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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