Many music creators looking to promote their music get stuck trying to figure out how they should deploy their promotion budget. Mostly they worry about the returns on their investments (ROI) per stream, and are lost in terms of benchmarks when running their campaigns.
Our answer to artists is, “it’s not about ROI” for streaming. It simply doesn’t work that way. The monetization for a single stream ($0.004) is just simply too low compared to the acquisition cost to have any viable “cost-effective” marketing working in one’s favor. You will likely never acquire a new listener for $0.004 or less. Streaming only makes sense when it is indeed a “stream” and not a “trickle”, and marketing is about creating a flow of repeat listeners to make that stream turn into a flood.
Managing a music marketing campaign is about Fan Acquisition Cost (FAC) versus Fan Lifetime Value (FLTV).
So what are FAC and FLTV, how do you use them, and what are good benchmarks?
FAC: Fan Acquisition Cost
FAC is the cost of acquiring one fan. This is the total amount you spent on paid promotions (or free performances) in a set period of time, divided by the amount of new fans you got. Now, calculating this is not as simple as a traditional e-commerce business where you acquire a user on Instagram through an ad, and then that person goes to your store and buys a bike.
Like everything in music, it requires nuance and an understanding of the Fan Journey. We have broken down that journey into four simple stages.
The Four Stages of the Fan Journey
Stage 1: Discovery
This is the first touchpoint of a listener with a new artist. Today, this typically takes place through a track on a playlist, or a soundtrack on a TikTok post or an Instagram reel. The new track sounds compelling, but the listener is not yet interested enough to learn more.
Stage 2: Exposure
Getting a track in front of the listener a few more times will push them “over the edge” in case they enjoy the sound or the story behind the music. During this phase the listener will explore more tracks through their streaming platform of choice, and seek out video media on Youtube to get a sense of the artist. Ensuring that the artist’s omnichannel presence is solid and consistent is critical to convert the listener into the next stage.
Stage 3: Engagement
The listener has decided that he likes the artist, or at least a specific track. The listener is ready to Like a track, Follow the artist on its socials, or even subscribe to their Youtube channel. Fan Acquisition Cost is the cost of getting a listener to THIS phase.
Stage 4: Fandom / Spending
Listeners that make it to this stage have become repeat consumers of the music, will attend at least one concert, and, over time, will be interested in keeping proactively up to date with the artist. Many in the industry will refer to listeners who reach this stage as “super fans.” Keeping these fans engaged requires ongoing marketing work— similar to customer success managers in SaaS companies. Music creators need to engage frequently with fans via multiple channels to keep them interested, excited, and, more importantly, spending.
There are many opinions on what constitutes a “fan,” in terms of levels of engagement. From a marketing perspective, we like to define a “fan” as someone who has actively engaged with at least one track from an artist, i.e. gets to Stage 3 of the Fan Journey above. It is simple, measurable, and trackable. Plus, there are actionable strategies to convert these into Stage 4.
In Part 3 of these posts, we will explore the importance of Fan Success as a framework.
In Part 2 of this series, we will go into benchmarks for Music Fanconomics, and how to measure them.
Fancononomics Part 2
Embarking on measuring Music Fanconomics only makes sense if you know what good looks like. In this post we share some benchmarks on FAC, FLTV, and more!
What is a good Fan Acquisition Cost?
In our experience running Playlister Club and Songfly campaigns for thousands of artists, we have been able to come up with some solid benchmarks of what well-performing campaigns look like. Keep in mind that results may vary a lot across genres and target regions, and— let’s not forget— music quality. Good tracks will always perform better across all KPIs.
Solid-Performing Music Fan Acquisition Cost: $3.00-$5.00 per fan
This is calculated by taking two other important benchmarks.
- Cost per Acquired Stream: $0.30-$0.50 from paid Instagram, Facebook, and Instagram ad campaigns. Reaching this level is not easy, as many Music DIY Youtubers will tell you. In order to reach this level of conversion takes lots of tweaking, including trying out new creatives, blocking out any potential bot clicks on your ads, and many other adjustments. Luckily, with Songtools, most of this is done automatically so you don't have to worry about it.
- Save Rate: >10%. This is the rate per stream at which listeners Like or Save a track in their streaming service. Your aim is that at least one in ten new listeners saves your track when listening to it. Anything at this level or above is excellent!
Using these two metrics ($0.30/10%) we get our FAC benchmark of $3.00 to $5.00.
