In its IPO filing earlier this month, Facebook reported revenue of $3.7 billion last year, up 88% from 2010. Not too shabby. But if Facebook were selling out all of its ad inventory, its 2011
revenue would’ve been closer to about $10 billion. That’s according to some back-of-the-envelope calculations by Simon Mansell, CEO of Facebook marketing agency TBG Digital. How did he
arrive at that estimate?
Here’s the math, based in part on data from TBG’s quarter report Facebook advertising report (drawing on a 300 billion impression sample size) and some
informed guesswork:
-First, Facebook says it serves 798 pages per person per month. Let’s assume 20% of these are on the home page and 80% across the rest of the site (marketplace
inventory)
-160 pages on homepage x 1 ad = 160 impressions per person per month on the homepage
-850M users = 136 billion homepage impressions
-$2.50 CPM = $340 million
per month
(Home page CPM in the U.S. is more like $4, but Mansell estimates global pricing would bring this down, hence assumed $2.50.)
-638 pages on the rest of the site x 4 ads
= 2,552 impressions per person per month via marketplace
-850M users = 2.2 trillion marketplace impressions
-22 cent CPM = $477,224,000 (22 cent CPM is from TBG Q4 Facebook Ad
Report)
(Some pages have more than 4 ads, some less--assuming 4 as the average.)
Total revenue Facebook could make from advertising = $817 million per month or $9.8 billion
annually.
“If they increase users and CPMs, this could increase of course,” notes Mansell. Or if Facebook boosts improves its estimated 40% sell-through rate. Mansell says a goal
of 80% “would be a good objective.” Got that Zuck?