The Pros and Cons of Premiums
Posted on Tue, Oct 26, 2010
By Bill Goldstein, Vice President of Client Services
So many people are interested in the proper way to use premiums that we decided to dive back in and answer some of those questions specifically with this follow-up post to our entry from two weeks ago.
In direct marketing, a premium is any item offered to a donor, usually at no charge, to encourage them to make a donation. Whether it is a back end or front end premium -- sometimes called “freemiums” – organizations should know the pros and cons of whether they are worth the expense.
So why should I offer them at all? THE PROS
They boost response rates.
Sometimes 2-3 times vs. packages without them. In acquisition – where you want to grow your membership, premiums can be hard to resist. They can attract more gifts when mailed to current donors, and also attract more first-time donors when mailed in acquisition. Also, because of their bulk, they tend to encourage more people to open, rather than pitch, your direct marketing efforts.
They keep your organization competitive.
In the environmental nonprofit community, very few organizations can successfully acquire donors without some form of a premium offer. If a donor gives to multiple “like-minder” groups and they all offer a premium, you may need to as well to entice a gift to your organization.
If premiums are so great, what are the arguments not to offer them? THE CONS
They generate smaller sized gifts.
Premiums, like address labels and the like tend to attract gifts that are smaller than those generated by packages that contain no premium, and they can attract donors who are less likely to give again.
Lower long term value, lower long-term retention.
Donors who respond to premiums are less bonded to your mission – less loyal – attracting gifts from donors who are motivated by guilt or obligation, rather than by philanthropy. They become “transactional” donors – giving when the premium appeals to them - not necessarily the message of the appeal. Over time premium donors can give less revenue, and lapsed faster than non-premium donors. So you may be faced with replacing these donors at a faster pace to offset attrition.
“Freemium” does not always mean Free.
Not only is there a considerable up front expense to fulfill the premium, but also the expense to package and ship it to the donor. Some donors who are acquired with premiums can only be renewed with premiums. Sending a donor up front premiums such as address labels and greeting cards may require sending them again months later to replenish their supply.
So how do I know then if premiums are right for my organization? Test them. Premiums do work. But like other techniques, there is an appropriate time and place for them. Test them and see if it is worth it to take the deeper dive. How have premiums worked out for you?
