Buried underneath the stellar numbers it posted in its latest earnings report is a worrying trend for Facebook marketers, less ads being shown for more money.
With organic reach on Facebook becoming virtually non-existent, companies have no choice but to pay for advertising to reach an audience through the platform. However, with the limited real estate on the platform’s interface, the competition for those ads is increasing, and taking ad prices in the same direction.
With the increased pricing, Facebook can now afford to show less ads to its users and still bring in the revenue.As we reported last month, Facebook’s latest earnings call revealed that its average price per ad increased 123% over last year, while its ad impressions declined by 25%. It was still able to post an increase in ad revenue by a whopping 67%.
However, this puts the squeeze on the most prolific buyers of Facebook ads, which is small business owners, who arguably gain the most from the platform as well.
As a small business advertising platform, Facebook is particularly well suited. With its hyper-local targeting ability, local businesses can zero in on exactly the audience they want to reach, making an effective use of their limited ad budget. But now, they’re being faced with higher prices for ads that won’t go as far.
The Wall Street Journal recently reported on several small businesses that were seeing a decrease in the effectiveness of their Facebook advertising.
It cited the example of Tom Buroojy, a specialty headphones seller who saw a dramatic change in his Facebook ad pricing from 2010 to 2013:
By 2013, the “cost per click” on [Buroojy’s] ads more than quadrupled to about $2, according to his Facebook statements. The volume of ad impressions, clicks and sales from Facebook users had plummeted by 60%, 50% and 75%, respectively, he said.
And another example from an electric-bicycle manufacturer:
Don DiCostanzo, co-owner of electric-bicycle manufacturer Pedego Inc., began advertising on Facebook in 2012. But then a three-and-a-half day campaign in May failed to generate even one sale.
He spent about $3,400 on two right-hand column ads over the Memorial Day weekend. One targeted men, the other women, ages 40 and older in Southern California, where Pedego’s bikes are sold through 12 dealerships for between $2,095 and $3,695 apiece. The ads offered paying customers $200 worth of free accessories such as baskets, lights, fenders and saddlebags.
Mr. DiCostanzo says they generated 354,000 impressions and 7,831 clicks and that the clicks cost him 40 cents apiece, up from 24 cents when he ran a similar campaign in December.
For Facebook, raising ad prices is an inevitability, as the platform becomes more popular. However, the decreasing ad impressions for the same amount of money is something marketers won’t have the same tolerance for. They’ve already had their Facebook Pages and posts rendered useless, and with the decreasing effectiveness of their ad dollars, they might just have to make the shift to Twitter.
