Are Facebook Ads Getting More Expensive?

Facebook may be a goldmine of information for marketers, but is it making your company's marketing budget too expensive?

As of July 2021, the 5 major social media platforms showed an impressive increase in numbers:

  • Google and YouTube with up by 108%
  • Facebook having an 89% increase, while the average CPM was $11
  • TikTok having a 92% increase and
  • Snapchat with “the lowest” 64% increase

Similarly, recently published data from BusinessInsider and MediaPost show how much ad costs are rising across major platforms, as measured by average CPM, with the focus on Amazon having a 20% increase in CPM costs between Q1 and Q2.

Also, the average CPMs rose from $3.60 in February to $8.60 in May and June, according to WPromote, a performance ad agency.

Supply is going up while demand pretty much stays the same with Facebook ads.

With increasing competition, the cost per 1000 impressions (CPM) is increasing dramatically.

Special attention should be given to the recent events and the effects of the COVID-19 pandemic.

If there is anything to learn from these terrible times, it is how COVID-19 changed the game of the way retail companies acquire customers forever.

Unless you’re a big brand (such as Apple, for example), it’s highly unlikely that you will have huge lines of people waiting in front of your brick-and-mortar doors.

The focus of every retail brand should be redirected towards the online world.

The benefits of selling your products on the web are well-known. You will probably hear people telling you that e-commerce is the next big thing.

And they’re not wrong.

But the problem is, with bigger online competition each day, Facebook marketing becomes more expensive.

If you don’t know how to survive this, you won’t be able to get amazing results with a $20.000 per month budget like you used to.

Let’s say that one year ago, with $20.000 spent on your Facebook ads, you were able to reach around 10.000.000 users.

Quite an impressive number.

Right now, with that money, you will barely reach 7.500.000 users.

So the main questions are:

How do we survive the dramatic CPM increase?

How to be sure that moving to e-commerce won’t drain out your budget?

This article aims to answer those questions.

Why Is the Cost of Facebook Ads Going to Be So Expensive?

Typically, e-commerce businesses invest in Facebook ads because they drive great results in the beginning and they report a magnificent cost-per-acquisition (CPA).

And then the following problem hits them:

CPAs start rising – but since their main customer acquisition strategies were pretty much based on Facebook, they have no other option but to continue with their campaign and spend more money.

On top of that, a huge number of other retail and even small businesses will soon transfer the majority of their advertising activities and stores to the internet because of the COVID-19 lockdown.

Each year we can see a growth of more than 1 million new advertisers.

Facebook-CPMStats-1

But retailers looking to switch to online sales are not the only problem.

Since the internet and e-commerce became pretty much accessible to everyone, we’re the witnesses of brand new e-commerce businesses each day.

Many companies are adopting the e-commerce business model, whether they have their own products or they’re reselling someone else’s (such as dropshipping businesses).

These businesses are going to fight for their customer acquisition mainly through hard-core paid Facebook ads.

That will result in a higher cost per 1000 impressions, which puts even more pressure on performance marketing KPIs.

All of this leads us to one conclusion:

The Facebook marketplace is becoming oversaturated.

Since Facebook and Instagram aren’t “demand-first” marketplaces (like Google is), more and more people each day are going to fight for the attention of the same people.

 

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This is a clear indicator that supply will definitely beat demand.

Also, Facebook ads are under pressure to deliver a better experience.

Facebook can be picky. They will penalize advertisers who don’t give a good ad delivery experience.

Imagine you are Facebook. Why would you pick generic ads?

Ad fatigue will occur.

You may not achieve a good return on investment.

Conversion rates will stall.

At some point, you'll think of remarketing campaigns.

Bad experience from all these factors.

The result – high CPM.

Because of that, we can only expect Facebook CPMs rising costs (unless something worse than COVID-19 hits us, but let’s hope that won’t be the case).

How to Survive and Make Better Results with More Expensive CPMs

Don’t be disappointed or angry.

With a proper strategy, bigger CPMs don’t necessarily require a bigger budget.

Investing a larger amount of money is a logical move, but not necessarily the best one you can make.

According to research – the starting cost per 1000 impressions cost in 2019 was around $5.12. While according to Webfx, the average cost per 1000 impressions in May 2020 is $7.19.

