If a fan seems to be influencing other people in his or her network to become transacting customers (or increase their buy rate or yield), then you can factor that value in as well for those specific time-frames. Because measurement tools are not yet sophisticated enough to a) properly measure influence and b) accurately tie it to specific transactions, I wouldn’t agonize over this point a whole lot. As long as you understand the value of word-of-mouth, positive recommendations and the relative influence that community members exert on each other, you will hold some valuable insights into your business ecosystem. Don’t lose sleep trying to calculate them just yet. Too soon.

The point being this: Until a Facebook ‘fan’ has transacted with you (or influenced a transaction), the monetary value of that fan is precisely zero.

One could even say that if each fan cost you, say, an average of $1.03 to acquire, the value of a fan before he or she has been converted into a transacting customer is actually -$1.03.

That’s right: A significant portion of your Facebook fans might actually put you in the negative. Something to think about when someone asks you to calculate the “value” of your “community,” especially if you purchased (rather than earned) a significant portion of your fans and followers (a topic we will also cover in the next post as it has become common-practice for many “social media agencies” to pad their clients’ digital communities with bogus fans).

Rule #3: Each Facebook fan’s value is unique.

Every fan brings his or her unique individual value to the table. One fan may spend an average of €89 per month with your company. Another fan might spend an average of $3.79 per month with your company. Another yet may spend an average of ₤1,295 per month with your company. Is it reasonable to ignore this simple fact and instead assign them an arbitrary “value” based on an equation thought up by some guy you read about on the interwebs?

Three points:

1. The lifestyles, needs, tastes, budgets, purchasing habits, cultural differences, online engagement patterns and degree of emotional investment in your brand of each ‘fan’ may be completely different. These, compounded, lead to a wide range of behaviors in your fans. These behaviors dictate their value to you as a company.

2.  Many of your fans may only do business with you only on occasion. Because of this, you have to factor in the possibility that a significant percentage of your fans’ value may fluctuate in terms of activity rather than spend. How many of your fans are not regular customers? How many do business with you each day vs. each month? How many do business with you once a quarter vs. once every three years? Are you figuring your on/off customer-fans into your value equation?

 3. Lastly, we come to the final type of Facebook fan: The one that doesn’t fall into the transacting customer category.  They might remain “fans” without ever converting into customers. Do you know what percentage of your fans right now falls into this non-transacting category? Do you really think that their value is $3.97 or $139.73 or whatever amount an agency, guru or consulting firm arbitrarily assigned to them? No. They clicked a button and left. Their value, until proven otherwise, is zero.

 With this kind of fan/customer diversity within your company ecosystem, you come to realize that arbitrary values like “the value of a Facebook fan is $x” can’t be applied to the real world.

Rule #4: A Facebook fan’s value is likely to be elastic.

Because the value of a Facebook fan is a result of specific purchasing habits (and impact on others’ purchasing habits), a fan’s value is likely to be elastic over time. If you aren’t familiar with the term, it simply means “flexible.” As in: the value of a Facebook fan will change. It will fluctuate. It will not always be the same from measurement period to measurement period.

Let me illustrate: A Facebook fan might spend $76 on your products and services one month and $36 the following month. This means that her “value” was $76 one month and $36 the following month. If next month, she spends $290, $290 will become her “value” for that month.

Because transaction behaviors change, the value of a fan is also likely to change.

You can average this out over time (the fan’s value might average out to $97/month over the course of a year, for example), or just total her value per month, quarter, or year, depending on your reporting requirements. That is entirely up to you.

Example 1: “Based on her transactions, the value of Jane Jones, a fan since 2007, was $2,398.91 in 2010. Thanks to our fan engagement (digital customer development) program, Jane’s value increased to $2,911.02 in 2011.”

Example 2: Chris Pringle’s average monthly value in Q2 of 2011 was $290.76. His average monthly value in Q3 of 2012 was $476.21. He is one of 17,636 fans we managed to shift from a basic package to a premium package via our Facebook campaign.”

Note: In order to figure this stuff out, you are going to have to either get creative with the way your CRM solution interacts with your Facebook analytics suite or wait until Social CRM solutions get a little more robust. Some are getting close.

Examples of exceptions (where fan value may be somewhat inelastic):

 - You are a bank and a fan’s only transaction with you is a fixed monthly payment.

- You are a cable company and a fan’s only transaction with you is a monthly cable bill.

- You are a publisher and a fan’s only transaction with you is an annual magazine subscription.

- Your fans don’t transact with you. They clicked a button and left. If their value was $0 a month ago, it is still $0 this month.

If your business charges for a monthly service that tends to not fluctuate a whole lot, chances are that the value of each of your fans will remain rather constant. This compared to a Starbucks, a Target or an H&M.

Rule #5: A Facebook fan’s value varies from brand to brand and from product to product.

If a fan/customer’s value can fluctuate from month to month and that value can vary wildly from individual to individual within the same brand or product umbrella, imagine how much it can vary from brand to brand, and from product to product.

Compare, for example, the average value of a fan/customer for Coca Colaand the average value of a fan/customer for BMW. (Hypothetically of course, since I don’t have access to either company’s sales or CRM data.) What you may find is that a fan’s annual value for Coca Cola might average,say, $1,620 per year, while a fan’s annual value for BMW might average $42,000. Why? Because the products are entirely different. One costs less than $3 per unit and requires no maintenance. The other can cost tens of thousands of dollars per unit and requires maintenance, repairs, not to mention the occasional upgrade.

Moreover, a single strong recommendation from a fan can yield an enormous return for BMW, while a single recommendation from a fan will yield a comparatively smaller return for Coca Cola.

You can see how the notion that the “value” of a Facebook fan can be calculated absent the context of purchasing habits, brand affiliations, fluctuations in buying power, market forces and shifts in interests and even value perceptions is bunk. Unless of course you find yourself being asked to transform cost into value. Less work. Easier to sell.

So why does this happen?  Tune in next week for Part 2 of this post, in which we will talk about why so many “social media gurus,” digital agencies and “industry analysts” still seem to be having trouble with something that should be pretty simple.

I hope this helped. From now on, if anyone seems confused about the topic of fan/follower/subscriber “value,” point them to this post.

Cheers,

Olivier

*          *          *

If you haven’t already, check out Social Media R.O.I.: Managing and Measuring Social Media Efforts in Your Organization. Lots of vital advice in there for anyone working with social media in a business environment. Makes a great gift to employees, bosses, contractors and clients too. You can even read a free chapter here: smroi.net