Revenue and Valuing Likes

Dan Zarrella, from HubSpot, has given a formula for valuing social media “likes”. There are several interesting parts, for instance he has tried to incorporate churn. Compared to most pieces of advice in the social media marketing world it is transparent. You can see what he was trying to do. His formula (although it looks a little unpleasant and there is some loose terminology, L for likes and links) is easy to follow with a little effort.

He makes an excellent point about his aims, saying that in the social media world. “Much of the advice and strategy I hear boils down to little more than “unicorns and rainbows” superstition like “engage in the conversation” and “be awesome”.” (Zarrella 2012). I agree. Social media strategy advice seems to mostly consist of different elixirs and tonics more worthy of being peddled from nineteenth century sideshows than from twenty first century business advisors. It is because I mostly agree with Zarrella that I was disappointed by his description of Average Conversion Value.

After he has talked us through how many conversions we expect from each like we need the value of each conversion to get a value for a like. He then says: “Average Conversion Value…. It could be the average sale price or average lead value.” (Zarrella 2012, my emphasis). At the risk of sounding dogmatic. No it can’t. Average sale price cannot tell you the value of a like without an estimate of the costs involved in the sale. Some firms may have neglible costs of goods sold and that is fantastic, in such cases contribution will be close to sales price, but it is still the contribution that matters. If you ignore costs the value of online activity is going to look better than it is. It is a biased calculation that could lead to unprofitable actions.

More generally marketers have to break the idea that success is all about revenue. If you are a profit focused organization it is profits that ultimately matter. Saying that revenue is great when asked about profitability isn’t good enough. Answer the question asked not the question you want to answer.

Read: How to Calculate the Value of a Like, HBR Blog Network, Dan Zarrella, 10.00 AM November 26, 2012, click here