A Pricing Model for Facebook Sponsorship Executions

Mark Cuban recently generated a lot of buzz by threatening to take his team’s social media activities to “Tumblr or to new MySpace” after Facebook imposed a new fee structure. The response is understandable, respectable, but does not recognize that Facebook has just given sponsorship executives a detailed game-plan for generating incremental revenue through social media.

Facebook’s penetration based price structure allows sponsorship executives to present partners with incremental social media executions that answer:

  1. How many people do I reach with my investment?
  2. What is the level of interaction that I am gaining from my investment?

These answers lead to a rational pricing model for Facebook Sponsorship Executions.

Pricing Model

The fee paid to Facebook would be considered a Production Fee, and an Execution Charge would be charged to sponsors based on a percentage of the Production Fee. The Execution Charge would result in NET revenue for the Mavericks:

Facebook Sponsorship Execution = Production Fee + Execution Charge

To demonstrate the formula, I will use the Dallas Mavericks $3,000 quote from the graphic above and assume an Execution Charge of 75%:

$5,250 = $3,000 + $3,000(.75)*    *The execution charge will vary by property

The Dallas Mavericks would NET $2,250 for the described Facebook Sponsorship Execution. The NET revenue is not an extravagant amount, but an amount that could yield significant revenue over the course of an eight month season. Furthermore, the formula enables us to define that the Facebook Sponsorship Execution has a CPM of $5.17 (CPM = $5,250(1,000)/1,015,000 Fans). This is an extremely competitive CPM and lower than display advertising on most premium sports websites which range from $8 – $12 CPMs. The Facebook Sponsorship Execution’s pricing efficiency is further strengthened by the engagement which these posts generate.

The Rationale behind the Cost of Social Media Engagement

The “Mavs Birthday Club presented by Albertsons” post shown above has 6,990 Likes and 293 Comments. We will ignore any overlap between the groups, and say that a total of 7,283 Fans interacted with the Facebook post.

Albertsons cost per fan interaction is $.72 spent for the Facebook Sponsorship Execution ($5,250/7,283 Interactions), and the click-through-rate is .72% (7,283 Interactions/1,015,000 Impressions). These numbers are extremely effective for and Internet advertising campaign, with the click-through-rate being more than 7x the industry standard.

Having demonstrated the engagement Albertsons has received from their Facebook Sponsorship Execution, we can now look at the financial opportunities for the Dallas Mavericks:

  1. Albertsons receives one (1) branded Facebook for every player’s birthday.
  2. Albertsons receives 15 posts over the year (These are assumed, I do not know the specifics of the sponsorship).
  3. The Dallas Mavericks could charge Albertson’s $78,750 for the social media activation of their sponsorship, and this would NET the Mavericks $33,750.

What It Means

Facebook has quantified the value of different audience penetration levels on its platform. Sponsorship executives had not been able to do this by themselves, and are now able to present rational financial models for Facebook Sponsorship Executions. Presently, Facebook Sponsorship Executions are being sold as Flat Fees or being included as Added Value opportunities. The model described in this article will allow them to maximize their Facebook inventory for financial gains. It is irrelevant if Facebook chooses to change its business model in the future, because we have been provided with a measure that enables us to build rational Facebook Sponsorship Execution costs.

Peter V. Amador is a Digital Sports Professional. The views here are his, and do not necessarily reflect those of his employer. You can follow him on Twitter at @PeterVAmador or email him directly at peter.v.amador@gmail.com

8 thoughts on “A Pricing Model for Facebook Sponsorship Executions

  • November 8, 2012 at 12:02 pm
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    This is an interesting way to valuate a post, but I’m not sure if it scales well to brands who don’t need to pay for Facebook impressions due to sizable organic reach. In that case, another option would be to back into a CPM based on an average guaranteed impression. In that case social posts can be attributed a premium over the CPM of a display banner, as they are significantly more valuable due to the 1-on-1 nature of engagement with social media.

    Food for thought!

  • November 8, 2012 at 12:57 pm
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    Caty,
    Thanks for the feedback. I agree with you that the 1-1 nature of social engagement does deserve a premium CPM; however, we are not at a point where advertisers are willing to pay a premium. That is why Facebook is pricing its posts as such. The pricing model described in this post is for properties that are looking to leverage their social media audience for financial gains, and enable sponsors to understand in quantifiable terms exactly what they are receiving for their investment.
    It will be interesting to see how sponsored Facebook posts evolve.
    Thanks again for the comment!

  • November 8, 2012 at 1:00 pm
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    Peter – completely disagree. Many sponsors are not only willing to pay the premium, but are asking for more and more custom social engagement. Dream big for big returns!

  • November 8, 2012 at 1:08 pm
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    Caty – I noted that the Execution Charge would vary by property, and used .75 merely for example purposes. To produce sustainable, long-term social marketing programs for sponsors there needs to be a pricing advantage. I am not saying the Execution Charge in the post needs to be applied by everyone, but the model can be used by any property.

  • November 9, 2012 at 9:21 am
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    Very interesting article Peter, a lot of insight into the present day revenue model…what do you think is the 3 year outlook on a “fee” model? The possibility of rights fees?

  • November 9, 2012 at 12:48 pm
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    Ernie – Facebook’s monetization strategy will continue overtime. It may very well be that they take an approach similar to LinkedIn and guarantee Pages different levels of access at different pricing options. LinkedIn uses flat fee approaches to generate its revenue and we could see that coming to Pages very soon. I believe what they are doing is testing the market with their current options. However, they have provided us with a pricing guideline which we can use indefinitely.

  • November 9, 2012 at 4:13 pm
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    Very insightful and thought provoking article. I would be very interested to hear the debate from properties. Can they sell it? How would their social media fans react?

  • November 9, 2012 at 4:30 pm
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    Haynes – Thanks for the kind words. The challenge properties face when selling social media activations is the ability to put the receivables into standard media language. The model is my attempt to put the activations into plain language for media and sponsorship buyers.
    In regards to fans, the challenge is to make sure it is contextually relevant. Just as you would approach sponsored content on your website, you should approach you social media activations.

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