The Rising Cost of Facebook Ads & How to Manage It
The Rising Cost of Facebook Ads & How to Manage It
After a dip caused by the COVID-19 pandemic, the average cost of Facebook ads has been sharply increasing. In fact, Facebook CPM in 2021 has consistently been about 30% higher than the same time in 2020.
So, it’s time to move away from Facebook and focus on more cost-effective platforms, right? Not so fast. According to Joe Murfin, the founder of Prime Eight Digital, a performance marketing agency based in London, Facebook ads’ price, Facebook Ads are still a great value.
Joe was kind enough to answer our questions about the rising costs of Facebook Ads, and how to navigate this. Here, we’ll share what we learned from Joe about why costs are rising, and the key insights he provided about how to manage them.
Why are Facebook Ad costs rising?
“There’s so much content online now. And people realise that Facebook Ads is probably one of the better places to advertise compared to Google Ads and other avenues,” Joe says. “Put simply, fiercer competition is the main driver of the cost increases.”
Joe says the landscape breaks down like this:
- Facebook Ad prices are auction-driven
- As businesses reopen post-pandemic, ad spend is ramping up
- Marketers are investing a good chunk of that additional money into Facebook Ads
- More money and more demand for Facebook ads drive auction prices up
- Marketers see positive results from the ads, drive more money into the platform, and the cycle continues
In simple terms, more businesses spending more money on ads means more competition and increased prices. According to Joe, this trend will continue until marketers stop seeing positive ROI from their Facebook Ads spending. And that’s the important nuance here.
“The price increase is a strong indicator that Facebook Ads do consistently deliver results, and are likely still undervalued at current prices,” Joe says. “If they weren’t undervalued, we’d quickly see supply and demand adjust prices.”
So, just how effective is Facebook advertising? Joe indicated 10x ROI is still possible with a good product. And he puts things into perspective: “Never in history have we been able to reach as many people for as cheaply as this,” he says. “The cost of getting the attention of 1,000 people within your target audience is a fraction of that of a postal campaign just two decades ago.”
Key insights about the rising costs of Facebook Ads and how to manage them
Having managed big budgets for global brands, Joe knows a thing or two about managing the rising average cost of Facebook Ads. Here, we’ll explore 5 key takeaways from our interview:
1. Facebook’s algorithms can target better than you can
“Lots of people think they can outsmart one of the best AI in the world,” Joe says. “But actually, you should be letting Facebook do most of the heavy-lifting in your targeting.”
According to Joe, a human might spend days of their life tinkering and experimenting to find the right strategy. But frankly, in many cases, that’s a waste of time. “Facebook has invested millions in AI and ad targeting tech to help businesses convert on their platform,” Joe points out.
In summary, because it’s in Facebook’s interest that your ads perform well, you should take advantage and use the platform’s investment in this technology. Specifically, Joe recommends using Dynamic Creative and Automated Ads to help you create campaigns and find customers.
How can you use AI to create targeted Facebook Ads?
First, he simply suggests setting up a fairly broad target audience (e.g. based on location), cost caps, and an objective, and letting the tech giant’s AI go to work. From there, you just need to effectively allocate your budget (more on that to come).
Similarly, Joe has found that the algorithm is better than humans at finding good new customers. Surprisingly, some businesses miss out on customers because they don’t fit a narrowly-defined target audience, and that’s a mistake. “I always think that your target audience is whoevers buying from you, not who you think is your target audience,” he says.
Letting Facebook's AI find these new audiences to market your products to can help drive growth and offset rising costs.
Again, Joe points out that Facebook themselves have invested heavily in making this easier for you. And he recommends tools like Interest Explorer and Audience Insights to help you uncover untapped customer bases who you can sell to.
2. Be strategic with your Facebook Ads budget
Getting the most out of Facebook’s automatic targeting tools demands you to strike a balance between giving the algorithm enough time to figure things out and keeping cost per acquisition (CPA) down. And that means being strategic with your budget.
“If you allocate all your budget up front before Facebook learns more about which audiences to target, cost-per-acquisition will drift upwards,” Joe says. “If you don’t invest enough, the algorithm can’t learn enough and you miss out on the benefits.” He recommends businesses increase ad spend by 20% every 72 hours, after kicking off with a healthy budget.
3. You can get a good deal as an early adopter
“Generally, you always want to be jumping on all the new options that Facebook puts out,” Joe says. “Whenever Facebook launches a new feature or platform, early adopters tend to get excellent deals. For example, recently, Instagram Reels have proven to be a bargain.”
Once Reels become more popular, you can expect prices to increase (see our earlier ‘basic economics’ lesson). However, in the near-term, while Facebook is looking to incentivise marketers to use the platform, Joe’s clients will get people’s attention at a discount using Reels.
The lesson here is simple: stay up-to-date with what Facebook is doing, and don’t be scared to allocate some of your ad budget to new features. While there is always some risk, the cost per unit of attention is almost always lower than with more ‘mature’ forms of advertising.
4. Offset costs with increased average order value and upsells
You can offset rising Facebook ads price by generating higher revenues. “It’s easier to increase the average order value of a product than it is to increase your Return on Ad Spend,” Joe argues. “I would focus on making your product better, boosting what people are spending with you, or increasing the value of what you offer.”
And upsells are also a really great avenue, according to Joe. “If you can get someone to spend an additional £10 at the checkout, your campaigns will inherently become more profitable.”
5. Diversify: Don’t use Facebook Ads by themselves!
“The main thing I worry about,” Joe says, “is brands that only have Facebook Ads running when they don’t have any other sources.” According to him, putting all your eggs in one basket isn’t a good idea, even if Facebook Ads are still great value in relative terms.
While it’s unlikely to happen in the immediate future, prices may eventually reach the point where Facebook Ads no longer represent a good investment. Similarly, an algorithm change might cause your campaign performance to tank, and demand a wholesale strategy shift.
Should you market through other channels too?
“It should be a mix,” he says. “It really depends on your product. But you should be looking at distributing budget between paid channels such as TikTok, Google Ads, and YouTube Ads.”
And beyond risk mitigation, Joe points out another important reason to diversify: “It’s much easier to get yourself onto a new platform and see a bit of success than it is to keep obsessively optimising for marginal gains on Facebook alone.”
For example, suppose you’ve been advertising on Facebook for a few years based on a sound marketing strategy. At this point, you’ll have snatched all the quick wins, and making incremental improvements is a continuous battle. But by experimenting with a new platform, you can expose your business to new customers and a whole new set of quick wins.
Case in point: many businesses are quickly learning that TikTok marketing is an excellent way to target younger consumers.
The main takeaway: it’s about returns, not costs
According to Joe, “many people get distracted by the costs, but success is really about what kind of returns you’re getting in the end.” It’s easy to have a knee-jerk reaction when costs increase like Facebook Ads have over the past couple of years. But it’s important to not lose sight of what matters: return on investment. You should
Huge thanks to Joe Murfin for his time.
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