MerchantCircle Survey Indicates Plenty of Runway for Facebook Ads Among Local Businesses

While 66% of small businesses have used Facebook for marketing, only 22% have used Facebook ads, according to MerchantCircle, the largest online network of local business owners. The company released its quarterly Merchant Confidence Index survey of 5,000 local business owners today, and other findings include the following: two thirds of those who’ve used Facebook ads would do so again, location-based marketing is declining, and interest is on the rise for group deals, especially those published by familiar entities including Facebook and Google.

The survey’s results indicate that Facebook’s self-serve advertising business, which account for a very significant portion of its total revenue, has plenty of room to grow. If Facebook can convince more local marketers on the site to advertise, it could fuel big total revenue gains that might improve its standing in the event of a long-anticipated IPO.

While the sample size is relatively low compared to the amount of marketers and advertisers on Facebook, MerchantCircle doesn’t overtly tout an Facebook-related services, so the data shouldn’t be biased.

Here are the core findings of the study:

Facebook Ads

  • 66% of local businesses use Facebook for marketing
  • 94% of local businesses are aware of Facebook Ads, though only 22% use them
  • Of those 22%, 65% said they would use Facebook Ads again
  • Reasons cited for repeat use of Facebook Ads were: ease of use (66.5%), ability to pause (64.8%), quality of targeting (53.7%), opportunities for acquiring new customers (49.3%)
  • Reasons cited for not using Facebook Ads again included: not acquiring new customers (69%), cost (34.5%), low click-through rate (28.5%)

The high awareness of Facebook Ads, coupled with the 44% difference between marketers and advertisers shows that there’s great potential for the self-serve ad product to grow. Facebook could increase the percentage of repeat advertisers and counter the biggest reason for not repeating by improving its education efforts and providing advertisers with best practices for targeting, creative, and bid management.

Daily Deals

  • Only 9.4% of local businesses have offered a daily deal, with 8.4% saying they haven’t but plan to in the next six months
  • 77% of those who’ve run deals say they’d do so again, up from 50% last quarter
  • Citing familiarity with these big platforms, 52% of of local businesses would choose to run Facebook Deals or Google Offers instead of deals through Groupon, LivingSocial or other deals providers
  • Other reasons for preferring Facebook included bigger audience size (26%), and better local targeting (21%)
  • Other reasons for preferring Google included bigger audience size (42%), and brand reputation (34%)

Facebook’s daily deals service Facebook Deals is off to a shaky start, with anecdotal evidence suggesting few purchases due to weak value and low quality of available deals. However, MerchantCircle’s data indicates businesses are interested in using the service. Facebook needs to consider subsidizing Deals so it can hook users with huge discounts, and should consider improving copy-writing and design to make Deals more compelling.

Location-Based and Mobile Marketing

  • 22% of businesses are using Facebook Places for marketing, down from 32% last quarter
  • Only 7% are using Foursquare for marketing, down from 9% last quarter
  • 18% of local businesses have used mobile marketing or advertising, with 71% citing a lack of understanding as their primary barrier to use.

Facebook’s location-based deals service Checkin Deals that builds on Places hasn’t seen much adoption despite it being a free way to inspire users to promote a business to their friends through checkins. Again, Facebook needs to provide better educational resources, perhaps in the form of webinars or live seminars in key markets to jumpstart business adoption of Checkin Deals.

Overall, the data tells a story of how Facebook holds significant marketing and advertising potential for small and local businesses. However, without large dedicated ads or marketing teams they can’t get a good enough understanding of social to dedicate spend there. While Facebook has purposefully tried to keep its number of employees low to maintain the startup feel, the strategy may be inhibiting it from conducting the education and outreach efforts that could accelerate growth of its business.