Tuesday, July 31, 2012

How much should it cost to acquire a fan and how do you know when it’s too much?



What most call “promotion” is really just another way of talking about the time, effort, and money spent acquiring fans. Aside from making great music, building an engaged fan base is probably the single most important thing you need to do as an independent musician. Only then will you have true financial independence and artistic freedom. You should change the way you think about promotion and you must invest in developing a fan base. -Mike McCready
In order to know how much you should spend to acquire a new fan (I’m talking about engaged fans, not the random Twitter follower or Facebook “liker”), you should have a rough idea how much an engaged fan is worth to you over the first year, and perhaps over the course of your career.

I realize that can sound unrealistic. But, while not exact, you can make some fairly easy assumptions; like what if 30% of your engaged fans buys each of your new songs or begins listening to them on heavy rotation on Spotify (or the other streaming services)? Then, what if 50% of your fans show up to at least one gig per year. What if 10% of them buy a T-shirt or some other merch item you sell? If you hone your assumptions to the point where they are somewhat accurate (is it really 30% or is it a bit more/less?), you should be able to predict with at least a little precision how much revenue you’ll generate in a given year.

While you’re doing that, you can also estimate your costs that are directly the result of having the fans (amount to make and buy the merchandise, cost of your CDs, cost of distribution to the digital platforms etc.). The amount of money you have left is your margin. As a general rule, as long as you can acquire each fan for less money than you earn on average from each fan, you’re not paying too much. This may sound cold and unlike the warm and fuzzy relationships you actually build with your fans, but this is how you must think of it because it’s your business. You must think about it kind of like you would think about any investment. But the awesome thing about this investment is you have a high degree of control over how it pays off. If you keep making good music, sell creative and quality merch and hold events which your fans can attend (and all sorts of other things), you can create a much more valuable business with fewer fans than another artist might despite having more fans.

Now, imagine you could go into a record label, a publishing company, or a group of independent investors and you were able to tell them how much it costs you to acquire each newly engaged fan and how much an engaged fan is worth.

Imagine being able to say to yourself,

“My band has 100 engaged fans.

“We net about $70 per year on average from each of our fans.

“So, right now, we have revenue of $7,000 per year.

“But, in order to pay ourselves, record the new music, buy some new equipment, and rent a touring van, we need to have $300,000 of revenue in a year.”

If you do that math, you see that you need about 4,185 more engaged fans to generate that kind of money.  What should you do? I do realize this is a simplified equation, but you get my point…

Music Xray’s new service, Fan Match was built to help answer this question.

Let’s say you invest $100 in a new Fan Match campaign. The song of your choice will be sent to 300 potential fans – people who have already told us they like your style and your genre. Then, once they’ve heard your music, we give them the opportunity to become a direct fan of yours at the click of a button. When that happens, you receive their email address and can get directly in contact with that fan. You can manage that relationship however you generally manage your engaged fan relationships.

Now, let’s say that your music is compelling enough that 30% of those who hear it like it enough to become a direct fan. That means that for $100, you would acquire 30 engaged fans. In other words, each fan cost you $3.33 to acquire. That’s a really good deal if each engaged fan is worth $70 to you over the course of a year, not to mention the value of an engaged fan over the course of your career.

Remember though, in our scenario, you need 4,185 additional fans to reach your revenue goal. At $3.33 each, acquiring 4,185 fans will cost you $13,936 via Fan Match.


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