One effective list building tactic is participating in joint ‘gift giveaways’ where subscribers get a collection of valuable gifts in exchange for opting in to the list of a gift donor.

With various twists, gift giveaways have been around the Web for many years. Lately, one twist that throws the economics of the event out of gear is the requirement that participants send out SOLO MAILINGS to their list about the event.

I decided to analyze the economics of this practice.

A list building give-away makes sense only for a list owner who already has a tested process for converting ‘leads’ into ‘happy subscribers’ and ultimately ‘buyers’.

For illustrative purposes, let’s take the example of a small list owner with 100 subscribers. This is the group who benefit most from such events, as the boost to list size can set them well on the path to business success.

Out of your 100 subscribers, if you provide reasonably good value, 25% (or more) will be responsive readers. And 10% (or more) will be buyers, who purchase something from you, or based on your recommendation.

Let’s assume average sale is worth $15 in profit, and that each buyer purchases once every month.

This small 100-member list is then worth $15 x 10% buyers x 12 times a year = $1,800 per year in net profit.

So, by growing such a list by another 100 new subscribers - and conservatively estimating that the list built from a freebie giveaway will be at least 25% as responsive as the original - this exercise can add a potential (25% of $1,800) or $450 per year to your business.

That’s good.

Now come the ‘twists’

One is that when you participate in a gift giveaway, your gift is positioned on the gift download page in proportion to how many people you refer to the event. The more people you send, the higher up you get placed - which in turn means you have a greater chance of capturing subscribers from the event.

But… when you send your subscribers to a giveaway, and they sign up for many others’ lists, some of whom will be aggressive email marketers, you are literally throwing away some part of their attention you once owned and retained! You are now competing against these new list marketers - for your own list member’s attention.

Let’s say your list’s attention span drops by one-quarter as a result. You’ll lose $450 a year in profits directly from that!

Another twist is the requirement to run SOLO ADS to your list. If you mail your list, on average, one time every week, your solo ad has a REAL dollar value of $1,800 / 52 weeks = $34.

If you have to send TWO solo ads, you’re ’spending’ $68.

And here’s the deal-breaker. When you send out solo ads for a gift giveaway, a certain part of your list will get annoyed and unsubscribe. Often, it’s small - if you don’t do it often, and the gifts they’ll get are of good quality.

But if there’s a technical glitch, or they get hit by a deluge of email, or if the products they get as gifts suck, guess who they’ll blame?

Right… YOU.

You *could* lose 10% of your list, if things go badly. Dollar loss: $180/year.

The two solo ads ALONE could end up slashing your profits by 3.7% to 13.7%

So, while the first twist is a ‘calculated risk’ which could very likely earn you back what you lose and make more over the longer term, the second twist is a ‘losing gamble’.

Yet all the gift giveaways I’ve looked at lately seem to include this in a growing list of ‘terms and conditions’.

Who benefits from this?

The event organizer - because solo ads will pull more visitors to the event, making it an overall bigger ’success’

The ’slash and burn’ list builder - who generates ‘leads’ and quickly works through them, to siphon off buyers, and recycle the rest

Here’s how that approach works. Your list of 100, including the 10 buyers, is separated into 2 lists - one of buyers, and the other of non-buyers.

You then send the note about gift giveaways to your ‘non-buyer’ list only - so you do NOT lose any profitability, while potentially gaining prospects who may buy from you.

But guess what happens to the OTHERS in the event?

They get the freebie-seeker crowd who are PROVEN non-buyers - making it hard for the new list owner who attracts them to make a sale to this audience!

And if everyone in a gift giveaway follows the same approach, the quality of ‘leads’ that all participants get will be extremely poor indeed.

What’s the solution?

A simple way is to remove the ‘losing gamble’ component from the equation.

Keep the rest, but do not insist on having participants send out ‘SOLO ADS’.

That way, a small list owner can weave in a mention of the gift giveaway as part of a complete ezine issue or longer message that educates, entertains and in the process, also gives a gift.

That way, a small list owner doesn’t lose much by sending it out to a complete list - including buyers.

That way, everyone has a fair chance at getting quality prospects to opt-in.

What do you think?