Facebook Ads and the Rising Cost of User Acquisition

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[Editor’s note: Hussein Fazal is CEO of AdParlor, an ad management company for Facebook campaigns with social gaming clients including Ubisoft, PlayFirst and Five Minutes.]

One of the most frequent questions we are asked is ‘How much will it cost to acquire users for my Facebook game?’ The answer to this question depends on many factors.

A brand new casual game targeting both genders and all ages in Indonesia can pick up tens of thousands of users very quickly, for pennies per user. On the flip side, a poker application with a large existing user base and a laundry-list of permissions, targeting 40-year old American males, can pay several dollars per user. Important background information on the many factors that affect pricing is discussed in our longer white paper – this post instead examines an interesting sub-topic around user acquisition. We dig deep into the rising cost of user acquisition over the length of a campaign, and why this occurs.

On average, for every 100,000 users you attract to your application via Facebook Ads, you can expect your cost of user acquisition to increase by 10%. Before examining why this happens, we’ll first take a closer look at click-through rates (CTR) and how Facebook makes money on a cost-per-click ad campaign.

CTR and its value to Facebook

If you were to bid and be charged $1 per click with a CTR of 0.01%, you then have an effective cost per thousand users, or CPM, of $0.10 to Facebook. For every 1,000 times Facebook shows your ad, they are only making 10 cents.

> Continue reading on Inside Social Games.