The 5 basic rules of calculating the value of a Facebook ‘fan’
A question that routinely comes up in social media circles is what is the value of a Facebook fan? (The question also applies to the value of a Twitter follower, Youtube subscriber, email recipient, etc.)
Invariably, whenever the question is asked, some mathematical savant – typically a self-professed digital alchemist – produces a proprietary algorithm that has somehow arrived at answer along the lines of $1.07 (Source: WSJ) or $3.60 (source: Vitrue) or even $136.38 (source: Syncapse), and so begins the race to answer this now quasi-hallowed question of the new digital age. The lure: He who can convince companies that he can calculate the value of a Facebook fan might have a shot at selling them something (from billable hours of “expertise” to social media campaign management).
All that is fine and good, except for one thing: Assigning an arbitrary (one might say “cookie-cutter”) value to Facebook fans in general, averaged out over the ENTIRE breadth of the business spectrum, is complete and utter bullshit.
To illustrate why that is, I give you the 5 basic rules of calculating the value of a Facebook fan:
Rule #1: A Facebook fan’s value is not the same as the cost of that fan’s acquisition.
Many of my friends in the agency world still cling, for example, to the notion that estimated media value or EAV (estimated advertising value), somehow transmutes the cost of reaching x potential customers into the value of these potential customers once reached. Following a media equivalency philosophy, it can be deduced that if the cost of reaching 1,000,000 people is generally $x and you only paid $y, the “value” of your campaign is still $x.
A hypothetical social media agency-client discussion regarding EAV: “Using social media, we generated 1,000,000 impressions that we converted into followers last quarter. At $1.03 per impression/acquired fan, the total cost of the campaign was $1,030,000. The average cost of an impression through traditional media being $3.97, the estimated media value of your campaign was $3,970,000.”
Next thing you know, the client believes 2 things: The first, that the value of each Facebook ‘fan’ is either ($3.97 – $1.03) = $2.94 or simply $3.97 (depending on the agency). The second, that the ROI of the campaign is ($3,970,000 – $1,030,000) = $2,940,000.
(We will discuss the ROI mistake in our next post. For now, let’s stick to the value of a Facebook fan.)
So you see what has happened here: Through a common little industry sleight of hand, a cost A vs. cost B comparison has magically produced an arbitrary “value” for something that actually has no tangible value yet. In case you were particularly observant, you may also have noticed how easily some of the authors of the posts I linked to in the intro mixed up cost and value. Ooops. So much for expert analysis.
A word about why cost and value cannot be substituted for one another when applied to fans, followers and customers: Cost may be intimately connected to value when you are buying the family car, but the same logic does not apply to customers as a) you don’t really buy them outright, b) they don’t depreciate the way a car does, and c) they tend to generate revenue over time, far in excess (you hope) of what it cost to earn their business.
Even with the cost of acquiring a fan now determined, why has the value of that fan not yet been ascertained? Rule #2 will answer that question.
Rule #2: A Facebook fan’s value is relative to his or her purchasing habits (and/or influence on others’ purchasing habits).
Illustrated, the value of a fan can be calculated thus:
a) Direct Value: If a Facebook fan spent $76 on your products and services last month, her value was $76 for that month. If a Facebook fan spent €5697 on your products or services last month, his value was €5697 for the month.
The value of a fan/transacting customer is based on the value of their transaction. It is NOT based on the cost of having acquired them.
Example:
– Cost of acquiring Rick Spazzyfoot as a Facebook fan: €4.08
– Amount Rick Spazzyfoot has spent on our products and services since becoming a fan five months ago: €879.52
Which of the above two € figures represents the value of that fan to the company?
(If you answered €4.08, you answered wrong. Try again.)
b) Indirect value: If a fan seems to be influencing other people in his or her network to become transacting customers (or increase their buy rate or yield), then you can factor that value in as well for those specific time-frames. Because measurement tools are not yet sophisticated enough to a) properly measure influence and b) accurately tie it to specific transactions, I wouldn’t agonize over this point a whole lot. As long as you understand the value of word-of-mouth, positive recommendations and the relative influence that community members exert on each other, you will hold some valuable insights into your business ecosystem. Don’t lose sleep trying to calculate them just yet. Too soon.
The point being this: Until a Facebook ‘fan’ has transacted with you (or influenced a transaction), the monetary value of that fan is precisely zero.
One could even say that if each fan cost you, say, an average of $1.03 to acquire, the value of a fan before he or she has been converted into a transacting customer is actually -$1.03.
