How do you reward customers for buying more? Discounts and favorable terms on high-volume purchases are a start. Another way to encourage customers to spend more is to give them a gift from your excess inventory when their purchase amounts reach a specified figure.

Barb Todd, owner of a $21-million mail-order business, in Portland, Ore., knows it works. Each time a customer spends $250 or more on a single order from her Good Catalog, she sends a gift. Although it's called the Really Outrageous Gift Program, the system is hardly excessive, because she selects gifts from leftover inventory or product samples and ships them with a personalized letter.

The average gift has a $75 retail value, yet it is really worth about $15 at the warehouse sale where it would otherwise be sold. Todd is glad to give up a little something to encourage large sales. "It costs me more money to process ten $25 orders," she says.

According to Todd, the freebie's effect is dramatic. Within a few months of starting the program, the gift recipients' response rates to mailings rose from 5% to 25%, while the amount of their average purchases increased from $100 to $300.