Cost Per Like: a subjective valuation of your Facebook fans

“Cost per Like” often crops up in conversations about Facebook advertising, though it isn’t a term officially sanctioned by Facebook. So what exactly does it mean? Cost per Like refers to the cost of acquiring a new fan for a Facebook page, either through paid advertisements or, less directly, through earned media efforts. There are three ways to “buy” Likes on Facebook. One is through “cost per thousand impressions” (CPM). Advertisers bid to target a group of desired users, and pay every time their ad is seen by a thousand of those users. A second option is “cost per click” (CPC) campaigns, wherein advertisers pay every time their ad for their Facebook Page is clicked on. Neither of these options guarantees these users will become fans, however, it simply guarantees that they’ll either 1) be exposed to an ad for a Page or 2) see a Page.

Earlier this month, Facebook unveiled a new metric for evaluating advertising campaigns on Facebook, called “cost per action” (CPA). Now, advertisers can pay not just for impressions or click-throughs, but for specific actions they want consumers to perform once they’ve seen an ad — including becoming a fan of a Page. For example, an advertiser could specify it is willing to pay $2.00 for a “Like” — that is, for a new fan on its company or product Page — and only pay when the Page gets a new fan. Other actions include Offer claims and clicks on links to third-party sites. For now, advertisers can only select CPA ads through Facebook’s Ads API. They’re not yet available in the Power Editor or Ads Manager, but a source at Facebook said the company plans to make them available there in the near future.

It sure is nice to have a lot of Facebook fans. But how much are they really worth, and how much should companies invest in acquiring them? Recently, social media marketing agency Syncapse and research firm Hotspex conducted a study that attempted to assess the average value of a fan based on collective product spending, brand loyalty, propensity to recommend, media value, cost of acquisition and brand affinity. According to their calculations, a fan is worth an average of $174 to a company. But as the chart below shows, the value of a fan can differ widely across companies: As such, individual companies need to calculate the value of their fans before they decide to pursue a fan acquisition strategy. I spoke to Max Kalehoff, vice president of product marketing at Syncapse, about how companies can do that.

“Marketers should define the value of a fan based on how it impacts the key criteria that determines the success or failure of their business,” says Kalehoff. Specifically, marketers should measure the spending habits of fans versus non-fans, to see if fans are more likely to make a purchase, make purchases at great amounts and/or purchase repeatedly. Advocacy — the probability of a customer recommending a product to others, and the probability of that recommendation to affect sales — is another key metric. Another area that is more difficult to measure is brand affinity — that is, the emotional draw that a customer feels towards a brand because of the relationship that develops between brands and fans over Facebook. If positive brand affinity tends to be a powerful sales indicator on other channels, it may be worth cultivating on Facebook, too.

Once a company has determined how much a certain target prospect worth, it needs to decide the amount of money it wants to spend to acquire and continue to communicate with that fan. “[Marketers] really need to bring it down to a cost equation,” says Kalehoff. “No one else can say what a fan is worth except the brand itself, and then it has to decide what to spend to acquire fans, and what it costs to communicate with them once a day or week to remind them to buy throughout the year.” (from www.mashable.com)