Is Facebook Becoming Too Expensive?

It’s not a surprise that with over 8 million monthly active businesses that are leveraging the power of Facebook ads, the cost of advertising on Facebook is going up.

In addition, according to the survey linked above, each year we have to compete with a million of additional advertisers.

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

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

Special attention should be given 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 becomes more expensive.

If you don’t know how to survive this, you won’t be able to get amazing results with a $20K per month budget like you used before.

Let’s say that one year ago, with $20K spent on your Facebook ads, you were able to reach around 10M people. Right now, with that money, you will barely reach 7.5M people.

So the main question is:

How do we survive the dramatic increase in CPMs?

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 derive great results in the beginning and they report a magnificent cost-per-acquisition (CPA).

But 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 campaigns and spend more money.

On top of that, a huge number of other retail businesses will soon transfer the majority of their marketing 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.

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 first 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 ads. That will result in higher CPMs, 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.

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

Also, Facebook is under pressure to deliver better experience.

Facebook can be picky. They will penalize advertisers who don’t deliver good experience though their ads. Imagine you are Facebook. Why would you pick generic ads? Ad fatigue will occur. Bad experience. The result – high CPM.

Because of that, we can only expect the CPMs cost to increase (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 CPM cost in 2019 was around $5.12. While according to Webfx, the average CPM cost in May 2020 is $7.19.

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

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

Not everyone is ready for Facebooks’ price increase.

So, how to survive this?

The answer lies in focusing on the buyers themselves.

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 seamless Facebook campaigns and creatives that will improve our retention, customer experience and customer lifetime value.

1. Focus on Creating Creative Campaigns that Resonate with Your Target Audience

In the era of automation, people 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:

Or different cities:

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

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.

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.

4. More Room to Grow on Instagram

At the moment, many of our clients are reporting slightly cheaper CAC on Instagram than on Facebook.

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

The ability to target different audiences on Instagram that are less saturated than on Facebook might be a key area of differentiation from your competitors. CPM for story placement is really cheap these days.

The Bottom Line

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

Since many advertisers are not well educated on how to beat Facebook’s rising costs, 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, e-commerce and retail businesses will need to start focusing on 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.