How to calculate the value of your social media influence

Slackershot - Spare Change

“I would do this for free, but I make you pay so that you understand the value of what you are getting.” – Mike Lipkin via Mitch Joel

One of the most core concepts in economics is the concept of opportunity cost. For any given expenditure, what else could you have purchased? If you bought an iPad, what else could you have bought with that money? If you spent your time weeding the garden, what else could you have been doing in that same period of time?

If you’re going to spend any amount of time working in social media, building influence and your personal brand, you need to be able to understand the opportunity cost of social media and how your influence impacts it. You also need to know what you are worth so that you can judge if any corporate social media campaign you’ve been asked to be a part of is worth your time. Obviously, if it’s a brand or product that you legitimately love and don’t measure in monetary terms, then put the value equation aside and skip this post!

The monetary value of your social media influence starts with your current income. It’s the fairest and most accessible price estimate of what the market is willing to pay for your time and labors. If you spend an hour on Facebook in your free time, what could that hour have earned you at work?

The way to calculate this is by some basic math. The average person works 50 weeks a year (with two weeks’ paid leave) and 40 hours per week at full employment. Thus, take your income, whatever you made in total last year, and divide it by 2,000. That’s your effective hourly rate. While this does make the assumption that every hour you work is valuable (including lunch), it’s a starting point.

Once you know your hourly rate, you understand your current market value. You understand at a basic level what your time is worth, what someone else is willing to pay you. If a company sends you a product for review on your blog and it takes you an hour to review it, its value had better exceed your hourly rate or you’re losing effectively losing value. You’re giving away more value than you’re receiving, because theoretically, you could be working for your current employer at the same rate.

When a corporation approaches you about helping them with their campaign, you must know your hourly rate as a baseline to judge whether or not something is worth doing. Lots of artists and musicians get proposals all the time about working for “exposure” and other non-monetary compensation. Lots of bloggers and social media influencers get asked to pitch stuff to their friends or to submit guest content for “exposure”. The question isn’t whether or not that’s a valid form of payment; the question is whether it’s an equitable trade.

This isn’t to say that your hourly rate is the only calculation to use, just the easiest one (especially if you’re just getting started building your brand). If you have established digital properties, your value may greatly exceed just your time alone. Think about what value your personal web site provides. Check out similar sites with similar search rankings, traffic, and reputation, especially commercial sites, and determine what an ad costs to place on those sites. This is a measurement (often reviled) called ad value equivalence, only in this case it makes total sense because a company is asking you to place something in a spot where you could run a different ad.

For example, if a commercial entity comes to you and asks you to display a badge on your blog, know what they’d pay on other similar sites (use Google Adwords Display Planner, for example) and judge whether you’re getting that value from the asking company in exchange for your efforts and ad space. On this blog, I have ads for my book and for my public speaking. If I swap out that space for something else, it had better generate the same or better economic outcome for me, or it’s not worth it.

The reason we have so much trouble with social media ROI begins with not having any idea what our own value is. Use some of the points in this post to start assessing your own value, and you’ll have the beginnings of understanding what the value of your social media influence is. How much money are you leaving behind?


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Vacation Video: The Next Financial Crisis

I’ll be on vacation for a few days, so while I’m out, I’m going to feature the 5 talks I’ve watched recently that are worth sharing. My blog will resume its normal content on Wednesday, October 2. Enjoy the videos!

Today: predicting the next financial crisis. By the way, there’s a marketing metrics gem in here if you’re paying careful attention.

I’m back from vacation tomorrow.


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Set pricing based on value

Yesterday, I had a number of different conversations all about the same topic: how do you decide what to set your pricing at? The question isn’t an easy one by any means, and there are a lot of people in the marketing world whose pricing is actually too low. Let me give you an example. Surveying and research cost a lot of money. Your typical engagement for a research firm can run in the tens, if not hundreds of thousands of dollars. However, research firms earn this money because of the value they create. If you’re facing a billion dollar music industry and paying for some research can help you access 1% more of that market, then paying $50,000 to earn $10,000,000 is a pretty good deal. For those familiar with ROI (earned-spent/spent), that’s 19,900% ROI.

Look how many digital marketers are underpricing themselves and their services. If your work doing SEO helps a client change their website conversion rate from 4% to 5%, what value does that bring the client? If you’ve done your homework, you should know what a conversion is worth. You should therefore know what a 1% increase in conversion will mean for the client financially and can bill accordingly. Here’s an example.

Let’s say you’re working for a car dealership, and the dealer’s net profit on vehicles sold is $3,000. Let’s say their website brings them 200 prospects a month, and of those, 20 buy a car. Let’s say you’re charging them $100 an hour and working for them 20 hours in the month. What would the value be if you increased their prospect conversion by 1%? Here’s what the spreadsheet might look like:

Untitled 2

You can see in the chart above that by increasing the website conversion rate by 1%, the client sells 5 more cars a month. That means they earn $15,000 more a month with your efforts. The question you have to ask is not what you cost, but what kind of ROI you want to give to the client. If you billed at $100 an hour, you’d be giving them 650% ROI. If you raised your rates to $150 an hour, you’d still be giving them a very nice 400% ROI.

That’s the secret to setting your pricing. If you know what the ROI of what you do is, you can then ask for a target ROI and sell on that, rather than sell on your cost. You’d be able to sell for more money while still creating lots of legitimate and provable value for your client.

Of course, that’s predicated on two assumptions. The first assumption is that you know what value you can create, and the second is that you can measure it. If you can’t do either, then you’re stuck with setting your pricing based on what you cost and not what value you bring to the table.

Try copying the basic model above and seeing how many different ways you can add value to your clients’ businesses, and then what share of ROI you can give them while still earning a decent amount for yourself.


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