In my last post, I talked about when to test direct mail premiums. Now, let’s discuss 3 different types of premiums, why you’ll want to test each one and how to make them work for you.

First, let’s acknowledge that when we test a premium, we’re testing a change to our offer and nothing, other than list selection, will have as great an affect on our results.

We use premiums to motivate the reader into taking a specific and desired action. It isn’t to reward, inform or thank the reader but to promote response and increase the mailing’s net income.

If this sounds crass, recognize that whether you represent a commercial or nonprofit client, the most important measurement of your mailing’s success is net dollars.

Net dollars will not only please the shareholders, it provides the food, shelter or medicine so desperately needed by those your organization serves.

Make no mistake about it. Premium will increase your costs. But our objective – whether working for a nonprofit or commercial mailer – is to increase net dollars to fulfill the organization’s mission.

Here’s a true story…

Years ago, I went to a county fair with a friend. As we were walking down the fairway, a “barker” came out and offered us a silver dollar for 50¢. Immediately, I accepted the offer yet my friend refused. Why? She said, “I don’t want to spend the money.”

Unfortunately, that’s how too many people look at their direct mail. Even investing more can generate additional net dollars, the don’t want to spend the money.

If you’re satisfied with a .01% or .02% improvement in results, then save the cost of premiums and test the color of ink on your envelope or copy changes on pages two and three of your letter. But if you want major improvements to your mailing’s profitability, try offering a premium.

Here’s 3 ways premiums can work for you…

Front-End Premiums

When testing a “front end” premium, you’re giving it away in the mailing. For example, a fundraiser might include free name labels or a software company may include a free CD in the mailing.

Other front-end premiums I’ve used successfully include pamphlets, Certificates of Appreciation, membership cards, name stickers, decals, pens, greeting cards, note cards, flower seeds, key chains, plastic luggage tags, bumper stickers, iron-on patches and membership cards.

Front-end premiums often generate a higher response rate but are more expensive since you’re paying to send the free gift to all recipients – respondents and non-respondents alike. (And yes, “Free Gift” is worth the repetition of words.)

It’s also true that front-end premiums can reduce the average order/contribution and long-term value of the respondent since some responses will be guilt-motivated.

Front-end premiums may even “lock” you into premium mailings when it comes time to renew these donors/buyers. But, because they generate a higher response, they’re great if you want to build your donor/customer file.

And the bottom line is still net dollars. If you increase net dollars, a higher cost or smaller average order shouldn’t matter. You’re still returning more money on the organization’s investment and generating more dollars to fulfill the group’s mission.

Back-end Premiums

With a “back-end” premium, the recipient must respond to receive the gift. For example, a magazine publisher might offer a free book to people who respond before a certain date. Or, a nonprofit might offer to send you a free coffee mug once they receive your contribution.

I’ve successfully used calculators, American flags, emergency road kits, coffee mugs, calendars, ball caps, plaques, lapel pins, membership cards, free trips, software, travel bags, tool kits, digital cameras and books as back-end premiums.

Their advantage is that you’re only fulfilling the premium to those people who buy/contribute so your overall costs are lower. Additionally, those who respond to back-end premiums typically have a higher average order and their lifetime value tends to be higher than those who only respond to front-end premiums. But back-end premiums may not generate as many responses as a front-end premium and they do require added fulfillment costs.

Fast 50 Premiums

A “Fast 50” limits the premiums to the first fifty people who respond. (You can also have Fast 100s, Fast 75s, etc. There is nothing sacred about “fifty” but it’s what I’ve used and it works.)

Lately, I haven’t seen Fast 50s used but they can give you the best value of any premium offer.

You’re limiting your premium to the first 50 people who respond so your costs are lower than either front-end or back-end premiums. And, because you’re only fulfilling 50 gifts, you can offer a higher-value premium.

Yet because everyone receiving the mailing is eligible, your copy can have the same “hype” as any other back-end premium.

Typically, I gained a 25-30% lift when adding a Fast 50 premium offer to the mailing. (For nonprofits, I’ve also tested offering gifts to the first 50 people who responded from each state but found little difference in results from a straight Fast 50 offer.)

