Why have Facebook CPMs increased by 110%?

As it stands, Facebook’s ad supply is outweighing the demand, impacting advertising costs as well as user behaviour on the platform.

In other words, while ad spend is increasing rapidly (spend more than doubled in the first half of 2017 alone according to Adstage data), the number of ad impressions available remains level.  This means that advertisers are currently paying more for the same number of impressions.  So what’s actually been happening to prices on the platform?

Research by Adstage analysing more than 1.7 billion ad impressions across Facebook, Instagram and the Audience Network has shown the average cost per thousand (CPM) increased by 110% in 2017.  The average cost per click (CPC) also increased 109% to $0.54.

While CPMs and CPCs are on the rise, click-through rate (CTR) is flat, so it’s costing marketers more to maintain the same CTR month-on-month.

The main factors causing higher Facebook CPMs are:

  • The number of advertisers on Facebook, particularly small and medium-sized businesses, is growing rapidly based on Adstage data.
  • Advertisers are increasing social media budgets to remain competitive. In 2017, 73% of advertisers increased spend on Facebook according to a survey carried out by Hanapin Marketing.

Other factors which may be playing a part in boosting advertising prices:

  • The growing popularity of video ads combined with the fact that advertisers are willing to pay more for these types of ads. In fact, video is taking over across the board with IAB’s latest report showing online video spend has overtaken spend on banner ads for the first time!
  • Algorithm changes impacting user behaviour has led to people spending less time on the platform. 2017 saw a 5% drop in the number of time users spent on Facebook, according to Adstage data.
  • The first-ever decline in Facebook daily users of 1 million was seen last year in the US and Canada.

Adstage also revealed that the number of advertisers active on Facebook reached more than 6 million by the end of 2017, gaining two million within one year.  This growth is showing no signs of slowing, as this is only 9% of the 65 million businesses on Facebook.

Interestingly, it’s particularly smaller brands turning to the platform.  Perhaps because Facebook is so accessible, cost-effective and straightforward to set up.  In other words, many businesses will be able to use current assets on the platform and already be very familiar with it (seriously, who isn’t?).

Touching on the changes in user behaviour mentioned earlier, it’s also recently come to light that websites have seen a significant fall in traffic from Facebook.  Statista shared the below based on Shareaholics’ report:

Over the past ten years or more, Facebook has become one of the main sources of traffic for many websites and even been a bigger driver of traffic than Google for some, as pointed out by Statista.

However, Facebook referrals as a percentage of overall traffic fell 12.7% in 2017.  This trend is likely to be due to changes in the way users behave on the platform with them posting less as well as spending less time on Facebook.

This, together with the most recent news feed changes pushing content from friends and family, as opposed to brands and businesses, means the decline in Facebook traffic to sites may well continue.  Although, a decline for Facebook sees a rise for Pinterest and Instagram…watch this space!

So as Facebook’s ad auction remains very competitive, it’s suspected that more and more advertisers will turn to Instagram to drive conversions and even Messenger ads too.  Nevertheless, one thing’s for sure, the growing number of Facebook’s advertisers and ad costs is not slowing down yet!

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