Reward customers for bugs reports?

Personally I would say to avoid any type of ad hoc reward system. It's a slippery slope and can get complicated to track. I'm not sure it really will get you more and better bug reporting than if you thank people sincerely. Just treat them well, give them a little inside info once in awhile to make them feel special, communicate with how you're handling their specific but and if you create any swag, give them a t-shirt or something like that.

As a related note, I have what I call a "Champions" program that I've used at various companies over the years. Doesn't matter if you've got a consumer or enterprise target. Select active customers, ask them if they'd be interested in participating. There's no compensation but an opportunity to help contribute to the success of the company. You give them bits of inside info. Make them feel special. Some swag - t-shirts, whatever. Share with them new features or changes before they're available to the general public...including giving them the opportunity to comment on and shape those features. And so on. Also a resource for testing at times, reporting bugs and related.

I think we might be unusual, but we guarantee to fix any bug reported to us within 30 days or the customer gets their money back. (It has to be a current version of the product and they have to be within their 1 year warranty period.) If someone reports a bug in an older version, and that bug still exists in the current version- they get a free upgrade to the fixed software.

I have talked with a developer who sheepishly stated he had over 2,000 known bugs in his software. He was asking for advice on a new marketing approach for his software. I suggested he spend some time fixing the software before selling more defective copies of it.

The types of people who report bugs are motivated by their involvement in improving a product that they use and value. In doing this over a decade we've experimented a lot. In the end we've found that cultivating personal relationships with bug reporters to be the most valued reward. For instance:

1. We follow up reports with appreciation and a bug ID for future reference.
2. We follow up with emails seeking clarification and details as we work on bugs.
3. We email every reporter of a bug when it is fixed, thanking them for their assistance in making our software a better product.

One idea I heard which struck me as pretty good was to give them the ability to give away a license to someone else.

I would only do this (or anything else you contemplate) for customers who show repeated value to your product/company. A single defect report or suggestion here and there is not sufficient - they have to add real value.

I think it would be better to err on the lenient side rather than on the strict side. Just give away free copies of your software to your most enthusiastic users! That's how Balsamiq builds its marketing with a huge degree of success.

They will feel special in this way, and they will talk about the product.