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Let's say that I created a business that somehow created content or news about itself that was interesting for 100.000 people to follow on a regular basis. Is there any very rough way of estimating the value of this business solely on the basis of this information?

I know that anyone thinking like an accountant would say that this question contains too few informations to be useful, but I am not asking for an accurate estimate, I am asking for a method on how to estimate. Once this method is in place I can adapt it to a more specific scenario.

I also know that the final estimate will very much depend on who these 100.000 people are, how homogeneous they are, and what kind of market opportunity they repressent.

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4 Answers

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Here are some variables you'll need to estimate:

  1. Engagement Rate - This is the percentage of followers who will click on one of your links, retweet, like, etc... A typical engagement rate of a high quality audience is between 5 and 10 percent.
  2. Impression Value - Assign a value for each impression you get from your audience. How much value do you place on someone seeing one of your posts shared?
  3. Conversion Rate - This is the percentage of visitors to your site who will take whatever action you're asking them to do. Typically, you want them to become customers (buy something, hire you, etc...) but it could also include them signing up for your newsletter, downloading an ebook, etc... Decent conversion rates tend to be between 2 and 5 percent.
  4. Conversion Value(s) - For each type of conversion, assign a value. How much is a new customer worth? How about a new email subscriber.
  5. Volume - How many updates do you plan on sending to your audience? Daily? Weekly?

After you figure these out, you can multiply the volume times the engagement and conversion rates and their respective values.

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+1 on conversion Value(s). This opens the question of value to who and why! – Joseph Barisonzi Nov 21 '11 at 18:24
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There is no inherent value to having any followers. The value of followers is contextual to the nature of the business. In his very good answer above @JonDiPietro lays out the necessary variables and formula for a traditional sales-based site. What he points out is that the value of the conversion -- meaning how much each follower purchases is essential for determining the value of the followers.

There are of course other business model which would result in different definitions for the words. Perhaps you will be selling advertising the the followers are in fact the product presented to the potential customer/advertiser. Then the value will include information about the demographic overlap with their targeted market. Depending on the advertising model, then conversion rates -- or click through rates -- from the follower base may emerge as equally important.

But in the end, the financial value of the followers -- like the value of a business -- is only what someone will pay for them (or for access to them). Since outside of the advertising platforms that barter "key words" in an open market-type model there are no secondary valuation determinate, like a stock exchange, the value is always determined behind closed doors between someone who has followers and someone who wants access to them.

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Disagree. 100K followers is worth more than 0. – David Silva Smith Nov 21 '11 at 19:36
To who? The value of that 100K followers is only worth something to someone -- it is the definition of the who that starts the process of determine the value. If I have 100K followers that are interested in what I say about catsup and I don't sell catsup or advertising -- then what is the value of 100K? – Joseph Barisonzi Nov 21 '11 at 19:50
That was the question the person asked. What is it worth? If I build a car but don't sell it the car is worth more than 0. How much? Like you said, it is different for different people. – David Silva Smith Nov 21 '11 at 19:53
And my answer is it's worth is dependent on the function of the use and the market. there is a well established market for cars. The cost of production, sales and marketing is incurred within the context of the market value of the resulting cars. there is not an equally established market for "followers". A network of followers's value is dependent on the use of those followers for the person purchasing it. Absent the knowledge of the potential uses of the followers-- there is no inherent value. – Joseph Barisonzi Nov 21 '11 at 20:22
The person who asked the question asked the value -- and my answer is "to who for what" because that is the determinate. 10 followers could be worth more than 10000 followers depending on what the purpose was. – Joseph Barisonzi Nov 21 '11 at 20:27
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Tweeting/blogging/vlogging/facebooking/whatever is really just another way of sharing your message with others, i.e. advertising. The cost structure and media are different, but the end result is that your audience gets the message. Analyze the value of your communication effort using the same tools you'd use to analyze an ad campaign, namely, the variables that JonDiPietro calls out. Try to do similar estimations for other media (tv, radio, print, web) to get an idea of how much more (or less) effective social media might be for your situation.

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Excellent point! – David Nov 22 '11 at 18:17
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You can use Google ads as a baseline for calculating value. Still lots of assumptions you need to make, though, each of which could be off by an order of magnitude.

Let's assume 100K users, each who visit 15 times a month, and visit 4 pages on each visit. So you have 6 million page views per month. Assume your CTR is 0.1%, and each click is worth 10 cents. So they are worth $600/month. (CTR of 0.05% and 5 cents/click is $150/month; CTR of 1% and 20 cents/click is $12,000/month. So you can see it is very sensitive to your assumptions.)

If that sounds nice be careful because 60 page visits/month is an active user. In reality you'll have 200,000 visitors worth 1 page visit a month, 80,000 worth 3 page visits a month, 10,000 worth 10 page visits a month, 1000 worth 100 page visits a month, etc. I.e. find the integral of an exponential decay curve to get a better estimate of page views per month.

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