Facebook Advertising

Previously we discussed whether local businesses should or should not invest in Facebook advertising. Citing Facebook’s impressive user base and unique targeting tools, we noted that Facebook advertising was a worthwhile advertising platform so long as you already had a well-established online presence, and a large contingency of customers who actively used Facebook.

Just as we stated before, Facebook advertising only makes sense in the “right” situation. That is, if it adds more value for small businesses than it costs. Price increases have made Facebook advertising even more of a niche option, as many small business don’t see a return on the time and fiscal investments they have to make to succeed using Facebook’s services.

Recently, Facebook reported that their average price per ad increased 123% percent from one year ago, but ad impressions – the number of ads displayed – decreased by 25%. From Facebook’s end, the increase in price covers for the decrease in display volume, as their revenue rose 67%. According to Facebook, however, these shifts are beneficial for everyone.

Facebook says that advertising prices are tied directly to the value that ads create. Display volume has gone down because Facebook has increased the size of individual advertisements displayed on user pages – larger ads means less ads, so individual ads should receive more user attention. The problem is, many have reported that they aren’t seeing return on their investments for two reasons: price increases and decreased reach.

Price Increases

According to Facebook, price increases represent an equal increase in return on investment. This makes sense in theory, but small businesses are finding that this explanation falls short in practice. Much of the problem stems from the fact that a large portion of small business simply don’t have the financial or human resources to properly manage their investment in Facebook advertising. Price increases make Facebook advertising much less lucrative, since it’s even less likely that businesses will see a positive return.

Decreased Reach

Some Facebook ad users have been reporting plummeting impression volumes despite price increases (like Tom Buroojy, who saw “cost per click” prices quadruple and clicks decrease by 75%). One of the main reasons for this decrease in ad reach is increased competition in the ad space. Within the last year, the number of paid Facebook advertisers has increased from 1 million to 1.5 million. With more users, Facebook has decreased the amount of ad real-estate available, which increases auction prices for this space. The thought is that individual ads will have less competition, and the increased price will ultimately be covered by more sales.

It’s likely that the amount of success you have with this new set-up entirely depends on how much time you’re able to devote to managing your Facebook campaigns. Smaller businesses unable to dedicate a lot of resources to their campaigns will want to avoid them altogether.

Facebook’s Efforts to Improve

While Facebook advertising seems to currently be very hit and miss, Facebook has been making a point to communicate the platform’s benefits. Facebook Fit was a “bootcamp for small businesses” aimed at helping them familiarize themselves with Facebook advertising. Facebook’s platform is robust, and it certainly has its merits, but at this point it’s not for everyone. Price increases seem to amplify this idea – if you can afford it and manage it properly, it’s great. However, if you can’t, it likely won’t work.