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First and foremost, everybody wants something for FREE! It is a simple human instinct that appeals to our need for self gratification. That’s the simple answer.
Premiums cost very little, but have a high perceived value. You can very often offer premiums that your prospect perceives as very valuable but costs you very little in ‘real’ dollars. Remember, you are only sending a picture of the premium to the whole mailing and then giving the actual gift only to those who respond! With this in mind, you certainly don’t want to alienate a customer, so make sure your premium (free gift) is as described in your literature.
Premiums can Lower Your Cost per Transaction!
This is a very interesting thing about premiums. And you’re probably thinking it’s counter-intuitive that a premium would lower your costs, but here’s how it lowers your cost per transaction.
Let’s say you mail out 10,000 sales letters, with no premium and you get a 2% response rate. That would be 200 responders. Let’s further assume you can be profitable with 200 responders. Now let’s say you offer the premium, and response goes up to 3%. This is not an out-of-the-ordinary increase in response when you offer a premium. You now only need to send out 6,700 pieces of mail to get the same 200 responders as you did without the premium. And, for easy math, let’s say each mailing cost $1.00. You would save $3,300 on just the single mailing. If you assume your premium cost you $5 each for the 200 responders for a total cost of $1,000. You’re still saving $2,300!
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