That’s right: A significant portion of your Facebook fans might actually put you in the negative. Something to think about when someone asks you to calculate the “value” of your “community,” especially if you purchased (rather than earned) a significant portion of your fans and followers (a topic we will also cover in the next post as it has become common-practice for many “social media agencies” to pad their clients’ digital communities with bogus fans).
Rule #3: Each Facebook fan’s value is unique.
Every fan brings his or her unique individual value to the table. One fan may spend an average of €89 per month with your company. Another fan might spend an average of $3.79 per month with your company. Another yet may spend an average of ₤1,295 per month with your company. Is it reasonable to ignore this simple fact and instead assign them an arbitrary “value” based on an equation thought up by some guy you read about on the interwebs?
Three points:
1. The lifestyles, needs, tastes, budgets, purchasing habits, cultural differences, online engagement patterns and degree of emotional investment in your brand of each ‘fan’ may be completely different. These, compounded, lead to a wide range of behaviors in your fans. These behaviors dictate their value to you as a company.
2. Many of your fans may only do business with you only on occasion. Because of this, you have to factor in the possibility that a significant percentage of your fans’ value may fluctuate in terms of activity rather than spend. How many of your fans are not regular customers? How many do business with you each day vs. each month? How many do business with you once a quarter vs. once every three years? Are you figuring your on/off customer-fans into your value equation?
3. Lastly, we come to the final type of Facebook fan: The one that doesn’t fall into the transacting customer category. They might remain “fans” without ever converting into customers. Do you know what percentage of your fans right now falls into this non-transacting category? Do you really think that their value is $3.97 or $139.73 or whatever amount an agency, guru or consulting firm arbitrarily assigned to them? No. They clicked a button and left. Their value, until proven otherwise, is zero.
With this kind of fan/customer diversity within your company ecosystem, you come to realize that arbitrary values like “the value of a Facebook fan is $x” can’t be applied to the real world.
Rule #4: A Facebook fan’s value is likely to be elastic.
Because the value of a Facebook fan is a result of specific purchasing habits (and impact on others’ purchasing habits), a fan’s value is likely to be elastic over time. If you aren’t familiar with the term, it simply means “flexible.” As in: the value of a Facebook fan will change. It will fluctuate. It will not always be the same from measurement period to measurement period.
Let me illustrate: A Facebook fan might spend $76 on your products and services one month and $36 the following month. This means that her “value” was $76 one month and $36 the following month. If next month, she spends $290, $290 will become her “value” for that month.
Because transaction behaviors change, the value of a fan is also likely to change.
You can average this out over time (the fan’s value might average out to $97/month over the course of a year, for example), or just total her value per month, quarter, or year, depending on your reporting requirements. That is entirely up to you.
Example 1: “Based on her transactions, the value of Jane Jones, a fan since 2007, was $2,398.91 in 2010. Thanks to our fan engagement (digital customer development) program, Jane’s value increased to $2,911.02 in 2011.”
Example 2: Chris Pringle’s average monthly value in Q2 of 2011 was $290.76. His average monthly value in Q3 of 2012 was $476.21. He is one of 17,636 fans we managed to shift from a basic package to a premium package via our Facebook campaign.”
Note: In order to figure this stuff out, you are going to have to either get creative with the way your CRM solution interacts with your Facebook analytics suite or wait until Social CRM solutions get a little more robust. Some are getting close.
Examples of exceptions (where fan value may be somewhat inelastic):
– You are a bank and a fan’s only transaction with you is a fixed monthly payment.
– You are a cable company and a fan’s only transaction with you is a monthly cable bill.
– You are a publisher and a fan’s only transaction with you is an annual magazine subscription.
– Your fans don’t transact with you. They clicked a button and left. If their value was $0 a month ago, it is still $0 this month.
If your business charges for a monthly service that tends to not fluctuate a whole lot, chances are that the value of each of your fans will remain rather constant. This compared to a Starbucks, a Target or an H&M.
Rule #5: A Facebook fan’s value varies from brand to brand and from product to product.
If a fan/customer’s value can fluctuate from month to month and that value can vary wildly from individual to individual within the same brand or product umbrella, imagine how much it can vary from brand to brand, and from product to product.
Compare, for example, the average value of a fan/customer for Coca Cola and the average value of a fan/customer for BMW. (Hypothetically of course, since I don’t have access to either company’s sales or CRM data.) What you may find is that a fan’s annual value for Coca Cola might average, say, $1,620 per year, while a fan’s annual value for BMW might average $42,000. Why? Because the products are entirely different. One costs less than $3 per unit and requires no maintenance. The other can cost tens of thousands of dollars per unit and requires maintenance, repairs, not to mention the occasional upgrade.
