“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.
How to Determine the Value of a Fan
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.”
Not All Fans Are Created Equal
Marc Grabowski, COO of Facebook ad-buying firm Nanigans, says companies should go beyond calculating the average cost of a fan, because not all fans are equally valuable. A luxury fashion brand’s fanbase, for instance, might be made up a small percentage of actual buyers and a greater number of aspirational consumers who will never purchase any goods from the company. Likewise, a T-shirt company may have some fans that will only ever purchase one T-shirt, while other fans may purchase repeatedly over months and years. Thus, it’s important to target the consumers most likely to purchase, and to measure the behavior of fan groups over a long time period of time to get a better picture of their lifetime value.
Grabowski also noted, as Kalehoff did, that acquiring a fan is just one part of the cost equation. Once a fan has been acquired, companies need to calculate the costs of developing compelling content to keep that fan coming back.
Once these costs have been measured, it’s then important for a company to see if fan acquisition is the most efficient way to achieve its goal, versus, say, paying for click-throughs to third-party sites. “You might see 1% of your homepage click-throughs end up converting, while 20% of people who watch a tutorial on your Facebook page end up converting,” Grabowski said by way of example. Other companies, as we’ve noted previously, have seen their best conversion levels using Facebook’s mobile app-install ads.
So should your company invest in acquiring Facebook fans? The answer is: maybe. As Grabowski says, Facebook fans are valuable: by becoming fans, consumers are saying that they want to know more about your brand, and are giving you permission to communicate with them, so long as that communication continues to interest them. And many of them are also likely to be your customers. But before you embark on a fan acquisition campaign, you need to determine your goals, the most valuable segment of your Facebook fanbase, and whether acquiring more fans in that segment is the best way to achieve those goals. Don’t acquire for the sake of acquiring — use metrics to support your Facebook strategy.
