REPORT: Advertising On Facebook Is Getting More Costly

By David Cohen Comment

The costs of advertising on Facebook are rising, but marketers who keep their traffic within the social network’s environment are seeing their costs per click drop by as much as 45 percent, according to fourth-quarter research from TBG Digital.

The advertising technology firm found that the average cost per click in the U.S. rose 10 percent in the fourth quarter compared with the third quarter. Meanwhile, Canada, France, and Germany saw minimal increases in average cost per click, and it actually fell 11 percent in the U. K.

Facebook’s growth rate has been plateauing in the U.S., which contributed to the cost-per-click increase. TBG Founder and Chief Executive Officer Simon Mansell explained further:

One of the big reason for the price increases in the U.S. market is that advertisers are still willing to buy on Facebook, but there’s not the supply that there was. They’re making more money per click. As markets mature, people will have to pay more to get delivery, as long as Facebook still has demand from advertisers.

As for the decline in the United Kingdom, Mansell mentioned that click-through rates increased in that country, but the addition of sponsored stories there took longer.

However, those advertisers who were able to construct campaigns that kept users within the Facebook environment, rather than sending them to outside websites, paid as much as 45 percent less per click.

Mansell said Facebook was rewarding people who kept traffic within its environment with hefty discounts, as it was still creating impressions within the social network, and monetizing that traffic.

Brands in the finance industry found it difficult to take advantage of that loophole, as they tend to migrate users to their websites for reasons of security and privacy. TBG said 61 percent of campaigns by companies in the finance industry drove users off Facebook, resulting in costs per click that are double the overall average.

Overall click-through rates rose 18 percent in the fourth quarter of 2011 compared with the first quarter. At opposite ends of the spectrum, France saw click-through rates double, while they actually fell 2 percent in the United States.

Over the same time period, Facebook’s rates for cost per thousand impressions jumped 23 percent, including 8 percent from the third quarter to the fourth quarter. TBG added that this figure has gone up every quarter for the social network, and Mansell added, “Money per impression will be a really important number for Facebook’s initial public offering.”

The holiday season caused cost per click to skyrocket by 55.7 percent from November 21 through December17, which Mansell attributed to advertisers trying to implement last-minute promotions and take advantage of spikes in online shopping, adding that the surge in retail advertising during that period led to more demand, and, thus, higher costs.

The food and drink category took over first place on the list of industries analyzed by TBG, bumping beauty and fitness out of the top spot. Mansell mentioned strong campaigns by TBG clients including Heineken, Jack Daniel’s, and Captain Morgan, and also speculated that the increase may have had something to do with the times of day when Facebook users were accessing the social network.

Finally, we asked Mansell about the impact of Facebook’s transition to the Open Graph and enabling of action items besides the like, and he said:

We haven’t seen any major difference from the new Open Graph because a lot of different brands haven’t gotten their heads around it, to be honest. It’s confusing to some clients — they’re going from one action, like, to infinite numbers of actions. We have started to see a difference with Facebook putting ads in the news feed, however.

TBG analyzed more than 326 billion impressions from 266 clients in 205 countries.