Moreover, a single strong recommendation from a fan can yield an enormous return for BMW, while a single recommendation from a fan will yield a comparatively smaller return for Coca Cola.
You can see how the notion that the “value” of a Facebook fan can be calculated absent the context of purchasing habits, brand affiliations, fluctuations in buying power, market forces and shifts in interests and even value perceptions is bunk. Unless of course you find yourself being asked to transform cost into value. Less work. Easier to sell.
So why does this happen? Tune in next week for Part 2 of this post, in which we will talk about why so many “social media gurus,” digital agencies and “industry analysts” still seem to be having trouble with something that should be pretty simple.
I hope this helped. From now on, if anyone seems confused about the topic of fan/follower/subscriber “value,” point them to this post.
Cheers,
Olivier
* * *
If you haven’t already, check out Social Media R.O.I.: Managing and Measuring Social Media Efforts in Your Organization. Lots of vital advice in there for anyone working with social media in a business environment. Makes a great gift to employees, bosses, contractors and clients too. You can even read a free chapter here: smroi.net
Olivier :
Can I call you the Zoro of SM? Taking down the myths one by one. Those are myths only for those professionals who prefer to stay on the surface of social. Since you are not even masked, you are probably a new brand of super hero that acts in the open, just like social media dictates in theory : Honest, authentic, knowledgeable. Glad I could take time to read!
KC
Ok, never mind. It’s true. I am Ironman.
Fantastic post Olivier. It’s frustrating to see so many businesses, agencies and gurus misunderstand what value is defined by. You’ve done a superb job of outlining that it must be a variable number on an individual scale.
A Facebook fan that only likes your page to enter a contest but never becomes a customer is worth nothing. Money needs to exchange hands before there being a monetary denomination set.
When that fan becomes a funnel to their own friends and family then it gets more complicated. Which is exactly why people need to hire professionals and not someone that can attach numbers, charts and buzz words to get your money.
That’s right. 🙂
Olivier, you’re right – there are lots of dumb examples out there and we do need to champion a much more rigorous approach. But what people should be calculating is the value of the ‘action’ of someone becoming a fan – which isn’t quite the same as the value of that customer.
Eg – I might be a customer of ASOS, spending £400 a year with them. Then I become a fan of ASOS on Facebook and over the next year I spend £700. They might deduce that the ‘action’ of me becoming a fan increased their revenue by £300/year. The difficulty lies in establishing causality: did becoming a fan ’cause’ me to spend more, or did the fact that I started to spend more cause me to become a fan.
A £400/year customer who becomes a Facebook fan is still a £400/year customer, until they become a £700/year customer! And a Facebook campaign cannot take the credit for that £400/year spend (just because I decided to become a Facebook fan), any more than any other aspect of the company’s operation can take the credit.
A combination of customer data analysis and surveys can provide solid evidence for causality and influence. If it turns out that the milestone of becoming a fan consistently produces a step-change in average spend – all other factors being equal – then you have a case for investing in fan acquisition.
You could also look at the *cost* of a customer *not* becoming a fan. This is about loyalty. Your customer data may show that a percentage of new customers switch to a competitor brand after 2 years. If you find that among the Facebook fans (with all other factors controlled for) brand loyalty is increased and the percentage abandoning the brand reduces, then you have a financial case for investing in Facebook fans.
But even leaving this relatively subtle stuff to one side, some brands and agencies are making the much more elementary mistake of assuming that just because the average Facebook fan spends more money than the average non-fan that somehow implies causality. It simply doesn’t! By definition you would expect that Facebook fans of a brand spend above average. That’s why they call them fans.
My own view about Facebook is that the biggest value lies in the communication channel it opens up. Just as getting customers to subscribe to an e-newsletter or give you their postal address means the brand can keep the customer informed about your brand, so it works for Facebook and Twitter. For all the talk about social media being about the conversation, the fact that the brands I follow on Twitter and Facebook are in my daily consciousness stream, and can keep me informed about new products and latest offers, means I am more likely to purchase from them and stay loyal.
The value of the customer is pretty important though, for two reasons:
1. It strikes at the heart of the R.O.I. question. You want to calculate the ROI of a social media program? You need to be able to measure the value of your customers and the impact that social media had on them.
2. Noting and measuring changes in behavior tells you what is working and what isn’t working. Pretty important stuff.
here’s something a lot of those studies also don’t consider: A company with a disappointing or even lousy social media program might actually alienate customers more than if it hadn’t been on Facebook at all.
At any rate, the question of fan value keeps being asked because it helps clients justify investments in SM. It’s the same wrong question as “what’s the ROI of social media.” The answer to the latter and the former is this: “What do you want it to be?” And then you set that as a target.