That’s almost a 100% price increase for one year.

With more and more Facebook ads each day, the CPMs are definitely rising. But that also leads to more and more people giving up on their Facebook ad campaigns or reporting bad results.

Not everyone is ready for Facebooks’ price increase and is already banging their heads asking 'Why are Facebook ads more expensive?'.

So, how to survive an increased Facebook ad cost?

The answer lies in focusing on the buyer itself.

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It’s important to mention that now more than ever before, buyers are in control.

You can picture buyers as judges in a “singing competition”. They decide what works and what doesn’t.

So, in order to beat Facebook’s rising costs without investing more money, we need to invest more time, knowledge and effort into creating a seamless Facebook ad campaign and creatives that will improve our retention, customer experience and customer lifetime value.

1. Focus on Creating a Creative Campaign that Resonates with Your Target Audience

In the era of automation, Users have the tendency to beg for more personalized ads.

Some of the easiest and most time-effective solutions are creating great geotargeting ads and also personalizing them by different languages (if you’re going for multiple markets).

When it comes to location, you can create different campaigns by using the weather as your personalization factor:

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Or different cities:

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On the other hand, multi-language campaigns will attract more customers than “generic” ads written only in English:

multi-language gif

2. Focus on Retention, Not Just Acquisition

Customer acquisition cost (CAC) isn’t just more expensive when it comes to Facebook ads. It also grows in other marketing activities.

Actually, according to Allan E. Webber, acquiring a new customer costs 5 times more than retaining an existing one.

Furthermore, Marketing Metrics reports that if a customer bought from you once, there is a 60% chance that they will make another purchase.

Hence, instead of focusing over and over again on acquiring new customers, try to focus on retaining the existing ones (or up-selling them).

There are various ways of doing that.

You can create loyalty programs or discounts for your exclusive customers, do up-sells, and many other things.

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3. Create High-Quality Eye-Catching Creatives

As we mentioned, buyers are in control.

Poor designed or “generic” ads won’t work anymore. Buyers beg for more creativity.

On the other hand, it’s not just your revenue at stake. It’s also your brand.

High-quality creatives won’t just help you acquire, retain, or up-sell more customers. They will also improve your brand awareness.

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4. More Room to Grow on Instagram

At the moment, many of our clients are reporting slightly cheaper Customer acquisition costs (CAC) on Instagram than on Facebook.

This can be mainly due to the fact that the Gram is still less saturated than Facebook.

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The ability of different audience targeting on Instagram that are less saturated than on Facebook might be a key area of differentiation from your competitors.

CPM cost for story placement is really cheap these days.

Heads up on the newest Apple iOS 14 Privacy Update

In April 2020, Apple revealed their plan to release the Identifier For Advertisers (IDFA), or in short, iOS 14, the company’s latest mobile operating system update.

And with all traffic buzzing mainly online, it was a huge step back for Facebook advertisers.

Updates slowly came to everyday marketer life, many expressed discontent, and there are still those dealing with the iOS 14 Facebook tracking update.

Hunch brings you 4 Smart Steps to deal with the iOS 14.5 Impact: 

For creating a better strategy for your campaigns, we encourage you to focus on these 4 initial steps, since you’ll have limited access to user data.

  • Personalize with Owned Brand Data
  • Prioritize Specific Conversion Events
  • Unlock More Data with UTM 
  • Optimize Goals on Google Analytics 

We are still to summarize the effect the new iOS 14 update has had on the businesses overall.

The Bottom Line

As you can see, acquisition channels like Facebook are fundamental to every e-commerce business’s digital marketing strategy and activities.

Since many advertisers are not well educated on how to beat the rising ad costs on Facebook, it’s also the duty of senior management to keep up a growth mindset and continue the improvement of their Facebook campaigns so that these channels remain successful enough.

Facebook can still bring customers and money to companies, but only to those who understand how the new Facebook game works and how to prove their sustainable unit economics.

To win in this ridiculous game, a retail and e-commerce business will need to start focusing on many factors, including improving their LTV and retention with better creatives rather than just acquiring new customers over and over again.

Investing money in conversions instead of impressions and reach is more important for brands now than it ever was before.