Monday, April 19, 2010

Edelman Digital: Not All Fans Are Created Equal

Last week, Vitrue determined that the average value of a Facebook fan is worth about $3.60 in equivalent media each year.

The firm calculated this using a wide range of clients and their 45 million aggregate fans before coming to the $3.60 annual valuation. A couple assumptions they make right up front are that each status update posted by the brand generates an average of 1 new media impression for each fan of their brand. They also assume that the brand is posting two updates per day. Lastly, they placed a value to each impression by assigning a $5 CPM which translates to $300,000 in earned media per month or $3.6 million annually for a fan page with 1 million fans. Here is the mathematical equation if you’re interested:

1M impressions x 2 posts x 30 days = 60M impressions
60M impressions / 1000 x $5 CPM = $300,000
$300,000 x 12 months = $3.6M
$3.6M / 1M fans = $3.60

After the Adweek article hit the intrawebs last Tuesday, the emails came flurrying in. Rick Murray, our fearless leader and President of Edelman Digital said that the value of each individual fan will vary depending on some key variables:

* the quantity of engagement (frequency)

# the size of their personal networks (reach)

# the value of the actions they take… and that various people within their networks take

I agree with him and here’s why. Not all customers are created equal. Assuming the above formula is right and all I do as a fan is consume content, I am worth $3.60. But what if I do more than just consume it? Doesn’t my value go up if I comment on it, share it, and tweet about it? Doesn’t it also go up if I have 1,000 friends in my network versus just 100?

Metrics mogul Chris Lightner chimed in and brought up some excellent points and poked some serious holes in the calculation. And since he is much smarter than me, I won’t attempt to summarize:

First off, I appreciate the approach, leveraging “additional impressions generated by fans” in combination with a known media value of $5 CPM. But this $3.60 valuation heavily relies on the fact that the brand needs to post 730 status updates a year (or twice a day) to reach that $3.60 assumed value per fan. Two posts a day? This seems extremely high, even for the most active brands mentioned in this article (over engagement can result in loss of fans, no?). They’re taking the 1M customers and multiplying by 60 posts a month (each customer generating an additional impression), then valuing those impressions at a $5 CPM.

But, what if you’re like the real Starbucks Facebook page (Edelman client) that exists in real life and only posts 0.67 posts per day (I sampled the past 30 days and counted 20 posts), then what? Let’s use their real numbers:

6.8M Fans, x 20 Status Updates (0.67 per day for one month) x 1 additional impression per fan, x $5 CPM

If my math is correct (it is, I checked), that comes out to $680,000 in monthly value. Annualized, that’s $8,160,000 in media value. Divide that by their number of fans and you have a value of $1.20 per fan. This is using the exact process outlined in this article and makes perfect sense since the actual calculation uses 20 posts per month instead of 60, exactly 1/3 the number quoted in the article (and a result exactly 1/3 of the $3.60 stated in the article). So where did the 2 posts per day come from? If you posted 10 times a day would your fans be worth $18 in media value? I’m having trouble agreeing with that.

Let’s touch on the “1 impression per fan” assumption one more time. This is a key metric to consider when calculating the media value from social, but you also need to consider the connectivity of fans (and thus impressions generated from brand posts) is going to vary greatly from brand to brand. I looked at the fan pages for three of our larger clients and found that the impressions generated per fan per post were extremely different. This was due largely in part to the type of fans attracted to their page, as well as the type of content the brand is posting to their feed. The impressions generated per fan varied from 0.55 impressions to 1.2 impressions, all the way up to 4 impressions per fan per post! Make sure you know how many impressions are generated from your posts before you move forward with this calculation (available to the administrators of Facebook fan pages).

Would I be cheating if I just say that I completely agree with Chris? Well, I do but I’ll try and add a little value here. I decided to list the fan value for a few well known brands on Facebook with more than a million fans using the same formula:

* Coca Cola – $0.96 cents (5.3M fans and posts about 16 times per month)

* Youtube – $1.92 (4.8M fans and posts about 32 times per month)

* Pringles – $.030 (3.1M fans and posts about 5 times per month, in a good month)

* Adidas – $2.40 (2.7M fans and posts about 40 times per month. Also sharing links to their e-commerce store so one would assume that their fan value is much higher)

* Red Bull – $1.14 (2.5M fans and posts about 19 times per month)

The key takeaway in the formula isn’t necessarily the total number of fans a brand has on its page; but how often they are posting content. In fact, you can plug in any number in the formula for total fans and the value doesn’t change. The important thing to remember is that if you use this methodology to quantify the value of your fans, ensure that you use “real” numbers that Facebook provides to the page administrators.

And, not to reiterate what Chris has already said but … over engagement ALWAYS results in a loss of fans. I speak from experience managing a branded fan page and as a consumer who has un-fanned pages because of stream spam.

What say you? Do you agree that a Facebook fan is worth $3.60? Why or why not? Edelman Digital

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