From the December 2005 issue of Entrepreneur

Last December, Shannon Murphey wanted to beef up sales at his Tyler, Texas, jewelery store, Murphey the Jeweler. After analyzing his sales figures, he decided to give away $50 gift certificates for local businesses to give to their employees. Everyone said he was crazy to mail out more than 4,000 certificates, but Murphey was confident.

"Many people used the gift certificates as credit toward more expensive items," explains Murphey, 49. "The average customer spends $2,500 over the course of doing business with us, so this was a very calculated risk." Murphey expects the promotion to generate $1.5 million in new-client business.

Bob Nelson, president of Power Retailing, a retail consulting firm in Phoenix, says careful cost-benefit analysis is key. He offers these tips for using gift certificates as promotions:

  • Reach the right people. Says Nelson, "This promotion was targeted toward people who have jobs and can afford to spend money in the store."
  • Make sure your margin can handle it. Nelson estimates a jewelry store's margin can easily handle a $50 credit on many items, so it's likely the jeweler is still making money on items sold, even with the credit.
  • Remember the exposure. This bold promotion got people talking about Murphey, and that has value, too.
Gwen Moran is co-author of The Complete Idiot's Guide to Business Plans.