Cost of advertising on Facebook rises fast

Advertising on Facebook is set to get more expensive, and quickly, as the channel moves from being a ‘nice to have’ to a ‘must have’ advertising destination for global brands, new research has found.

Of the advertisers who promote their wares on Facebook, retailers are the most successful, one report found.

According to analysis from performance marketing company Efficient Frontier’s Global Digital Marketing Performance Report for the second quarter of 2011, the cost-per-click (CPC) of advertising on Facebook rose by 22% in the second quarter of 2011 and is expected to top 80% by the end of the year, compared to the same time last year.

A study from marketing firm TBG Digital, published today, found that the cost-per-click of Facebook advertising rose by 74% in four major markets, the UK, US, Germany and France, in the second quarter of this year, compared to last year. At the same time, the cost per thousand impressions rose by 45% in those four markets.

TBG, which analysed data from 167 clients who advertise on Facebook, also found that Facebook brand campaigns had grown by 104%, and that campaign conversion rates improved by 435% when targeting existing Facebook fans. Of all the sectors, retailers fared the best in click-through rates, TBG found, accounting for 36% of total impressions in the quarter.

Simon Mansell, chief executive of TBG Digital, found: “I spend a lot of my time talking to these customers and hear more and more of them telling me they are reallocating budget from offline media to Facebook. I think the numbers in this report back up the anecdotal evidence of my conversations with TBG’s customers: Facebook is the transformational platform which is making advertisers move brand budgets from the traditional areas of TV and press to online.”

David Karnstedt, president and chief executive of Efficient Frontier, said: “Facebook advertising is moving from a ‘nice to have’ to a ‘must have’ for global brands, which is illustrated by their increasingly competitive marketplace.

“We believe that Facebook CPCs (cost per clicks) will continue to rise at a double-digit pace for the rest of the year, so brands would be wise to add social media marketing to their overall digital marketing spend sooner rather than later.”

The Efficient Frontier report also found that spending on Facebook advertising was coming out of budgets previously dedicated to offline media such as TV and print. While Facebook spend is currently around 5% of overall spending on search, the proportion can rise to 25% for some advertisers during specific promotions. The report also suggests that brands who are active on Facebook will double their fan base by October 2011.

Our view: This is a timely reminder to retailers that they ignore the possibilities of social media at their peril. When the mood among global brands is switching away from print and towards online networks, retailers need to at least be considering what investment in social media might mean for them, and whether it is relevant for their demographic.

It’s also timely at a time when the demise of leading print newspaper the News of the World has thrown up lots of questions about trust in readers’ minds. Are they more likely to trust advertisers who talk to them on social networks?