Cheers, man.
Yes – as you say, the ‘impact’ that social media has on your audience and ‘changes in behaviour’ are key. That’s what I’m advocating: looking at the changes produced by the action, rather than just the value of a fan (which might conceivably remain constant regardless of whether or not they become a Facebook fan). Running customer research with controlled samples is probably the only way to isolate the effect social media activity itself is having.
Absolutely agree with the philosophy of ‘what do you want it to be?’. A company/organisation may ‘do social’ in order to understand more about their customers, or to increase awareness, or to change perceptions, as well as simply sell more stuff.
Set the target > measure the change > control for other factors > deduce the causality > gain insights > refine the strategy.
Cheers : )
I think my Cerebellum just fused. Wow.
I came into this thinking, “Isn’t it just the average spend per fan less the cost of maintaining the Facebook presence per fan over whatever reporting period?” Immediately, you drop the acquisition cost bomb and my whole world changed.
Let me see if I’ve got this right (using very simple, very generous numbers).
1,000 fans spend an average $100/yr.
I pay my Facebook community manager $50k/yr.
If these fans are “organic,” requiring no additional costs, the (average) value of each fan is now $50 ($100k revenue less $50k expense divided by 1,000). If we spend $50k on a campaign to acquire these fans, they’re worth $0 ($100k revenue less $100k expenses divided by 1,000).
Now, because I want to challenge myself to understand this, suppose we’ve already proven we have 1,000 fans worth $100/ea (avg) and we spend $50k on a campaign to increase the number of fans. As a direct result of this campaign, we pick up 700 new fans. Assuming our average fan spend remains $100/yr (I’m keeping this easy), we’ve spent $100k and bring in $170k, meaning average fan value is now $70?
And, since I’m right there…
($70,000 gain – $50,000 cost)/$50,000 cost = 40% ROI. Is that right?
I really wish I could discuss this more intelligently, but I’m one of those left-handed, right-brained, uber-conceptual types. I see the relationships, but I’m struggling to communicate them here.
Any chance you could tie this stuff into the buying cycle in a post sometime in the future? I was just discussing this post outside with a friend and got to thinking about the value of a fan to, say, an auto manufacturer who might only see a fan transaction once every 3-4 years. Too many variables on my now thoroughly fried grey matter.
I do feel a little smarter though, now, and that’s why I consider you a must-read. Merci, mon Capitaine.
I’m going to come back to this later today. Looks right, but I only glanced at it.
Okay no… Unless I read it wrong, you have 1,000 fans worth $0 and an additional 700 fans worth $100. So your average fan value is $70,000 / 1,700. That means your fans’ average annual net value once you’ve factored in the costs thus far is $41.18
So if total spend was $50K + $50K (salary + campaign) = $100,000; and your total gain (assuming all of this was new business) was $170,000, your net gain was $70,000. Unless I misunderstood the addition of the other 700 fans at $100 annual spend, that’s an ROI of 70%.
Wait… The 700 new fans are year 2. Crap. I have to start over.
If the 700 new fans are year 2, then you’re looking at an ROI of 0 for year one, and negative ROI for year two. In year one, you spent $100,000 to generate $100,000 in revenue. In year two, you spent $100,000 to generate $70,000 in revenue, for a net loss of $30,000. (Ooops.)
So yeah, when companies look to renew budgets after two years like those, they might not waste their money on your social media program if it either generated no new revenue or lost money. Unless, of course, not having a program at all would have been worse.
Everything has an opportunity cost attached.
Haha. Yeah, I’m sure I missed something in my equations. Still, I think it illustrates another root problem with social media ROI calculations – management is probably less interested in the formula than the outcome.
And you explain this stuff to people for a living? Oy vey.
I have a few questions/comments, not a joke this time 🙂
– can value only be monetary? For a company, and I am thinking mostly service companies, can the value of a fan be determined by another type of transaction?
– For those many companies that don’t have a direct line to sales and purchases, calculating the value of a “fan” can be daunting and impossible.
– Facebook is also becoming more appealing to traditional marketers by including, in the company pages analytic, traditional measures such as Impressions. This type of metrics will help marketers calculate the value of a fan in a traditional way.
– If, by essence, social media is a place to showcase the company at large, how can we tie back the purchases to one particular initiative, unless, there was a specific call to action that led to particular measurement.
Hope it makes sense.
