Research has shown that a direct mail letter with a premium offer can take a sales letter alone up to 300%! Before we get too deep into why they work so well, you might be thinking, “What is a premium?”

A bonus is something of value that your prospect/client/patient receives for taking some action that you want. Often the best bonuses aren’t even tied to what you offer! It is often an unrelated item for the buyer’s personal use and not even for your business (if you are selling B2B). The key is that it has perceived value. It may not cost much, but it should look like it costs a lot.

When offering prizes, a picture is worth a thousand words. Always include a picture of the item, as this is much more effective than simply describing the item. There’s a reason Sports Illustrated has given away a sports phone for years. There’s a reason they’re now giving away your choice of any one of 32 professional soccer team jerseys. Why? Because Sports Illustrated knows bonuses work! They have been doing it for decades.

The Estee Lauder Company set the standard with its “Gift with Purchase” strategy that is widespread in the cosmetic and other industries. The allure of ‘something for nothing’ has always appealed to consumers. Doesn’t it make sense to appeal to this very basic and controlling emotion?

Why do premium offers improve direct mail response?

First of all, everyone wants something FREE! It is a simple human instinct that appeals to our need for self-gratification. That is the simple answer.

Premiums cost very little, but have a high perceived value. Very often you can offer prizes that your prospect perceives as very valuable but cost you very little in ‘real’ dollars. Remember, you’re only sending a picture of the bonus to all mail, and then giving the actual gift only to those who respond!

Premiums can lower your cost per transaction

It probably sounds crazy to you that premiums can actually lower your pre-trade cost, but that’s how it works. Let’s say you send out 10,000 sales letters, no premium, and get a 2% response rate. That would be 200 responders. Let’s further assume that you can be profitable with those 200 responders. Now suppose you offer the premium and the response goes up to 3%. This is not an unusual response when you offer a premium. Now you only need to send 6,700 mail pieces to get the same 200 responders as without the premium. And, to simplify the math, let’s say each shipment costs $1.00. You’d save $3,300 on the one-time shipment alone. His premium cost $5 each for the 200 responders for a total cost of $1,000. You still save $2,300 on the offer without the premium!
The best bonuses are often not related to your product or service

This is a myth that needs to be addressed and debunked right now. In almost all cases, a premium not related to your product will outweigh a premium that IS related to her business. Here are a couple of examples.

For years in my core business, I have sent a free Big Key calculator to those who responded to my mail. I sell to independent retailers and do not sell calculators. Yes, you could use it in your store (or at home, or wherever), but it has nothing to do with what I want to offer you.

For years, Sports Illustrated gave away sports phones. This has nothing to do with what Sports Illustrated, a weekly sports news magazine, offers. They simply matched the premium to their target demographic. They didn’t offer a free month of magazines, or a free sports report. IT’S A CHEAP PHONE, BARELY MAINTAINABLE! Tell me how that relates to sports!

Have you ever received an offer from Omaha Steaks? They almost always offer a premium with a purchase and it is an unrelated product. They don’t offer you an extra pound of free meat and I don’t know about you, but I sure don’t want a free report on how a cow goes from paddock to my plate. However, a free meat thermometer might be just what you need to make sure my steak is good and rare!

Here is another example. Let’s say you are a mortgage broker. You want people to call, fax, write or email for a free mortgage payment assessment. I’m willing to bet my paycheck for the next year that an unrelated premium (which is targeted at your niche) will beat a free report on your mortgage payments at least 10 to 1!

You must know enough about your target niche to offer a suitable premium. Some will obviously work better than others. If you’re selling a high-end, high-priced luxury car, a $25.00 Wal-Mart gift card probably isn’t the right premium. However, a leather briefcase with a perceived value of $25.00 could probably do the trick!

The premium can be the center of your sales pitch

If the correct premium is correctly matched to your listing, your premium can often drive the sale. This is the “psychology of second interest,” as world-famous retailer Murray Raphel called it.

The sale of second interest can be included in many sales processes, but it is extremely applicable with premiums. After all, how many boxes of Cracker Jack did you buy as a kid (or for your kids) just to stuff that cheap little toy inside? Or how about McDonald’s Happy Meals, just for the prepackaged toy that cost McDonald’s a couple of cents?

Bonuses can boost your referrals

As marketers, you know (or should know) that you will almost always get a better ROI from your existing customers. Knowing this, you can ask your current customers to refer you to their friends, family, and business associates. You can offer a FREE gift for every new customer you refer. The best place to start for new business is to ask your current happy and satisfied customers! Offer them something of high perceived value and they will recommend you to their friends!

Premiums in two parts

Two-part bonuses are a great way to cut through the clutter AND make sure you get the follow-up response you’re looking for. One of the best I’ve ever seen was for a financial group. He went to a highly selected list of CEOs and CFOs. They were sent a glass case and inside was an autographed baseball with spots for two more. At one point in the sales process, the prospect was presented with one of the signed baseballs. Later they got the second ball and finally they were given the third ball at the end of the sale.

And they weren’t cheap here either. The balls were signed by Hall of Famers Stan Musial, Hank Aaron and Willy Mays! The total cost of the signed baseballs and the mailing was around $17,000, but it generated more than $60 million in business for the group. This certainly cut through the clutter, built rapport, and helped close the deal.

This is just one of many ‘two-part’ premiums you can offer. Submitting part of something requires the reader to vouch for the second part. Here are a couple more ideas:

• Mail and empty baseball holder Respond and get the autographed baseball
• Mail in the only responsive headphones and get a free DiscMan CD.
• Mail the tool kit without the screwdriver Reply and get the screwdriver

Rules for the use of Premium

The first thing you should do, if you haven’t already, is figure out the lifetime value (LTV) of your average customer. This is vital information you must have about your business. Going into a marketing campaign without knowing your LTV is like entering an archery contest and not knowing where the target is. How do you know where to shoot? How hard? hello high? How low? Fairly good.

Let’s say my average sales from a first time customer is $100.00. I know, on average, that they will be worth $200 each year for 5 more years. That client is worth $1,100 to me. Now I have a base to know what I can spend on my marketing campaign.

Knowing your average sale is also vital. $5, $50, $5,000? How much of that are you willing to give away for a purchase? Or a date? Do you close well? If so, she just needs to get more dates and a cousin will give her that boost she needs. You need to find the premium that matches your budget. If your LTV is lower, use an appropriate premium. If you have a large transaction, a more luxurious or expensive premium may be in order.

Some questions to ask yourself when adding premiums to your offer.

• Does the bonus(es) have a high perceived value?
• Can you make bonuses by breaking parts of your product?
• Are you going to use untied bonuses?
• Are the bonuses set up to be more desirable than the product?
• Are you using bonuses to improve the purchase of upgrade (luxury) product options?
• Are you creating or buying multiple bonds, instead of just one?
• Can you link bonuses to quick response? (time, limited quantity, first time buyers, etc.)
• Are you offering unannounced bonuses either at purchase or after?