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July 24, 2011

And That Means What? Fun With Figures…

by Freddy J. Nager, Founder of Atomic Tango + Guy Who Likes to Question the Answers

Crunching Them Numbers

“WTF is up with these Facebook stats?”

So I’m reading an article in Inc., my favorite zine for advice on entrepreneurial matters, when I found this statement about one company’s social media campaign:

“So far, about 7 percent of Step2’s customers have registered on the company’s website with their Facebook IDs, and of those who have, more than half of them have shared product reviews with their Facebook friends. In the past year, traffic from Facebook has increased 135 percent and revenue from Facebook visitors has nearly tripled.”

Impressive, right? Based on these figures, Inc. readers should just rush out to integrate Facebook into their websites.

So what’s the problem here? (As my students know, one of my favorite business questions is “so what?”)

The statement provides some tasty figures — but not all the figures that a manager needs to make a judgment about the campaign. All those percentages can be misleading if we don’t know the actual numbers they’re based on. For example, a traffic increase of 135% sounds amazing… but it could mean that traffic went from 20 people to 47 over the entire year. For a lot of retailers, that increase in traffic wouldn’t mean much. (My local Starbucks probably serves that many customers in about 20 minutes.)

Given that traffic, what else would we want to know? Here’s a short list for starters:

  • How many of those visitors from Facebook are NEW customers? If they’re just existing customers coming through a different entry way, the company doesn’t gain much.
  • What are the customers doing on the site once they visit? Are they reading articles, rating products, or best of all, buying something? Or, worse, are they filing complaints, posting spam, trying to sell something, or spying for the company’s competitors?
  • If they are buying stuff, how much are they spending? The article states that revenue has nearly tripled, but that could mean it went from, say, $2 to $5.
  • What was the cost of the Facebook program? Did the company pay someone to do it? If the company’s owners did the work themselves, how much time was spent on this instead of on product development, customer service, or other activities that could also make money?

The article doesn’t say. That’s unusual for Inc., which usually provides the critical underlying details, but that only proves that even trusted sources occasionally need to be questioned. Well, at least 135% of the time.

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Freddy is the Founder & Creative Strategist of Atomic Tango. He also teaches at the University of Southern California (go Trojans!), shoots pool somewhat adequately, and herds cats. Freddy received his BA from Harvard and his MBA from USC.

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