I wrote this in April. I thought it was posted here or on Fan History’s blog. After a bit of searching, nope, it isn’t. Therefor, posting it here. This was written at the request of a friend who works for a marketing company in Chicago to discuss the challenges of measuring ROI.
April 19, 2010
One of the most important metrics that people discuss is the value of a customer and the value of followers of brands on various social networks. What is the return on investment for generating buzz in social media? What is the per individual value of having a fan on Facebook, having a fan create their own video content and upload it to YouTube, the value of some one belonging to or listing a brand as an interest on LiveJournal? Virtue, a social media management company, has put the value of a Facebook fan at $3.60 per fan.1 Their methodology is suspect and their conclusions should not be read as universal across the many industries that utilize social media to promote their products and drive revenue.
Social media is composed of many networks, each catering to their own demographic and interest base. Each of these groups has their own behavioral patterns. Canadians and Brits have different usage patterns for Internet based radio than their American counterparts. The buying power and education level of a Facebook user is different than that of a MySpace user, even if both groups are composed solely of Americans. Added to this mix, there has been a fair amount of research done that says brands themselves do not influence purchasing decisions as much as friends and family. 2
Given this reality, a standard industry wide number is impossible to calculate. A smart company should independently develop a number for measuring the monetary potential of people interested in their brand. To do this, a company should first identify a specific network where they are aware of a community that is already interested in their product. This community can be expressed by listing the brand as an interest, as is the case for Facebook and LiveJournal, by belonging to a group dedicated to the brand for sites like ning and Yahoo!Groups, or by uploading user generated content on sites such as YouTube. Remember: Each of these sites has a different demographic base so you cannot arrive at a single metric across all networks unless you have the same uniform population using multiple networks.
Once you have identified the community you wish to find the individual value for, determine the demographic and geographic composition of the community on that particular network. Stick with information that is publicly available. In the case of LiveJournal, that data includes date of birth, geographic location, the type of account a user has (paid, plus, permanent). For Facebook, this information can be much deeper if you use the data provided to people interested in marketing to them. For a fan page that you do not run, you are limited to their name (for which you can attempt to determine gender) and the network that a person belongs to.
After you have this data, compare it to your known information regarding people who support your brand. If the demographic information does not match information, there is something wrong with that community and you will never get meaningful data. For example, a United States based Christian bookstore may be gaming for autofollowers on Twitter and have a huge following of people from Iran, Saudi Arabia and Morocco. On the whole, that demographic is unlikely to convert into potential customers for the bookstore. Trying to go further to assess value of one’s Twitter followers would thus not be useful. 3 If the data does match internal numbers or is a demographic base that you wish to explore, go on to the next step.
If the community demographics match with what you want to explore, create a survey for people who express an interest in your brand. It would be best to make the survey using a format that people inside the network would find easiest to use. For example, on LiveJournal, you may wish to use the service’s polling data; on Facebook, you may wish to create a survey using FBML and make it a tab on your fanpage or create a Facebook application. When conducting the survey, ask demographic and geographic questions that are represented by the data you pulled from public sources on that network. The survey should also ask questions regarding what other networks the individual uses. The survey should also inquire as to how often the customer has made a purchase from your company, what type of purchase was made, who influenced the decision to go with your particular brand, where the people who influenced them were sharing their influence, and what percentage of time those particular influences helped with a purchasing decision.
After the survey results are in, an analysis should be conducted to determine the particular value of each respondent in terms of monetary value of a customer. For example, a person may be a fan of your Facebook fan page. If for example you are a baseball team, the person may be inclined to purchase tickets to attend games anyway. They may respond that they have bought $200 worth of tickets. They may also tell you that they bought $20 worth of tickets to games they would not have otherwise attended as a result of coupons that you posted to the Facebook fanpage wall. The fan may also have purchased tickets they would not have purchased otherwise because a friend on Facebook talked about how they loved the team but had never attended game. The Facebook based conversation created a situation where the person spent another $40 on tickets. The value of this customer on Facebook thus is not $200 but $60 or 30% of their total spending is a direct result of a social media activity on Facebook.
Once the value for each respondent has been determined, normalize this against the demographic composition of the whole population, as every person expressing interest in a brand on a particular social network is not likely to respond to a survey. Remember, different groups behave differently. Some groups are incentivized to respond for their own reasons in order to try to meet their own needs. If the a particular network has two thirds of the population that is female that expressing interest in your product and the survey response is only a quarter for women, the monetary value of your community is going to be wrong.
This method of determining the monetary value of individuals expressing interest in your brand has other benefits. It can help you set benchmarks for improving sales to key demographics and help you identify new demographic bases for your product that you may not have realized. It may also help you identify other networks where you can potentially attempt to drive buzz for your product where the community is less obvious. Most importantly, this method uses real numbers for real customers rather than relying on unproven hypotheticals.
3 If you find yourself in a situation like that, the best response is to re-evaluate your social media strategies. Something is clearly broken.