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Strategic analysis
The Cost of a Fan

Written by on April 21, 2011

There are a ton of articles outlining the value of a fan. I wrote one back in 2009 (which is no completely longer accurate, mostly because of changes on Facebook). Vitrue studied it (note). So did Syncapse, and many others.

The bottom-line is that unless you measure it directly, you do not really know. The value of a fan is not a fixed value. It depends on what you do. In a sense, the value of a fan is you.

While the value of a fan is interesting, many brands do not ask about the other equally important question. What is the cost of a fan? If you want to measure social return of investment, you need to measure both revenue and cost.

Here is the example I usually give people:

The cost of social media is time + the cost of equipment/tools + other general expenses. If you are working for a big company, head over to your CTO and ask her, "what is the cost of an employee per hour?" Not just the basic salary, but including other expenses, like electricity, rent, furniture etc.

The CTO would know what those expenses are, and you then simply divide that to get the "utility cost" per employee, per hour.

Let's put that into practice.

If you have a fan page with 5,000 fans, and you spend an average of 2 hours per day updating and communicating with your followers. Your salary is $35/hour, and the utility cost is an additional $15/hour.

Result: It costs $36,500 per year to manage your fan page. Or, $7.3 per fan.

We can then use this to estimate a cost over time, based on how many fans you got. Example: When you started out, you might have spent half and hour, and every time you get 500 more fans, you spend 5 minutes more communicating.

Here is the result.

As you can see, the time you need to spend slowly increases, and so does the cost. When you reach 15,000 fans, it is actually quite expensive. But, the cost per fan is quickly dropping. From $23.7 per fan with 500 fans, to only $6.1 per fan with 15,000 fans.

You need to compare this to your revenue in order to calculate the ROI. So, let's do that.

Let's assume that 15% of your fans buy your products, that they spend an average of $500/year, and that the cost of making your product is 30% of the sales price.

Note: You obviously need to fill in your own numbers. This is just a quick example.

The result:

If you have 500 fans, your will have $37,500 in revenue, $14,388 in profit, and a return of investment of 121% (pretty good, but not impressive).

But then comes the amazing power of social. At 15,000 fans, your revenue is well over one million dollars, and your profit is close to $700,000, with a ROI of 763%.

That's more like it!

This is the result of the things you share directly. The actual effect of social media is a lot higher. The real power of social media is not what you share with people on your fan page. It is what other people share outside it.

Just to give you one example. On this site, only 3-4% of my social traffic, is the result of what I share on my own social channels. The rest is shared by other people, most of whom are not following me.

The true power of social are all the thing that happens outside your control.

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Thomas Baekdal

Thomas Baekdal

Founder of Baekdal, author, writer, strategic consultant, and new media advocate.

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