Tuesday, April 27, 2010

How much is a fan worth?

Mashable recently published an article highlighting some research done by a social media management firm called Virtue which looked at the value of a Facebook fan. According to their research, a fan was worth US$3.60 per year. This was based the following formula:

wall posts x impressions x $5 CPM.

And plugging in the average numbers from the 45 million fans they manage for their clients gave the following figure:

1 million impressions x 2 wall posts x 30 days = 60 million impressions a month
60 million impressions / 1000 x $5 CPM = $300,000 per month
$300,000 p/m x 12 = US$3.6 million per year per million fans.

Great! How tidy. And how easy that has made it to now explain the value of your Facebook fan page to the CEO. “We have 1500 fans, which is worth US$5400 in advertising per year. Not bad huh boss.”

Unfortunately, I don’t know if it is that simple. Surely some fans are worth more than others? For example, I would rather have Bill Murray as a fan of my Facebook page than Pauline Hanson. And even the kids at South Park know that a “chick friend is worth almost 3 times as much as a dude friend.”

There has been debate in New Zealand lately about whether or not PR should still be measured with Advertising Equivalent Value (AVE), a measurement tool that has been heavily criticized overseas. The measurement of social media and its value as an advertising channel is something that also needs debate.

Is CPM relevant when you are talking about word of mouth endorsement from peers? And how do things change if celebrities get involved, or even just the cool kid?

Perhaps an AVE kind of measurement involving a multiplier is required. It is opinion based advertising after all, closer to an editorial than it is to anything else. Seeing that one of my Facebook friends likes a certain page/band/company is worth much more to me than seeing an ad on stuff.co.nz.

Maybe Facebook itself will provide the answer as they improve on their insights page. Maybe they will end up dictating to us how much our fans are worth. Nothing would surprise me from the people who control the worlds 3rd largest population these days.

Oh, and when you have 20 spare minutes, watch this fantastic South Park episode. The guys have once again hit the nail on the head with their summation of Facebook.

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