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What Is the Value of a Facebook Fan? by ClearSaleing
Posted January 16th, 2009 under All Blogs, Attribution Management, News, Optimization, Uncategorized, What's New? with 11 Comments
By Adam Goldberg
If the amount of Facebook fans a company had were an indication of the number of sales for their product(s), we would generally assume that more fans equals more sales. But several factors contribute to the popularity of a Facebook fan base, which can make it difficult to define the value of a fan.
Take a simple comparison between brands in the auto industry. Lamborghini has over 447,000 fans on Facebook compared to just over 11,000 fans for Toyota. Keeping the logic that more fans would equal more sales, we would assume Lamborghini would sell 40 times the number of cars than Toyota.
However, Toyota sold 9.2 million cars in 2007 (’08 numbers not yet available) and Lamborghini sold 2,406 cars in ’07, or 2,823 times the number of cars sold by Lamborghini. So, if the number of fans one has is not a straight-line correlation to the number of sales a company will do, then what is the value of having fans? In order to understand the value of fans, we need to understand why people become a fan in the first place.
One of the reasons is that it shows their personality to their network, just like adding music, TV shows, or quotes. A second reason one might become a fan is to let other people know about a product or company they’ve had a positive experience with. Now, within that category, there are companies that people become fans of like Lamborghini, where most all of their fans will never buy a Lamborghini because they could never afford it. Then, there are other companies that people become fans of like Apple Inc., where the vast majority of fans can, or one day will, be able to afford one of their products. It is the group of fans that have not bought yet, and have the ability to buy, where you have the best opportunity to get value, i.e. profit.
So, when someone becomes a fan, it gets broadcast out to that person’s entire network in their news feed. See below:
The average person’s newsfeed reaches 164 friends on Facebook (see here), so each time a Facebook user becomes a Fan, 164 people have the opportunity to also become a fan and learn more about that company.
One way to establish a value for fans is to look at it in terms of what it would cost to buy 164 impressions. If we assume a $5 CPM (cost per 1,000 impressions) for 164 impressions, that would cost you roughly $.82 each time someone becomes a fan and has that displayed on their news feed. In the Lamborghini example, they received over 73,300,000 impressions from their 447,000+ fans, which equates to $366,540 worth of free advertising.
Ultimately, if you could conclude that as a result of someone becoming a fan, they influenced another person in their network to make a purchase from you, then that is when fans become profitable. The value is equal to the amount of profit you earn from that customer’s initial order and perhaps all of their future orders. Unfortunately, it is not possible to track to this magnitude today.
There are a few types of tracking available today that can give more insight into the value of fans. The first is to put special offers on your fan pages. If someone reacts to a special offer that is promoted on your fan page and is only accessible to fans, you could tell the number of sales you received from that specific promotion and, therefore, assign a value to your fans. A second method is more rudimentary. When one becomes a fan of yours, you know only a few things about them: First name, last name, date they became a fan. You could put this information in a database and cross-reference that with the name of the customers you receive each week. Anytime you find a match, you can infer that you received that sale, in part, because they are a fan. Obviously, there could be many other reasons why they bought from you, and you may have some difficulty matching just names in an accurate manner.
I’m interested to hear more thoughts and ideas of how others in the online marketing world value Facebook fans.
Facebook doesn’t get $5 CPM, so you have to cut the numbers. An extremely high CTR ad (0.16% CTR – great for FB) saw 0.49 CPM and n average it’s closer to $0.15. But that is an interesting approach to measuring the value of a FB fan.
Hey Gab,
Didn’t mean to infer Facebook charges a $5 CPM. I was only using a $5 CPM to demonstrate how one could calculate the value of the free impression one receives when a Facebook user becomes a fan. You can replace that $5 CPM with whatever CPM you are more comfortable with.
Adam,
I’ve tried to crunch the numbers every which way, but couldn’t convince myself of any solid way to value a fan. I’m guessing that the ultimate value of a fan is what a comany like Pepsi will pay a developer or advertiser to increase its fanbase so its bigger than Coke’s
Have you heard of any companies paying on a “Cost Per Fan” (CPF) basis yet? Is anyone even using such a term?
that $5 CPM isn’t unreasonable considering the “ad” is coming from a trusted source (a friend), and placed exactly where people are looking for information (the newfeed, as opposed to the ad strip).
However we can’t assume an update will reach 164 people just because that’s the number of friends they have. 1) Facebook filters the feeds, 2) some people won’t log on in time so it won’t even be displayed to them.
Good post!
I like your cost per impression analysis, it speaks volumes about your knowledge. keep it up
Great post Adam. Couple of items I thought would be worth mentioning….because I had to read your analysis several times before I got it:)
That’s $0.82 per 164 impressions WHEN they become a fan. I’m curious as to what others say, but I’ve been averaging fans for about $2.50/fan while using FB’s advertising program. I believe that the cost/fan relies on several factors such as the product/service, facebook content, and brand. However, you can not deny the fact that when people “fan” a site, they ultimately are advocating your brand and are in tune with your company.
I’m not as interested in the “broadcasting measurement” as you so put it; as I am in the fact that fans have a lifetime value. In your Lamborghini example, that means when a new improved model comes out, 40x (versus Toyota) the amount of people will receive an newsfeed update alerting them to the fact….and keeping mind that they asked to know that in the first place. Lets go a step further and talk about how that could be monetized. What if a new James Bond film came out that featured a new Lambo. What would that announcement be worth to the film producer if that were seeded in Lamborghini’s news feed?
Best Regards,
Christian
I would consider the value of a fan not by CPM but closer to the value of adding someone to your opt-in email list (possibly a little higher). You get the benefit of connecting directly with the fan via fan updates. You also get the initial endorsement of when the user becomes a fan, which is much more valuable than an regular impression on paid search or with a FB ad.
In terms of cost/fan, I would add targeting. If you are running very targeted ads on Facebook, your cost/fan should shrink significantly. Also, if you are running a contest or giveaway, you can also reduce costs. With my campaigns, I typically shoot for $0.50 per fan.
Like the approach, but value is never the same as cost… so, it would be a good argument that by getting the exposure to those fans, Lamborghini “saved” itself some amount of money ($366k in your example) that it would have COST to gain the same exposure… of course, many would argue that such a campaign ($366k in CPM spending) would likely not have that VALUE to the company.
The bottom line is the “investment” building a fan base could stay around for a while, instead of the expense in PPC/CPM advertising which has no residual value. It should be used, when possible, as part of an overall strategy.
Interesting analysis, Adam. The numbers that you use for number of fans per user – 164 is from 2007. Do you have the latest nums? I guess they must be upwards of 200 now.
$5 CPM lol – what are you smoking? Maybe if ALL of your friends are active, high-wealth investors. But your analysis is interesting…
It’s a good start at measuring the acquisition of one new fan…but what about the lifetime value of that fan? Every time that the fan “likes” one of your posts or engages your group, the message is likely to be re-broadcast to ~160 users. It’s these subsequent engagements with your brand that make the bulk of the value of 1 friend.