Non-monetary… you mean like hugs? Like, “the value of a fan is love?” Not really. I mean, yes, for discussions’ sake, but ultimately that love is expressed in behaviors that lead to more or less revenue from those happy customers. They buy more stuff, or they buy more often, or they buy more upscale stuff, or they recommend your stuff to a bunch of people who in turn buy it.
Also, yes – for companies that don’t have a direct line to sales, this will be very challenging. The problem then, is for them to reconnect with sales. Imagine trying to drive a car with no dashboard and a blindfold on. Managing a company without a direct line to sales is the business equivalent of that. Sales are your front-line eyes and ears. They’re your boots on the ground. They know when a price is too high, they know when your competition is making a move, they can gauge the mood in the street… They are one of a company’s biggest business intelligence assets.
AND Sales is typically the ONLY department in the entire company that actually generates revenue. Why wouldn’t the rest of the organization be tapped into them? It’s crazy. It isn’t even a social media problem. It’s basic Business 101. The kitchen can’t be disconnected from the front of the restaurant. The general can’t be disconnected from his forward elements. The CEO can’t be disconnected from his sales people. A company whose departments operate in a vacuum (silos) cannot – I repeat, cannot – properly leverage the social space. All they will do is spend resources on content and count fans, and that is pointless. It’s like spending money on a party and counting how many people show up to enjoy free drinks. What did you actually accomplish? 1. You spent money. 2. People drank your free drinks and left. 3. You forgot why you were throwing the party to begin with.
In that example, how many guests did you actually make friends with? How many will still give a shit about you tomorrow? How many will you ever make contact with again? If a company is going to approach social that way, then they might as well buy fake fans, make a good show of it for PR purposes, and hope no one ever notices that their marketing is cosmetic rather than business-driven. There’s a lot of that going around, and it isn’t really helping legitimize the social space, unfortunately. But look, being on Facebook won’t magically cure operational dysfunctions within an organization. If anything, it will only make them more obvious to people inside the organization who actually give a shit. It’s very frustrating for that category of employee. I run into this with every company plagued with that same disconnect you bring up.
Re: The call to action. <– Bingo. This is important. It is the line that separates a broader social media program from a specific social media campaign. (And here, don't think of a campaign in the traditional sense. Think of a campaign as the sum of activities aimed at driving a specific behavior – like increasing first time purchases of the company's new peppermint-flavored gum, for example).
The call to action is crucial if you want to tie specific activity to specific outcomes. This is where the use of markers or tags comes in handy. Discount codes, tagged hyperlinks, and whatnot. They help you track mentions, social pathways, virality, velocity, etc. They help you see which messages worked and when, on what channels, how they spread, who the influencers are for that particular topic, etc.
But yeah, driving people to become a fan won't do a whole lot for your new peppermint gum unless you point people to it in some way. Clicking that "like" button is step 1. It's the most basic social business activity. Then what? 😉
Hi Oliver,
Excellent post, glad to see I’m not the only one to drill down the numbers!
Quick question for you, have you come up with a formula for those extra special fans that not only purchase but create new fans and encourage them to purchase too?
Keep up the good work 🙂
I wish. Some tools are starting to map that pretty well, but we aren’t to a point where we can connect that precisely to individual transactions.
What I mean is value is not only monetary it can be in some transaction that can be expressed by a specific action the company what the consumer to have and yes, in the end can be money. I see your point.
Right. When the question is asked, 99.9% of the time, it’s about money. Brand equity, loyalty, all of that good stuff, in the end, it is only there to drive revenue and profits. The CMO and her team might not see it that way, but I can guarantee that the CEO does. 😉
Olivier,
Always a good read. I’m curious what percentage of fans fall into the “one that doesn’t fall into the transacting customer category”? I would assume it’s probably a high percentage (70%?). Does that raise the average value of the fans that actually make a buying decision and/or encourage others to purchase even though there’s really no way to separate those fans from the fans that just hit the “Like” button and never make a buying decision or encourage others to purchase? OK, I just lost my train of thought again. Hugs?
Depends on the business, Dan.
Say you’re Company A and you hired a social media agency to get your fans to 100,000 in 6 months. Chances are that they bought those “followers” from a fan farm in China. Their % of non-transacting fans will be very high.
Say you’re Company B and you have grown your fan base organically (that is, without artifice) by appealing to the type of person who would actually get a benefit from doing business with you. My guess is that it will take them a lot longer to get to 100,000 fans (if ever) but their % of non-transacting fans will be very low.
It’s all about how you use the platform.
