The Real Cost Of Free Stuff

Social Media Give-Away Cost Dynamics

Social Media give-awayFree stuff is free—right?

Not if you’re the marketer.

At Social Media Week NYC’s Tackling the Great Consumer Attention Deficit panel, an example of a social media give away campaign was shared. Respondents were offered a “Free sample.”

They ran the social media campaign based on the assumption that a sample cost $1.00. After campaign concluded, they discovered that the true cost of the sample was about $7.00 per prospect.

YIKES! That’s a BIG difference in expense. Now multiply that $6.00 increase by the total number of samples sent.

Why did the sample cost so much more than they expected?

Most likely, they overlooked many of social media’s hidden costs. Also, like many marketers, they ONLY considered the sample cost. They didn’t understand social media give-away cost dynamics.

As a result, they neglected to factor in the cost of the fulfillment (that is getting the sample to the prospects), related marketing expense (such as the enclosed message), and the cost of postage.

As the veteran of many promotions for a variety of different types of products and services, here’s how to determine the real cost of your social media give-away (aka: free stuff).

For most businesses, the aim of giving prospects and customers free stuff is to encourage future sales. Therefore, you don’t want to give them so much of your product that they don’t need to buy from you for a while.

Note, I’m not talking about sweepstakes. They’re a special free give-away that involve a lot of complex rules.

Social media give-away cost dynamics

To ensure that you don’t blow your budget, follow these 7 steps to understand your social media give-away cost dynamics,

1. Determine what you want your social media give-away to achieve.

  • Get people to test your product. This is important with expensive and high risk products.
  • Expand sales from existing customers. The objective is to get your current customers to buy other products from your organization. This can be easy and less expensive since you can do a “free product inside” offer.
  • Increase average order size. Entice customers to stock up by offering a free gift with purchase for sales above a set amount. This is very popular for beauty products.

2. Decide what product to give away.

Put yourself in your customers’ shoes. Offer them a product that has value to them, not you! It must be related and enticing. Once I was asked to entice buyers of mystery books with small kitchen items, not exactly what they were looking for!

3. Target your audience for your give-away properly.

  • Know the people you want to reach and motivate to take future actions. This means create a marketing persona so that you understand them.
  • Estimate how many people you plan to reach. This is a critical element. You need to be able to offer enough give-aways to reach the people who want it. BUT you don’t want to over deliver.

4. Understand your social media give-away cost dynamics.

While the word cost is enough to send many marketers under the nearest desk for cover, the reality is that it’s just basic arithmetic that you learned in grade school. (Here’s a fuller description of marketing costs.)

What you need to know:

  • Unit cost of the give away
  • Unit cost of fulfillment (getting it out of your company’s warehouse)
  • Unit cost of postage (or other form of delivery)
  • Unit cost of related marketing (your messaging and branding)
  • Total units given away

The costs can be given per unit or for the total amount of give-aways.

If the costs are per unit, then for each type of cost, you must multiply the cost by the number of give-aways. The total cost is calculated by getting the total cost for each type of cost. Then you add all of the costs together to get the fully loaded total cost.

5. Make it easy for give-away recipients to order more stuff from you.

Don’t assume that what’s obvious to you in terms of purchasing makes sense to your customers.

  • Incorporate your branding and a call-to-action.
  • Include an order form, 800 number and URL.
  • Sweeten the deal by adding a coupon for future purchase. The benefit is that most people don’t redeem them.

6. Create a conversion plan for the people you send free stuff.

  • Have a lead nurturing or sales plan ready to follow up with prospects before you start your social media give-away campaign. This should correspond with your objectives for the campaign.
  • Test the different variables in your offer.

7. Measure your results.

  • Think beyond increasing social media cred in terms of likes and tweets.
  • Track these new members of your housefile to determine results over their lifetime of purchasing from you. Include the number of people added to your housefile, the amount of sales and the increase in average order size.

While “Free” is a great word for enticing prospects and customers, it’s rarely free for marketers. Make sure that you do your math before you make an offer your prospects may refuse.

What has your experience been with free give-aways?

