Premiums are an effective way to increase your direct mail response rates. Whether you are selling a product or service directly through the mail, or whether you are using a sales letter to generate leads, premiums can help you boost response, increase conversions and motivate buyers to pay now rather than later.

A premium is simply an item that you offer to your buyer to take action. As Dick Benson has said, a premium is a bribe to say yes now.

Premiums are effective because, dollar for dollar, they are better incentives than cash discounts. Given the choice between receiving a free Apple iPod or a $200 discount on their order, most buyers will opt for the iPod.

Here are some tips on using premiums effectively.

Aim for desirability over relevance
The key to choosing the right premium for your audience is desirability. If the premium is related in some way with what you are selling, that is great, but whether your prospect desires your premium is more important than if the premium is associated with your offering.

For example, a firm that manufactures heavy-duty fasteners could offer prospective customers an oversize bolt in the form of a paperweight, or they could offer a $200 gift certificate to Best Buy (the home electronics store). The paperweight is relevant but undesirable. The gift certificate is desirable but not relevant to the firms business.

The best premium, of course, is closely related to your offering, is desirable, and makes your prospect look like a wise buyer.

Choose premiums with high perceived value
You want your premium to look as though it costs more than it does. A leather attach case, for example, that has a high perceived value but only costs you $30. Or a portable DVD player that appears worth $150 but costs you only $40.

Test your premiums
What works for one business buyer will not work for another. What works in one industry will not work in another. One inexpensive way to test high-end, expensive premiums is to offer them as back-end premiums that your prospects must request. Segment your list into equal-sized groups, mail a different premium offer to each segment, and then count your responses to see which premium draws the best response.

Promote your offer, not your premium
Your premium is the bribe for saying yes now. It is not your offer. And because you should only sell one thing in a direct mail package, you should sell your offer and give your premium away. You want your premium to be the incentive to act, not the reason to act (after all, some people respond to direct mail offers just to get the premium, then they cancel their order).

Check the law
Some industries (defence, for example), forbid their employees from accepting gifts or premiums from vendors. So check before mailing.