On this point about non-monetary value: My take is that social media measurement doesn’t have to completely reinvent the wheel for a given company. If the company already ‘knows’ (or has decided) that, say, net promoter score (NPS) is a key metric because it ultimately drives revenue, then it is entirely legitimate for a social media campaign or activity to be measured in terms of the change in NPS. Same applies for brand awareness, loyalty, consideration, perception or any other measure that the company has already deemed valuable. It does not fall on the shoulders of the social media manager to ‘re-prove’ the value of metrics that are already ‘known’ to impact revenue.
This is actually a more strategic way of thinking.
To take a well-known and controversial example: If it turns out that the Pepsi Refresh activity changes brand perceptions in a way that may better position the company for long-term growth, then the CEO may be more pleased by this than by a potentially short-term increase in sales. (Note: I’m not saying this is actually the case with Pepsi Refresh – just that it *could* be!)
Think about the way that some brands are perceived as ethical and others are not. As global trends move towards consumers favouring the more ethical, the brands that have positioned themselves as ethical (through social media or otherwise) will benefit more and more. This is the difference between long-term strategic positioning and annual sales figures.
In the UK, the biggest-selling newspaper (News of the World) recently had to shut down, because its image became irreparably tarnished (phone hacking scandal). It’s actions over the last few years – driven by short-term commercial objectives (getting the scoop story at all costs) – ultimately produced a terrible ROI.
I’m not using these examples to try to get ‘clever clever’ about it. I genuinely believe that the true value of social media activity lies in perceptions and relationships that take years to form and reap rewards. Ultimately, yes, it all boils down to money (in business), but the route to the revenue lies in softer measures around perception, reputation, market positioning, etc.
Really good read as ever Olivier. Want to sit down properly and use examples and numbers so I can really understand it, but the headlines make so much sense.
I’ve always read the “A Facebook fan is worth $X” with so much irritation, my response has always been “Your value comes from what you do with them, so it’s different for everyone”. And I’m glad someone far smarter than I am has articulated it.
Look forward to part 2!
Obviously, I am not smarter than you since we arrived at the same conclusion. 😉
Cheers, Mazher.
Is this getting back to the whole idea that humans don’t scale, therefore it’s impossible to determine what the weight or value of their transactions is through a brand’s facebook page? And when you’re referring to actual purchasing habits month-to-month, quarter-to-quarter, this can only be determined if an e-commerce channel is set up through the page or a call-to-action points a consumer to the shopping cart on the brand’s website, correct? Learning the whole business side of social media (as you know), I need a bit more clarification on how you set up these hypothetical sales scenarios. I loved this post and will evangelize it to everyone at my agency.
It’s a lot easier with e-commerce, yes. No question. It’s easy to track hyperlinks. But you can also apply it to offline sales as well. Not necessarily 24/7 though (unless your customers have membership cards they can swipe or scan with each purchase so your CRM database can track what they’re doing).
You can, however, take little biopsies at regular intervals to test a) the effectiveness of a campaign, and b) the evolution of a program’s effectiveness over time.
How you do it is simple: You put out a short sales event. 24-48hrs at the most. You advertise it on all of the channels you want to test. Every channel gets its own unique tag or discount code. You collect that discount code at the point of sale. (You don’t even need technology for this. One of my clients, years ago, had cashiers physically ask customers for the discount code or the channel they learned about the sale on, and mark little note cards to track their answers.) Do this once a month or once a quarter, and you can track over time which channels are most effective. Could be email. Could be Facebook. Could be print advertising.
I was lucky in that I started doing this before the technology was there to take over the analysis. Back then, we had to come up with clever little stratagems – kind of like learning how to patch up a Land Rover engine with duct tape and bandages in the middle of the desert instead of just taking it to a garage. 😀 It’s pretty ugly, but it teaches you how to think through the problem, understand what matters vs. what doesn’t, and get the answers you need no matter what technology is available to you.
My advice: Whenever you can, work with very small companies with zero budget and no technical capabilities. That’s where you’ll learn the coolest little tricks. Letting technology do most of the work doesn’t teach you a whole lot. You become to dependent on it. 😉
Cheers, Tim.
Great article Olivier, as always! The same quality content and “honest” analysis that made me love the book!
The “in a nutshell” conclusion of all this is that there is no such thing as a “fixed” fan value (variations can be huge from an industry to another, a brand to another and even a fan to another on the same page). And also, figuring out the value of your fans do require a bit of homework…
One of the response can be in the qualification of the fans (that is what we do with AgoraPulse ;-). For example, in our case, I use my quiz and sweepstakes applications to ask my fans if they own a Facebook Page and what company they work for. So part of my fans provide me with valuable information i.e,. CMO at Disneyland Paris, (real example in our case!) and that gives him great value to me. Now I know that I am not talking to “Bob from Paris” but to “Bob the CMO of Disneyland Paris”. And I know how much I spend in real life to get access to this one Bob (several thousand euros in sponsoring a networking event)!