Happy Marketing,
Heidi Cohen

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8 Responses to The Real Cost Of Free Stuff

  1. Barry Dennis says:

    I rthink we need to consider as well the psychic cost of FREE. Suppose it-the product or service-doesn’t represent a real value package, but a take-advantage-of-the-marketplace idea? What loyalty-or anger-originates from a disillusioned customer? What Lifetime Value is lost because of a failure to establish a true value relationship, not just in the instance of the specific promotio, but in that customer’s dissaffection from the marketing umbrella “brand?”

  2. Tossaway says:

    This reminds me of a discussion I have had on Facebook with a friend demanding higher minimum wage. All she sees is the hourly rate. When I point out other related labor costs, such as increases in Social Security, Medicare, worker’s comp and unemployment, plus sometimes extra taxes and benefits that kick in when total wages reach a certain point, so that the actual increase in cost to the business might be as much as three times whatever the increase in the paycheck might be, I get the equivalent of a blank stare and sometimes I’m even called a liar. Another example is from when I attended a game convention and talked to a professional game designer and manufacturer. He had a rule that the minimum cover price had to be no less than 6x the production cost, in order to allow for distributor and retailer discounts, returns, losses and spoilage, and so forth, and he gave examples of games and game companies that did not follow that rule (and as a result are no longer around). It’s never as easy or as cheap as folks outside the business think it is, and even though they hire us for our expertise, they still argue with us.

  3. As a consultant helping brands improve their product sampling ROI, I would never recommend a program with fixed costs of $5 or more per sample. Not only is it unlikely to payout, but there are other options which have a lower cost and better ROI. Too often brands do forget to include all the different elements of costs in a sampling program; I’ve published a lot of white papers/tools to help them improve results.

  4. Jan Estis/ Estis Promo says:

    Great read with many good points. All are validation to the reasons why promotional consultants are so valuable to their clients. We partner with them to truly understand their goals and learn about their target market. We suggest products that act as tools (rather than give-aways) and can be used and seen repeatedly; the more they are used/seen, the more impressions they receive, and the greater the advertising benefit. We factor in all costs: product, s/h to client, packaging, inserts, distribution, and gauge ROI before the order is even submitted. If the products are used as true marketing tools, and not just given out as “free-stuff”, they will more than pay for themselves. I’m happy to explore this further with any interested readers:

  5. Rebecca Hauptman Cashman says:

    Here is what I do for my product / company ( I offer a free sample (the free sample includes a “pair” of detox foot pads plus two adhesives to place them on the foot). I put them in a #10 envelope with a tri-fold flyer, a Q&A sheet, and a coupon for 20% off their next order. My cost of course is mostly postage (about $1.35 for postage) but is less than $2. About 50% of the people end up using the coupon. It is easy to track in my system as well.

    I do only offer free samples to the U.S. but it has worked out well for me.

    This is my side business, as I do marketing for an electronics company as my day job. But it helps teach me things step by step. I created the company from the ground up, 9 years ago. I learned as I went along, and boy did I mess things up a lot! But now I have over 5,000 customers worldwide, and a big host of followers on Facebook. ( you are welcome to check out my page and like it… 🙂

    Since I don’t outright advertise my free samples (only occasionally do I do that) I get maybe 10 requests per week only, which ends up costing me less than $100 per month, but I make up that easily in sales… And, about 75% of my customers are repeat customers, so that is nice.

    My biggest point is that I am learning as I go along, but thankfully I am decent at math and always include the cost of postage, printing any sales message, and even the cost of the envelope. 🙂

    • Tossaway says:

      “I put them in a #10 envelope with a tri-fold flyer” In another post where I mentioned a professional game designer and manufacturer, I once made a pitch to the guy about a game I designed. He was notoriously frugal, and his reply proved it. He typed his reply on the same sheet of paper as my pitch, and even copied an ad on the back. And it worked, because I bought the product.

  6. Great post Heidi. Understanding the true cost of social promotions is necessary to determine the true ROI for the campaign. Free is never free in marketing. Some associate the Internet and social media (organic) as free without factoring in the labor investment or opportunity cost if doing it yourself. Like you say, the important part is to think beyond traditional ROI. The challenge that many have is understanding the true value of a favorite, mention, like, comment, share, +1 or whatever value component is used to measure return. I couldn’t agree more with you on point #7.