons.
Most businesses advertising over Black Friday and the days leading up to Christmas are offering a discount. And these same companies are advertising that discount on Facebook, Google, and other ad platforms. This creates two realities:
- An Expectation From Consumers: Consumers expect brands to have some sort of an offer during these periods of the year. And if you’re not going to offer an aggressive discount, we’ve found that it can be difficult to profitably drive demand and get on the radar of consumers looking to buy gifts.
- A Competitive Advertising Environment: Because every ad that runs on Facebook or Google runs through an auction (meaning essentially that your ad is shown when you’re the highest bidder), advertising over the holidays is expensive due to the number of companies competing for the ad space.
The combination of those two realities requires a compelling offer—typically a discount of 25+% off your regular price.
Make Sure the Math Works
In order to create an offer that will a) be attractive to consumers in a competitive market, and b) drive profitability for your brand, you’ll need to run some numbers:
- Historical Yield by Day of Week: This will help you determine if your offer should black out certain days of the week or periods of the year during which you consistently sell out at full price. For example, if you find that your Saturday yield is 95% (and if those customers are paying full price), you may want to black out Saturdays from your gift voucher.
- Historical Breakage Rate: If your breakage rate is historically very high (50+%), you can confidently choose an aggressive discount. If it’s historically low (less than 20%) you want to be careful with how steep you go with your discount.
- Cash Flow Needs: Many businesses we work with find themselves in a low season around the holidays, and holiday campaigns are a great way to kick start cash flow for the year. Your financial picture at this time of the year can impact your discount and your target volume of your holiday offer.
With these numbers documented, you’ll be able to make sure the math works on your offer. Consider these two examples:
In the middle column you can see that due to the low (10%) breakage rate and the steep discount (40% off) the effective discount offered on the experience was 33%. Now, for some businesses, 33% off may make good business sense; but in our example the yield is 90% for this business for days the gift voucher would be redeemable on—this means that 9 out of 10 experiences are already being sold at full price. In this scenario, offering a steep discount would put the profitability of the business at risk if a significant portion of the businesses revenue was driven by discounted gift voucher sales.
In the right column we’ve charted out the dream scenario (and it’s a scenario that we’ve seen play out dozens of times for clients we work with). The discount is steep at 40% off, but the breakage rate is also high at 50%. Because of the way these numbers work together, the effective discount from these gift vouchers ends up being –20%—in other words, you’re making more money for each of these gift vouchers sold than you would from full-price tickets!
The math works out differently for each breakage rate + discount scenario so we created this chart to help navigate potential scenarios:
Look at the intersection of breakage rate and sale discount to find the effective discount. For example, if you have a breakage rate of 30% and a discount of 20% off, your effective “discount” would be -14%—a positive for you.
Consider Your Yield, But Be Generous With Restrictions
Maybe you’re looking at your yield for the past few years, and you notice that yield is 60% from February through May, and then picks up to 80% in June through September. It may make sense to have your gift vouchers only be redeemable through the end of May, but this may also scare many consumers away since one of the advantages of gift vouchers is the flexibility they provide consumers.
You can probably be more generous than you might think. Even if you didn’t impose restrictions in the scenario above, some of the customers would already redeem the vouchers in February to May. And some would go unredeemed altogether.
The principle here is: You don’t want to scare people away with too many restrictions. And this looks different for every company.
Pro Tip: Check Your State and Federal Laws. Before you dive head-first into gift vouchers, you’ll want to take a look at your state laws. Expiration restrictions vary from state to state, but in general we’ve found that if your gift voucher has an expiration date, you still need to allow people to use the purchase price towards an experience. For example: If you offer 30% off a $100 gift voucher that expires on Jan 1 of 2023, the $70 paid for the gift voucher may need to always be redeemable towards a tour.
See Our Full Holiday Campaign Process
Creating a solid offer is just one piece of the full holiday campaign process. You still need to:
- Find the people most likely to purchase your offer
- Get the right messages on the right platforms at the right time
- Create buying intent through compelling creative
- Test and iterate on your digital creative and landing pages
We cover all of this and more in our 20-minute video that you can access by filling out the form below.