Explained: Are Facebook Ads Still Effective?

We all know the words to this song. The rhythm keeps changing but the words are the same.  Advertisers relentlessly swear that Facebook ads don’t work anymore. I find it amusing. If they don’t work, why do advertisers still spend money on the platform? Shouldn’t that mean that ad costs will go down if fewer businesses are advertising? Perhaps the reason that the price keeps increasing is that more advertisers are advertising and spending money on Facebook ads. In the following blog post, I am going to argue and break the myths of whether or not Facebook ads still work. 

THE COST TO ADVERTISE INCREASES EVERY DAY

The biggest argument that advertisers make is that the cost of ads (cost per 1000 impressions) constantly increases at a rate that makes it impossible for them to run ads profitability. First off, if you took an economics class or read an economics book you are aware of the supply and demand laws that dictate the market price. Just like the price for everything else around you increases every year, you should expect the price of ads to increase in the same way. 

Reports by Facebook show a 5-10% increase in the average cost per 1000 impressions. Despite your marketing objective, the price you pay per ad will be based on the cost per impressions. The only reason the price per impression can increase or decrease is the number of advertisers and the amount they spend on ads. 

Facebook doesn’t control pricing and doesn’t just increase prices to get more money. Believe me, they make enough money. They understand that for them to produce continuous growth, their advertisers need to succeed. Although globally, the price per impression increases, new placements become available and provide low-cost opportunities for advertisers. 

A good example would be Instagram stories. When Instagram Stories first launched, the average cost per 1000 impressions (pricing unit), was 50-90% cheaper than Instagram feed! Still to this day, Instagram stories are a lot cheaper than Instagram feed. Smart advertisers detected the opportunity early on and were able to drive insanely profitable traffic at a fraction of the average cost, and enjoyed an uncompetitive advertising space. Other examples include Facebook marketplace, refined audience network, and of course the rise of growing countries with massive market potential and dirt cheap cost per advertising. It might have been easier for your business a few years ago and you might find now that advertising on Facebook is more challenging, but to say that Facebook ads are too expensive is like saying that advertising online, in general, is too expensive.

PEOPLE DON'T BUY ON FACEBOOK ANYMORE

This is another big misconception. I think that for this statement to be somewhat correct, the proper wording would be that people don’t want to buy your product on Facebook anymore. Perhaps it’s market saturation and not platform saturation? If everyone is selling the same item, the market will be saturated. People will see the same products over and over again and yes, they probably won’t have a strong urge to buy. But does that mean that people don’t buy from ads they see on Facebook anymore? The opposite is the case. 

Here are some stats that will blow your mind, according to recent market research. 

1. 67% of marketers find Facebook to be their most important social media channel.

2. Facebook is the number one ad channel for both B2C and B2B companies.

3. Facebook advertising revenue just keeps increasing (all-time high Q4 of 2019).

If people wouldn’t buy from ads on Facebook anymore, the stats above couldn’t be true. Understand that unlike on Google, on Facebook there is cross-industry competition. This means that the same user that purchases a $10 shirt might also be interested in a new mattress or a new $200 gadget. In this case, the same advertisers are competing for the same user. The advertiser who sells the shirt can’t afford to pay the same amount that the advertiser who sells the mattress or luxury watch can. People come to Facebook because they want entertainment. Entertainment creates the need for trends. Whatever is trending on Facebook will be successful and whatever isn’t trending will probably not be profitable for a long time. So instead of asking if people buy products through Facebook ads, the appropriate question would be what they buy. Timing is everything – perhaps it’s not the right time for your industry. 

MARKETS ARE TO COMPETITIVE

One of the main arguments about the decline in performance on Facebook ads is the increase in competition. This argument has some validity but is not that simple. There are specific industries that are getting more competitive, such as fashion, gadgets, and information products. But these were the first industries that saw massive growth on Facebook ads, so it makes sense that they were the first ones to become saturated. Since we target audiences on Facebook ads and not keywords, different industries compete for the same people at the same time. The increased competition doesn’t mean that your direct competitors aren’t causing your price per impression to increase significantly, but they are causing market saturation as the same number of people are seeing more of the same or similar ads. If I shop online a lot for men’s fashion and my newsfeed is swamped with men’s fashion ads, it will probably lead to a lower likelihood of me being interested or purchasing something. Just imagine that every relevant user on Facebook saw five ads per day related to men’s fashion. What would happen if they saw 15 ads? It’s not so much the problem of cost per ad, but actual performance as a result of market saturation. 

THE GOOD AND THE BAD

Although the prices and competition increase every year, you need to consider the fact that Facebook ads continuously improve their targeting and automation abilities. Imagine how much data they have accumulated since they started allowing advertisements on the platform. Think about how many refinements and machine learning improvements were implemented to help advertisers get better performance. Even if CPM prices increase by 5-10% per year, their targeting abilities also improve at a high rate which can compensate for the added cost. If you are paying $10 instead of $9 for 1000 impressions, but your CTR (click-through rate) also improved by 10%, you are bringing the same number of visitors to your website for the same cost. Additionally, Facebook’s massive amount of data allows them to make better predictions about user purchasing behavior, thus being able to better predict which users are relevant. That’s why, in some cases, right after you launch a campaign you see a purchase within the first few clicks! 

A super-intelligent targeting system comes with a price. When Facebook sees your campaigns are doing well and your products are trending, it will likely share the same audience with other advertisers who are selling similar or the same items. Just like your campaigns piggyback on other advertiser’s pixel data, they learn from your pixel data to accelerate the performance of other advertisers’ campaigns. There is no effective way to prevent this. It’s part of the concept of sharing data to achieve better performance and letting the best product win. 

IN SUMMARY

Like most platforms that start with massive performance and decrease with time, there’s an argument for whether or not Facebook ads are still effective. Increased advertising prices are dictated by supply and demand as well as increased market competition. The thought that people do not buy on Facebook anymore has no basis and has been proven wrong many times. The increase in advertising cost comes with better-performing ads that compensate for the higher cost of advertising. Successful advertisers take advantage of new opportunities on the platform to maximize their performance.