LIV = LCV of average SUBSCRIBER/CUSTOMER − LCV of average NON-SUBSCRIBER/CUSTOMER
Thus, using our prior example, we separate our CUSTOMERS into two groups—SUBSCRIBERS and NON-SUBSCRIBERS. We then calculate the LCV for each. To determine the LIV, we subtract the LCV of NON-SUBSCRIBER CUSTOMERS from the LCV of SUBSCRIBER CUSTOMERS. For example:
$4,000 LCV of average CUSTOMER who’s also an email SUBSCRIBER
$2,000 LCV of average CUSTOMER who’s not an email SUBSCRIBER
= $2,000 LIV
If you can document that your email SUBSCRIBERS (or FANS or FOLLOWERS) generate twice the revenue of NON-SUBSCRIBERS, you’d be a fool not to invest more acquiring them across all forms of media.
Your LIV number documents the incremental value that a JOINER audience delivers. From a statistical standpoint, it’s a pretty unassailable figure as it isolates the true impact of a CUSTOMER becoming a SUBSCRIBER, FAN, or FOLLOWER. The trick, however, is being able to isolate those relationships—something that’s easily done with email but a bit trickier with social networks.
If your company lacks the data necessary to get to your LIV figure, there are still a variety of other proprietary audience valuation methods that require less effort and yet may yield attractive outcomes to discuss with management.
No, Facebook FANS Are Not Worth $174.17 (Unless They Are to You)
The value of a Facebook FAN is $174.17. It has to be true, right? After all, I read it in The New York Times.16 Ugh. I was tired of this meme with email SUBSCRIBERS, and I’m even more tired of it now that it has jumped over to Facebook FANS. Can we please get a couple of things straight?
1. To determine the value of a Facebook FAN, you must compare the value of your Facebook FANS to your FANS who aren’t on Facebook. Yes, Facebook may be the biggest social media site in the world, but it has not cornered the market on your FANS. In fact, you probably have many, many more FANS offline than online. Thus, when you compare LCV of your Facebook FANS and your FANS not on Facebook, you actually see the incremental value (the LIV) that Facebook brings to the table.
Comparing your Facebook FANS to non-FANS, however, reveals jack squat about the value you derive from Facebook. It only tells you the value of a brand FAN generally. Guess where the $174.17 figure came from—that’s right, a study that compared Facebook FANS and non-FANS instead of Facebook FANS and FANS not on Facebook. Bad data make for great headlines, but they are a horrible foundation upon which to build your marketing priorities.
2. There’s no universal average value of a Facebook FAN; there’s only the value of your Facebook FANS to your organization. I know math is hard, and it’s easier to copy off of other people’s homework. But if you want to know the value of a Facebook FAN, you have to calculate yours. There are simply too many variables of brand, communication, promotion, and service that influence whether Facebook adds incremental value to your bottom line.
So sorry to be Captain Buzzkill, but Facebook FANS aren’t worth $174.17 each. Unless, of course, your own research into your own FANS demonstrates that they are.
Campaign Conversion Value (CCV)
In this valuation method, you offer a specific discount or promotion with one or more of your proprietary audiences in order to determine their value. The key is that you must be able to track:
1. Which channel drove purchase
2. That a CUSTOMER redeemed the offer
3. The total transaction value
With that information in hand, your audience’s total Campaign Conversion Value (CCV) is simply the difference between the revenue driven by CUSTOMERS who redeemed your offer and those who did not. For example:
For one week, you tweet out a 2 for 1 dinner offer.
Customers receive individual identifiable coupons for redemption.
The offer requires all redemptions be made in a specific week.
You then track redemptions and total purchase amount.
Next, you add up your total purchases during the promotional week, subtract out-of-pocket costs for the promotion, and compare that final figure with an average, non-promotional week.
The resulting difference is your proprietary audience’s CCV—the value over and above your average weekly sales delivered via the promotion to your proprietary audience. You can measure CCV for any length of time so long as you have a comparable control period.
You can also use CCV to compare the relative worth of your different proprietary audiences to one another. Do your email SUBSCRIBERS lift sales more than Facebook FANS or Twitter FOLLOWERS? If you track them with different redemption coupons or codes, a CCV analysis should tell you. Of course, to increase your accuracy, you would be wise to run the analysis several times a year to avoid seasonal bias.