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

Posted by Mike McCready | July 27th, 2012 | 17 Responses

 

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.

 

(Get in on the Fan Match pre-launch)

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.

 

The point is, you’ll have a projected yearly income of $300,000 if all your assumptions hold true. So, that’s a really good deal!

 

Obviously, not many struggling musicians have an investible $13,936 on hand. But, if you are able to achieve that on your own, you should.

On the other hand, if you don’t have that kind of cash to invest up front, the good thing about Fan Match is that you can buy small campaigns and see how it goes. Build your base step by step. Learn what works and what doesn’t. You may decide after your first campaign that for the next one, you should use a different song which may acquire new fans more readily and that will drive down your acquisition costs (you’ll acquire more fans for less money). You can do this little by little.

Building an engaged fan base is probably the single most important thing you need as an independent musician. Only if you invest in acquiring one will you ever have true financial independence and artistic freedom. You must invest in developing a fan base. That investment can be made in time (often years), sweat, tears, and money or you can now make that investment via Music Xray. Let us do the heavy lifting and you go back to making great music!.

You can even run small campaigns to test (or prove) your band’s viability. A small Fan Match campaign can be used simply to learn what your fan acquisition costs are and then you can share that information with a label, a publisher, or a group of investors.

Being able to demonstrate your band’s viability in this way, with real numbers, is revolutionary. It’s never been done before and having this kind of information should make it a lot easier to test, identify and demonstrate the merit of investment in the careers of performing musicians and recording artists.

 

At the very minimum,run a Fan Match campaign simply to find out where you stand. Its is easy for you to acquire fans? If so, keep going. If not, you may need to make some changes or improvements until you’re ready to compete for the attention of music fans. Or maybe you just need to work a different song. We’ve been letting musicians into our pre-launch sessions slowly and to each of you who take advantage of this early offer, we’re giving $25 in credit to spend on submissions plus a lot of personalized attention from our staff as we usher you through your first Fan Match campaign.


Mike McCready
Co-founder & CEO
Music Xray

How much time & effort do you spend acquiring new fans?

Posted by Mike McCready | July 17th, 2012 | 6 Responses

 

How much time and money do you spend trying to acquire new fans online?  Think about it. Remember, while you’re doing it, you have to feed yourself and you have to pay rent. Time is money.

 

Now ask yourself, do you enjoy the process? Do you ever get the feeling people aren’t just waiting around for you to tell them about a new song you’ve recorded? It can be hard to break through all the noise just to get the attention of potential fans, right?

 

Identifying, engaging, and monetizing new fans is one of the hardest tasks musicians face and it’s why we’ve built a new service within Music Xray called Fan Match.

 

In short, it matches you and your music with likely fans.

 

Be one of the first to try this new service. We’ve got 150 slots open.

 

Thousands upon thousands of music fans are already part of Music Xray. We initially opened Music Xray to fans a couple years ago when we needed random music lovers to participate in focus groups. We know all about their tastes and a lot of their demographic information.

 

 

So, here’s how Fan Match works:

 

  1. You choose a song you’d like people to hear.

    2.  

  2. For every dollar you pay us, we guarantee three potential fans will hear your track.

    3.  

  3. Upon hearing your track they can decide if they want to become a direct fan of yours (in which case you get their email address and can establish a direct relationship with them just like all your other fans).

    4.  

  4. Upon hearing your track, they can also decide to tip you.

    5.  

 

How do you know if this is a good service and if it’s worth it?

 

Let’s say you spend $100 today to acquire new fans (via any method you choose). Can you guarantee that 300 new people will hear your music? Not just any new people; but people who are into your style and genre and who are open to hearing and discovering new songs and bands.

 

Can you do it again tomorrow and the next day and the next day? It takes a lot of work.

That’s why we thought someone should build a better way.

 

Look, if only 10% of the new people who hear your music decide they really like it enough to offer you their email address; well, that’s 30 new fans with whom you would then have a direct relationship. Divide that into $100 and it comes out to having cost you $3.33 per new fan.

If 20% decide to give you their email address, then it will have cost you only $1.66 per new fan.

So, logically, the more compelling your music is, the more fans you’ll convert from among the 300 we target for you. The more fans you acquire, the less it’s costing you per fan. Thus the correlation is that the better your music is, the more fans you’ll acquire for less money.

Plus, you might even inspire some of those fans to tell their friends and jump-start your own little organic unit. It’s a new product. We don’t want to oversell it. At the same time, we think itless it will cost you to acquire a new fan. And that doesn’t even consider the fact that some of those new fans will tell their friends and bring you even more fans, giving you more bang for your buck.

How much is each fan worth to you in the first year? What about over the lifetime of the relationship? How many CDs, downloads, t-shirts, and tickets to your gigs do you have to sell each one before you make back that $3.33 (assuming you only converted 10% of those who heard your music)? You would probably make that back plus a lot more fairly soon, wouldn’t you?  And some of those fans will last a lifetime and pay you again and again over the course of your career.

 

But then, let’s consider this… what if we can encourage one of every ten fans you acquire to give you a tip. Not much; maybe only a dollar.  So, for every 30 fans you acquire, you might make $3 in tips.  Lets do that math.

 

$100 cost to acquire 30 fans

minus $3 in tips

equals $97 (the true cost of acquiring the fans)

 

See how the tips offset your costs?  What if your music were so good it inspires fans to give you more than $100 in tips? Suddenly, your fan acquisition costs went down to nothing.

 

But, for the purposes of this exercise, let’s stick with a more probable reality and say it will cost $3 per each fan acquired. Remember, this will depend on how compelling your music is.

 

Can you do that for less anywhere else? If so, you should. If you can’t, it would be a bad decision not to use Fan Match and any other musicians who target the same audience as you would be getting an advantage over you by using Fan Match if you aren’t.

 

Here’s the kicker. If your music is really, really good you can acquire fans for less than other musicians. If it’s not as compelling as it could be, you won’t acquire as many fans per dollar spent. But you’ll never know your cost per fan until you try Fan Match and if you don’t know what it costs to acquire a fan, you don’t know if you can even make a living as a musician.

 

Fan Match can be an indicator of your viability as a business. It can predict your ability to make a living while at the same time helping you do so.

 

Be one of the first to try this new service. We’ve got 150 slots open.

 

See the video below for a succinct explanation of how Fan Match works.  And please help us get this information out there by clickingthe “like” button below the video or the “share” feature.