More than 600 million people use Facebook to keep in touch with old friends, get to know new ones, share pictures, network-and to keep up with their favorite brands and products. Creating and maintaining a Facebook presence has become a standard practice for companies of all sizes. Customers can "Like" the brands that they, well, like. Previously referred to as "becoming a fan," liking a page lets customers receive updates and promotions from a company. But what value truly lies in these likes? How much is a Facebook fan really worth?
Social marketers voiced a need to quantify the worth of a Facebook fan, and a few companies took a swing at pinning down an answer. The approaches were wide-ranging and the results even wider, but each reaches the same conclusion-Facebook's potential for building brand-to-customer relationships is priceless.
For Syncapse Corp., a Toronto-based social media management software provider, the best way to monetize the "likers" of a company's page was to look at their relationship with the company versus the relationship between the company and nonfans. After collecting self-reported data from Facebook users, Syncapse found that Facebook fans are a different type of customer, with different potentials, explains Paul Cowan, Syncapse's vice president of measurement practice. The study quantified fans' and nonfans' product spending, loyalty to a company, propensity to recommend a company, brand affinity, media value, and acquisition cost. It found that, on average, a customer who is a Facebook fan is worth $136.38 more than a customer who is a nonfan. Cowan is careful to clarify Syncapse's intention in this study. Its question, he says, was not, " ‘Is Facebook causing people to spend more money?' but it was really, ‘Are they a different customer segment because they decided to create a different relationship with the brand or product or organization?' "
"You need to develop strategies to try to exploit that base of people, and treat that base of people differently," he emphasizes, "because they're a self-segmented group of customers that are saying that they have an affinity toward your brand." The fact that consumers use Facebook as a tool to reach out to a company means that the true value of Facebook lies in a brand's engaged audience on Facebook, not simply in its fans' awareness of the brand's promotions. Even fans can be broken down into high- and low-value fans, based on their participation with the company.
Companies can leverage this subset of their customer bases to create targeted marketing channels. "Marketers need to start to think about how they want to try to use Facebook and Twitter and other channels as a way to have more relevant conversations with people," says Cowan.
Vitrue, Inc., another provider of software for social media management, took a different route to turning Facebook fans into a dollar amount. At the request of its clients, the Atlanta-based company came up with a basic formula to measure the value of a brand's Facebook fanbase, depending on how many likes the page had acquired. Vitrue looked solely at Facebook fans in terms of the amount of impressions that they enabled. If a company's Facebook page garners 1 million likes, for example, and the company posts twice a day, then the brand effectively appears twice on every fan's newsfeed, giving it a total of 2 million impressions per day, or about 60 million in 1 month. Using the cost per thousand of $5 as an example, those 60 million impressions translate to about $300,000 in revenue every month, or $3.6 million each year. After dividing this amount by the 1 million fans of the page, each like is worth $3.60 annually.
Reggie Bradford, CEO of Vitrue, says that although the company received some criticism for applying an over-simplified CRM model to Facebook, its point was to demonstrate the monetary possibilities in Facebook impressions and to supply its customers with a tool to measure those possibilities. He says, "If you build an audience on Facebook, and you message them a few times a day, and you start to drive engagement using multimedia like images and polls and coupons and videos, to create that relationship, to get people to share and comment, and you do it consistently, you're creating enormous impression-to-earned media value."
Though Vitrue's formula is mainly based on Facebook posts as a distribution channel and doesn't measure other interactivity, the brand awareness translates into earned media value. Cowan agrees with Bradford on this point. "Fan growth is a great thing," says Cowan, "but the real intent of it is so you can get more impressions within the Facebook news feed, which we calculate in terms of earned media value." The overwhelming majority of consumers buy products and services based on friend recommendations, Bradford says. Facebook's value lies in the easy communication among all aspects of a customer's network, says Bradford. "It's about me and my friends and the brand."
Most of the value of a Facebook fan lies in marketing potential. Facebook's social advertising strategy is using likes to deliver paid ads with the weight of word of mouth. Stories such as "Julie Smith likes Oreos" may appear within friends' newsfeeds, but may also appear on the sidebar with an Oreos advertisement, to ensure visibility and maximize impressions. These social advertisements give paid ads a viral quality. "It's a very valuable channel and it's just getting started," Bradford says.
Facebook is helpful for increasing brand awareness, but can it be relied on to drive sales? Sucharita Mulpuru, vice president and principal analyst at Forrester Research, Inc., says no: It is not a player in the ecommerce field, and it's likely it will never be one. A Forrester report published in April by Mulpuru titled "Will Facebook Ever Drive eCommerce?" shows that only 3% of respondents had used Facebook to purchase products. For certain businesses, mostly those offering online games or virtual goods, Facebook as a source of ecommerce is plausible, but the social model will not work for most other companies. Mulpuru says that the only "reasonable figure" quantifying Facebook's monetary value would look at a "direct and tangible benefit that is tied back to sales."
Even as a distribution channel, Facebook's performance may be too unreliable to replace email lists. "Wall posts by brands to fans may supplement emails but are frequently deprioritized by Facebook's algorithm for relevance and are hence not always easy ways for companies to reach shoppers," Mulpuru cautioned in the report. The report also points out that, for now, a hybrid messaging strategy is best, because "email helps to drive total Facebook fans and Facebook posts reinforce email messaging." Still, the use of Facebook itself may not directly result in revenue from fans to brands.
Even if they can't agree on a number, Cowan, Bradford, and Mulpuru all agree that Facebook has become an essential tool in building a brand's relationship with its customers. "The primary value of social networks is said to be in listening," says Mulpuru, "and listening is certainly about strengthening customer relationships." Monetizing that relationship is not necessarily the most important part of Facebook marketing-but leveraging a brand's connection with its fans as a valid marketing channel may be the most valuable aspect of the social network.
In order to leverage likes, marketers will have to become increasingly creative. Looking forward, Cowan sees social marketers creating highly customized content for those who like their brands' pages. "The whole creative exercise within social media, which is one of the big, highly unquantifiable areas ... that's one of the biggest challenges that exists within Facebook," he says.
Bradford agrees that the mindset of marketers is shifting. "People are really starting to think about [Facebook] as a relationship channel and as a channel to try to understand customers and customer bases," he says. "It's a new era."