So what's the economic value of a follower on twitter?

Today Mashable has run through some quick numbers on the value of  running a direct marketing campaign through Twitter. (See How the Fortune 500 Use Social Media to Grow Sales and Revenue)

The calculation of estimate looks like this

• DellOutlet followers: 1.5 million
• DellOutlet followers who actually see the promotional Tweet: 50,000
• Followers who click on the link in the Tweet: 500
• Prospects who purchase a computer based on the Tweet: 50
• 50 purchases x $500 computer = $25,000

The ratios from this estimate translate into

• 1% CTR
• 0.1% CTP
• 0.003% TTP (Traffic to Purchase) Ratio

The first question is are how valid are the ratios they have applied to the calculation?

Here is a chart I have used many times over the past year. It compares the average Click to Purchase (CTP) vs Click to Respond (CTR) rates published by the US, UK, European and Australian advertising and direct marketing associations across online and off-line media.

Advertising and Direct Marketing Response rates

You would not call this an exhaustive study (more a “rule of thumb”) but as you can see my research to date indicates that the online advertising formats do not perform any better than traditional media in either CTP or CTR.

This is not to say that there are some exceptional Search and Banner Advertising campaigns that break the mold. But the same can be said of all the other advertising and direct marketing options. After all obtaining an exception to the rule are what you are paying for when you engage the services of an Advertising Agency.

Getting back to the Mashable assumptions we discover the 1% CTR and 0.1% CTP ratios are actual at the top end of online response rates. The CTR industry leader (i.e. Google’s search advertising engine) delivers an average of CTR of 0.97%. and less than 0.1% CTP. (Note if we include click fraud data into the equation the estimated CTR would fall probably fall to somewhere in between 0.60 – 0.70%).

At the other end of the scale online Banner advertising is recognised as the least effective CTR online advertising format with industry averages ranging from 0.1-0.2% and CTP rates that are virtually none existent.

In absence of any published metrics the question that needs to be asked what is the most appropriate CTP rate for Twitter? Is it 1% or 0.1%

Obviously if the response rate on Twitter is more like Banner Advertising than Search Advertising then the value of Twitter as a direct marketing platform is much less than the estimate provided in the Mashable example.

So what rate should we use? Well we have explored these just how effective the response rate of social media is before in More proof that traffic doesn’t translate into customers. Here we discovered a traffic to action ratio across social media of somewhere in between 0.65% to 0.05%.

If we apply an average ratio of 0.5% CTP to the Mashable estimates the revised equation looks like this:

• DellOutlet followers: 1.5 million
• DellOutlet followers who actually see the promotional Tweet: 50,000
• Followers who click on the link in the Tweet: 250
• Prospects who purchase a computer based on the Tweet: 25
• 25 purchases x $500 computer = $12,500

Having said that the Traffic (Follower) to Purchase (TTP) Ratio calculated by Mashable of 0.003% is at the lower end of the traffic to purchase ratios of 0.2 to 0.002% we uncovered in last month’s post on Exploring the ongoing challenge of converting traffic into customers.

This continues to suggest that social media platform purchase response rates that can be measured in units per 100,000 followers.

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