Conclusion

When testing premiums, you’re changing the package’s offer so the return on investment can be immense. And when used intelligently, there should be no stigma associated with premium offers.

What premium should your organization test first?

It’s nice to test a gift that relates to the organization’s mission – the environmental group’s backpack offer for example. But don’t overlook the greed factor. For years, it was hard to beat a hand-held calculator but you have to test and see what offer is best for your group. It’s simply a search for balance – perceived value vs. cost.

Do you test front-end, back-end or a Fast 50 premium?

Ideally, you will test all three and see what works best for you. If you can’t do that, ask yourself, “what is your objective?” Are you trying to build your file quickly? If so, you may want to test front-end premiums or a Fast 50.  If you’re looking to increase the average contribution or order, consider a back-end premium.

And premiums aren’t just for acquisition mailings. Test them to your house file too.

But whatever you decide, do the math first! Know how much the premium must increase response to breakeven with the control. It makes no since to test a premium that’s so expensive it needs a 500% lift to break even.

Good luck and let me know your results.

There are only two occasions when you should test direct mail premiums.

The first is when you’re not using premiums. If you’re not, you should test them now. The second occasion? When you are using premiums, you need to continue testing new ones.

Many organizations hate premiums. But most donors and customers love them and since this is a customer-driven business, I suggest you test them now.

Premiums don’t have to be expensive gifts. Often the best ones are unused merchandise sitting in a warehouse or the nearly forgotten informational pamphlet that’s begging to be used.

Countless organizations have enjoyed huge success by offering address stickers, note cards, decals, bumper stickers, iron-on patches, certificates of recognition, membership cards and a host of other relatively low-cost premiums. As long as you can give the premium a perceived value, it can be a valuable tool in increasing your mailings’ response.

If you can connect a premium to the organization’s mission or offer, all the better. For example, the American Diabetes Association offered a cookbook of low-sugar meals. An auto club offers an emergency road kit while an environmental group offers a backpack. Not only do these offers connect with the group’s mission, they give the prospect an additional reason to respond.

But don’t overlook the “greed factor.”

Net dollars is the deciding factor of success and a calculator, radio or iPod may, for example, work better than a premium that is a natural tie-in. It’s something you’ll have to test.

Why do premiums make such a difference in a mailing’s success? Because when you add a premium to the mailing, you’re affecting the offer. And, as we know, nothing other than list selection will make more of a difference to the mailing’s success than the offer. The return on investment can be significant just remember. . .

• Do the math first! Know how much the premium must increase response to breakeven with the control. It makes no since to test a premium that’s so expensive you’ll need a 500% lift to break even.

• Don’t make the mistake of adding the premium offer into the letter’s P.S. and thinking you’re done. The premium is part of your entire package, not just an afterthought. You may want to feature it on the outer envelope, in the letter’s “Johnson box” or lead sentence, the response form, or even in a separate insert. And, depending upon the premium, you may want to build an entire story around it.

• The prospective donor or buyer isn’t obliged to respond just because you enclosed a premium. And even when the mailing enjoys a higher response rate, the average contribution or order is often lower.

• But a lower average contribution/order isn’t reason enough to shy away from testing premiums. It simply means you need to give extra attention to your efforts to upgrade the donor or resell/cross-sell the buyer.

• Many first-time buyers/donors may require another premium to continue responding. Once you’re into the premium business, you may always be in the premium business. On the plus side, with a premium you can recruit a donor or customer who would not have responded otherwise. And as long as your premium offers out net non-premium offers, you’ll still ahead.

• With premiums, your package cost will be higher. But what’s important is net dollars.

• Don’t assume that if a particular premium works for another group, it will work for you. You’ll need to test different premium offers — and non-premium offers — to see what works best for you.

• Don’t forget to consider the cost of fulfillment when using a backend premium.

You do want to test a premium but remember it’s only one part of your direct mail package. You must still observe the essential elements of traditional direct mail — list, offer, copy package and timing. While a premium can dramatically improve your mailing’s results, it alone won’t guarantee success.

Oh…I mentioned that there was only one reason to test premiums and that’s to increase net dollars. Whether you’re trying to please shareholders or raise more money to feed the hungry, cure the sick or shelter the homeless, it’s net dollars that gets the job done.