Now for Fan Life Time Value…
FLTV: Fan Life Time Value
Fan Life Time Value is how much a fan is likely to spend on an artist during the artist’s entire career. This is a fan in Stage 4 of the Fan Journey. For the purposes of simplification, (and the fact that careers are sometimes unpredictable) we define FLTV as the expected spend on your music over 2 years. For artists who have been at it for five years or more, you can make a rough calculation of your historical FLTV by taking all the revenues you generated in the past two years: Streaming, Publishing, Live, and Merchandise, and divide it by the number of people in Stage 3 and Stage 4. This is a very rough calculation, because you do have revenues from people who are not registered or formally liked a track, but it gives a good estimate of how much money you will make based on the number of formal fans you have.
Historical FLTV = (Total Revenues for Last Two Years)/(Total # of Fans in Stage 3 and Stage 4)
FLTV varies immensely across geographies, genres, stages of development of acts, whether the act tours, and overall investment.
According to a study by Betway being a Drake superfan in the UK, costs more than $15,000 per year. Being a superfan in the context of this article means buying merch, attending every single concert in the country, and buying music for an entire year. This is the highest cost of being a superfan, and it is unrealistic for almost any artist to expect to make this much off a single fan in one year. However, it gives us an upper limit to the benchmark exercise.
According to a survey of Songtools users, with an average of 5,000 to 10,000 Spotify monthly listeners, we found that the average Fan Life Time Value was $24. This includes fans who never bought merchandise but liked a track at some stage in the past two years, added to all the fans that bought merchandise, contributed via Patreon, and bought concert tickets. This might seem low, but can actually be quite good!
We will talk about the FLTV to FAC Ratio, and how to use it, in Part 3 of this series.
Fanconomics Part 3
FLTV: FAC Ratios, and Fan Success
The FLTV : FAC Ratio: So how do you know if your Fan Life Time Value is good? The answer is that it depends on your Fan Acquisition Cost. If you are acquiring fans at a low price, then you have to make less off each of them, in order for it to make economic sense. Conversely, you might be willing to pay a lot more for new fans if you are Drake, because he is able to monetize his fans a lot more.
When thinking of what is a good level of FLTV to FAC, we like to take a page from the Venture Capital industry, afterall, don't music and venture capital have a lot in common? They are both high risk, require lots of up front capital, and both are bets that those investments will pay off exponentially in the near to medium term! Having established the similarity, we like to use Venture Capital's benchmark of 3:1 as a healthy FLTV : FAC ratio. This means that for every dollar you spend acquiring fans, you make three dollars over the lifetime of those fans.
Benchmark FLTV to FAC: 3 to 1
So what do I do to maximize FLTV to FAC?
Monetizing fans is not just a matter of acquiring them. Getting them through the front door is just the beginning of your Fan Success strategy. Fan Success is a term that we (again) borrowed from the tech industry– Customer Success.
What is Customer Success for music artists (ie. Fan Success)?
For artists who are paying to acquire fans and monetize them, Fan Success refers to the ability to not only attract and retain fans, but also to consistently provide them with valuable experiences and content that meet or exceed their expectations. It involves building a strong relationship with fans, understanding their needs and preferences, and delivering personalized experiences that drive engagement and revenue. Ultimately, fan success is about maximizing the lifetime value of each fan and ensuring their ongoing satisfaction and loyalty.
There are many valuable experiences and content that music artists can create to retain fans, including:
- Exclusive content: This can include behind-the-scenes footage, live performances, and interviews that are not available to the general public.
- Personalized content: Artists can create personalized content for their fans, such as shoutouts, personalized messages, and personalized merchandise.
- Fan interaction: Creating opportunities for fans to interact with the artist and each other, such as Q&A sessions, meet and greets, and fan clubs.
- Collaborations: Collaborating with other artists, influencers, or brands can create excitement and new opportunities for fans to engage with the artist's content.
- Fan-driven content: Encouraging fans to create and share their own content, such as covers or dance videos, can help build a community around the artist.
- Fan incentives: Providing incentives for fans, such as early access to tickets or exclusive merch, can help build loyalty and keep fans engaged.
- Authenticity: Ultimately, fans want to feel a genuine connection with the artist. Creating authentic content that reflects the artist's personality and values can help build trust and long-term loyalty.
We hope the frameworks and benchmarks provide you with solid guidance as an artist (or artist manager) trying to get the most out of their promotion budgets. We created Songtools as a suite of tools that simplifies the promotion process in order to allow artists to focus on what they do best– creating music. Using Songtools and the guidance above, you can take full control of your marketing, and give your music its best chance to reach its intended ears.