Does this example make sense? Do you think knowing who your fans are can give them more value in some cases?
Absolutely. And you know what? Bravo for using SM as a business/market intelligence tool. I wish more companies would do what you’re doing. This is REAL community analysis. You aren’t just counting fans and using tools to see what their reach is. You are quantifying and qualifying. You are drawing actionable insights from your data. You get it. Very refreshing, man. Keep it up. 🙂
The big question is though is a facebook fan more valuable than a non-facebook fan and why. If one guy buys a BMW & talks about BMW positively to friends but doesn’t ‘like’ them of facebook is he less valuable than the facebook ‘fan’ who doesn’t own a BMW?
This might come across as heresy in the social media “guru” world (and there is a lot of push to try and make Facebook interactions out to be more influential than offline recommendations in some circles), but I don’t think a recommendation from a Facebook fan (or via Facebook) is somehow more powerful or relevant than an offline face-to-face recommendation. In fact (and here comes the heresy part), I think that for the most part, offline recommendations probably hold more sway than online recommendations, even if they come from the same person. There’s just something about real life interactions that you just can’t replicate online. It’s kind of like attending a live music performance and watching a video of it on YouTube: Not the same thing.
What Facebook does though, is amplify the reach reach and frequency of these types of interactions. I might only see Jack once a month, which means I only have one opportunity to recommend that BMW, if we bump into each other while he happens to be car hunting. But if we are both on Facebook, he can put out a feeler like “hey, I need a new car, what should I look into?” and get 20 replies within minutes, some of which might be from BMW owners (and fans). The bigger the community and the more alert, the more influence they can exert on that selection process.
Is there a quality vs. quantity discussion lurking here? Yes. But there is also a timing and scale conversation as well. A response from me on FB can be enhanced by 20 likes from other people he knows and trusts, follow-up comments, etc. Being social animals, we tend to naturally want to adopt the beliefs of our peers. If 3 people recommend VW but 30 recommend BMW, guess which one you might be most likely to put at the top of your test drive list? 😉
Of course, this all becomes moot if, when you go to the BMW dealership, your experience there is unpleasant. What happens on FB (or face to face) in terms of recommendations and positive WOM can be undone in moments by a crappy salesperson or poor management at the point of sale. But since that continuity discussion takes us into a whole different topic, I’ll stop here.
Thanks for raising that point. Not enough people do. 🙂
Interesting, but I’m having trouble scaling it down to a business the size of mine (with the exception of your suggestion about the 48hr event advertised through specific channels). We sell toys. People simply do not buy toys on a daily basis. Thus, the value of our facebook page is primarily to “keep the balls in the air”–to pass before our fans’ eyes, and stay in their thoughts. All of our fans are organic, as it would be ridiculous for us to farm fans–farmed fans will not buy toys from us. The brightest side is that we spend zero dollars maintaining our facebook page.
What are your opinions regarding use of fb by the (very) small business owner?
I’ve worked with very small retailers who were using FB quite successfully. It’s like anything – the telephone, print, TV, email: Scale and results will vary from business to business. For some, FB will be a nice addition to other channels but won’t make a difference one way or another. For others, it will help bring in new business and/or increase buy rate and yield from existing customers. It’s all about how you use it. A global brand could use FB for years and have absolutely zero results. A small local plumber could use FB and quadruple his business inside of 6 months. It’s a blank canvas, really. You call the shots.
Thank you for your reply; glad to see that you’ve worked with companies whose ‘likes’ don’t number in the tens of thousands as well.
Another aspect to consider is the money saved on other forms of advertising–we host classes and workshops, virtually all of which book up, and thanks in large part to facebook, we no longer need to advertise those in print. So I suppose it is making quite a difference for us after all. Hadn’t thought of that last night.
Thank you for the thorough answers. I see at least 3 problematic here:
1) The actual organization is not structured to track any initiative outside of the sales.
2) Social programs will not fix internal discrepancies. It will actually piggyback on them.
3) If the above is true, then proving the direct impact on company revenue will not be asked of SM practitioners.
the last though is that, depending on where social will fit in the organization, it can be tied to a revenue center or a cost center. Either way, this is a C-level decision and it depends very much on their understanding of Social as well as their business philosophy.
In this particular instance, I’m sorry to say this but you might be wasting your time. An organization with those kinds of operational problems (dare I say leadership problems) won’t get very far with SM. Sure, they should claim their accounts so cyber-squatters aren’t a problem for them someday, but if they aren’t serious about being successful, there’s little any of us can do for them beyond that.
