On the Shoulders of Giants

by Brian SperonelloIcon

The Marginal Cost of One More Fan

No audience is infinite. If you accept that any product, service, or work of art has a limited group of people that will be interested in it — ranging from hundreds of millions for mass-market products, to only a handful for the ├╝ber-niche — then each new customer or fan you acquire depletes the number of potential fans by one more.

Yes, over time people's tastes can change. People who were not in your target audience can move into it. Becoming popular will cause new customers to jump on the bandwagon simply because you're now popular. You can change yourself to broaden your appeal. But no matter what, the fact remains that at some point you will get large enough that it will become increasingly difficult to grow larger still.

In economics they call this concept "Marginal Cost." It's defined as "the cost of producing one more unit of a good." Meaning, if you're currently making 10 T-Shirts, how much would the 11th shirt cost you. Most of the time, the marginal cost decreases during lower levels of production. and then begins to increase at higher levels of production. This happens because early on you can exploit certain efficiencies and economies of scale, but as they run out the cost of producing more of your product goes up.

The same thing occurs with your audience.

Marginal Cost Curve

When you look at the graph above, instead of thinking "Cost" and "Volume," think "Difficulty" and "Number of Fans." When you first start out on the left side of the graph, with very few fans, there are a large number of people that fit into your potential audience but haven't been exposed to your product yet. Then, if you're successful, you begin to grow and wind up converting many of your potential fans into actual customers; moving to the right along the graph. This is where the difficulty goes down, since there are so many people who are interested in what you're offering, but haven't heard about you yet.

At some point though, you will start running out of potential fans, and being able grow substantially becomes more difficult. That's when the line starts curving up the further you move to the right.

What are you planning to do once that happens?

Most people are so focused on growth — more Facebook friends, more e-mail subscribers, more Twitter followers — that they don't even stop to consider this problem, let alone have a plan for when it happens.

 
 
 
 

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