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Why is Facebook Advertising Becoming More Expensive?

Why is Facebook Advertising Becoming More Expensive?

Written by enCOMPASS Agency

Most companies find it difficult to grow a vibrant online presence without the use of Facebook advertising; as such, it may come as an unwelcome surprise to find that the costs of advertising on Facebook are steadily increasing.

Research shows that, in calendar year 2018, the cost of CPM advertising on Facebook’s ad platform (which also houses Instagram) went up to a hefty 122 percent. Early reports indicate that this trend has continued into 2019 and will likely remain for the foreseeable future.

At enCOMPASS, we’ve been warning our clients about this possibility for many months now. We’ve long felt that there was great value to Facebook and Instagram advertisements, and that the costs were almost scandalously low. Our experts have long speculated that, as more brands awakened to the true value of Facebook Ads, the cost couldn’t help but skyrocket.

That very much seems to be what’s happening now…but actually, the situation is more complex than it might first seem. There are a number of factors that contribute to the rise in Facebook Ads pricing. Let’s look at just a few of them.

A Matter of Supply and Demand

Start with some basic economics: The rising costs of Facebook Ads have a lot to do with simple supply and demand. We know that many brands are willing to pay in order to access audiences on Google and Facebook; these audiences are already logged-in and eager to engage with branded content.

The Facebook audience, in particular, is quite large, about 185 million daily users. The percentage of those users who will be interested in a given product may be quite low, however. And now that Facebook’s growth has begun to taper off, each new customer acquired increases scarcity, thus, as campaigns scale, the cost increases.

At the same time, more and more advertisers are competing for that same limited audience; meanwhile, Facebook only has so much ad inventory it can sell. All of this is just to say that the interest in Facebook Ads is increasing while the size of the Facebook audience really isn’t, and that makes it more expensive to acquire ad inventory.

What About Facebook’s Algorithms?

Another important factor to consider is the Facebook algorithms themselves, which are in a constant state of flux. Note that Facebook, for all the negative publicity it’s gotten in recent years, remains the undisputed leader of social networking; as such, advertisers have very little option but to go along with whatever changes are made to the Facebook algorithms.

As just one example, Facebook altered its algorithms in January 2019 to prioritize status updates from friends and family members, which meant deprioritizing updates from businesses. This further reduced the number of ad impressions available and made the competition for those precious impressions more intense. Again, it goes back to a diminishing supply and an increased demand.

Another important change to the Facebook algorithms is the slow elimination of ad targeting options. The ability to zero in on a highly niche demographic has always been one of the big selling points of Facebook Ads, but the platform has discontinued some of the targeting options that it says are “rarely used” by advertisers. These changes have a lot to do with ongoing concerns about user privacy and data autonomy, and about legal actions that have forced Facebook to redact certain pieces of user data from use by advertisers.

Because the targeting options have gotten more limited, so have the audiences available to advertisers; this is another factor that’s caused ad costs to rise.

What’s Next for Advertisers?

All of this raises an important question: What can businesses do to keep up now that Facebook Ads have gotten so expensive?

The first thing we’d say is that Facebook and Instagram advertising remains valuable, and it’s still an area where we see a lot of utility—assuming you have the budget for it. Even as costs rise, it can still be worth it to connect with a logged-in and fully engaged audience.

Alternatively, though, there are a number of other channels where you can potentially get similar results for much lower costs. A good example is email. Email marketing remains one of the most cost-effective ways to directly reach out to a target audience, and for many companies we’d actually say it makes a lot more sense than Facebook Ads.

There are plenty of options available to businesses looking to connect with users as cost-effectively as possible. At enCOMPASS, we are always glad to strategize with our clients, and to keep them up to date on the latest social networking developments. Feel free to reach out to us any time you’d like to chat.