I’ve turned down business from companies with this very type of issue. I hate to do it, but I do it because I know that any relationship with them will lead absolutely nowhere. The only thing you can expect from a company in such a deep state of dysfunction and denial is a lot of headaches, frustration and wasted time. The first order of business for any organization is to get the fundamentals right. Social media is a layer you apply to an already strong house. Without that strong foundation, SM can only collapse along with everything else, no matter how good a strategy and program you put together for them. They will never bother to execute it properly. It’s heartbreaking… but that’s just how it is. Some companies (many, in fact) are stuck in a perpetual state of dysfunction. Unless a new CEO with vision and balls comes in to clean house and start over, you are looking at a dead end.
Great blog Oliver –
You hit on a number of important points, the most important of which is that unless people are doing business with you their Facebook – or Twitter, or YouTube, etc.- status with you is pretty much worthless.
Of course in social media adding value to people’s lives is an important factor. When someone signs up as a fan on Facebook they are essentially consenting to being advertised to 24/7 through status updates, etc. When you consider that most people pick up their smart phone or lock their eyes on their lap tops during commercial breaks to ignore advertising it says something when an individual agrees to let a company advertise on the spaces they go to avoid traditional marketing.
Converting these people into consumers is the trick. It requires companies to use that access they have been gifted appropriately. Rather then the hard sell companies need to add value through entertaining advertisements or on the other side of the spectrum through expert blogs.
One company that has converted me into a Fan and has been able to pump more then enough money out of my month after month is Threadless.com a t-shirt company based in Chicago. Their social strategy has been fantastic and it exudes trust. They respond to their customers and encourage communication. They host socially conscious design competitions etc.
These are the sorts of things that take whatever value they may have and grows it over time.
Anyway, great blog Oliver! Lots to chew on.
Michael Girard
Community Engagement, Radian6
Olivier your work on ROI is great and it’s about time someone makes sense of all this. ??? How did you come up with the Monthly transaction: $592.76 (avg) and how large was the sample size?
I really enjoyed reading your approach to measuring Facebook influence. Since there is no scientific way to determine a Facebook fan’s worth; we must rely on what makes sense, and Oliver’s breakdown makes a lot of sense. I also strongly agreed with the point that Facebook fans are not worth anything until they spend money on the brand. Many have tried to equate Facebook fans to a monetary value, and that is one mistake we should stop doing because it can significantly affect our expectations.
vouchers for chester zoo
Do you have a Facebook Fan Page I could subscribe to?
There’s a Facebook link in the right hand margin.
I agree with you because i think a page’s value depends on how active the fan base is and what it offers, but number of fans can not be overlooked. I got this friend who help getting real fans for facebook pages at least she worked for me. and there are many other people who work on this. she offer her services at this link
http://fiverr.com/lorena122/get-you-500-real-facebook-fanpage-likesfans
I was looking for information on valuing Facebook’s Likes and I found your post. Pretty insightful. I have linked to it from my blog post as well. http://techstuff123.wordpress.com/2012/02/21/the-value-of-a-facebook-fan-some-insightful-readings-2/
One question I had from reading you post: Isn’t attribution a problem? i.e if a bunch of users on Facebook either Like a brand, or see someone else share their Like and walk into your store to buy it, how do we calculate this? This may not be that big a problem if you have an online presence to help track sources but even online, it’s not so clear cut, is it. Any thoughts on this?
You mean actually calculating the exact value of every step in a customer’s path to purchase? Nah. Maybe someday we’ll have a) the data and b) the computing power to calculate complex models like indirect paths to purchase, but in the next decade, forget about it. The best you can hope for (at least for now) is to group customers into categories based on how many times they are exposed to positive brand recommendations between purchases, for instance, and then go find out if there is a correlation between frequency or quality of these recos (even the degree of separation between them and the people who recommended the brand or product) and their purchasing habits. That takes a lot of work, but you could build a model (even a predictive model) based on that kind of program.
As far as identifying cookie-cutter fan/follower values though, nope. It just doesn’t work that way. You could average the value of fans, sure. People do that. But that kind of information doesn’t tell you anything. It doesn’t differentiate between fans who aren’t customers and fans who are. It doesn’t differentiate between fans with high buy rates and those with low buy rates. So… if the average $ figure increases by 20%, for instance, that figure doesn’t tell you if you converted a bunch of non-customer fans into customer-fans, or if you have changed their buy rates or even their transaction yield.
Trying to calculate the average value of a fan this way is like trying to calculate the value of the color orange. 😉
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