Can you really calculate the value of a Facebook fan?
A friend of mine had an interview the other day and the interviewer asked “How would you calculate the value of a Facebook fan for our company page?” My friend was puzzled and spewed out some sort of financial equation that he hoped was giving the interviewer what she wanted to hear in order to get the job.
Unfortunately, that’s the problem with social media. It’s not cut and dry. And like any nascent marketing channel, the numbers are hard to calculate. But many social media managers and marketers are forced to come up with some sort of ROI so they can continue to get paid. On top of that, many confuse cost of a campaign with the value of a fan/follower and that’s incorrect. The value of a fan or follower fluctuates over time. You can propose some general hypotheses; however, the value of a fan is different for every company, every fan, and every product.
Although cost and value are connected, they are not the same and they are not mutually exclusive. The value of a fan is ultimately calculated using a person’s purchasing history and referral history. In other words, the value of a fan or follower is actually based on the value of their transactions and actions each month. To quote Olivier Blanchard, “Until a Facebook ‘fan’ has transacted with you (or influenced a transaction), the monetary value of that fan is precisely zero.” And let’s not forget that the cost consists of not only acquisition cost but also the cost to maintain that fan, e.g. your social media person and some incremental IT expenses.
Let’s look at an example campaign run by Company A to generate new Facebook fans. Let’s just say that you figured out that the cost to run the campaign was $5,000 and Company A acquired 1,000 new fans through that campaign. You can do the simple math and deduce that the cost of those fans was $5.00 per fan. Let’s then say that 100 of those fans each buys $1,000 worth of product from Company A over a 6 month period totaling $100,000 in sales. Let’s also say that we have calculated the cost to maintain each fan to be $1 per month. The average revenue per user (ARPU) over this six month period is $100 ($100,000/1,000 users) for these new fans. To calculate the net value of a new fan we subtract the acquisition and maintenance costs from the ARPU:
$100 revenue – $5 acquisition cost – $1 x 6 months maintenance cost = $89 net value/6 months = $14.83/month per fan.
The math on referrals is a bit more complicated, because you have to split the value of any referral purchase between the purchaser and the referrer. In the above example, you can add some percentage of the referred purchases to the revenue portion of the equation to get a more complete picture.
Now, this is simple math and anyone can plug these numbers into the equation to get some sort of value of each fan. Where it gets more complicated is that some would argue that there also should be an arbitrary value assigned to brand awareness. I would argue that brand awareness has value only if that brand awareness directly results in sales. And this is where the real complexity lies. What metrics should you use to factor in the value of brand awareness? Should you use ‘People Talking About Us’ on Facebook and number of brand mentions on Twitter? Sure you could, but those don’t measure sentiment and even if they did, can you attribute them to a particular fan? And even if you find a decent metric, how do you assign a dollar value to those metrics?
The bottom line is that not all fans are created equal. Some fans may buy from you seasonally, some may buy from you annually, some may not buy from you at all but may refer friends, and some may have clicked “like” one time and never returned (95% never return to a company’s Facebook Fan page after liking it so all activity thereafter is dependent on you getting your content into their news feed or their friends’ news feeds).
Does this mean calculating a Facebook fan is a worthless exercise? No, in fact, Facebook fans are valuable, but only when you definitively figure out how you can monetize them through your marketing strategy. By developing campaigns that have a specific call-to-action that turns those fans into buyers is what will bring you the biggest bang for your buck in your Facebook strategy investment.
Photo credit: Geograph.org.uk - Creative Commons.