2 June 2020

FB Ads: Costly for Small Businesses

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When it comes to advertising on Facebook these days, small-business owners are competing for more limited ad space—and paying more for ads even if they don't result in sales. During Facebook Inc.'s earnings call last month the social-networking company revealed the average per ad price increased 123% in the most recent quarter compared with a year ago. Ad impressions—the number of ads it displayed—declined 25%, while ad revenue rose 67% to $2.68 billion.

Facebook says it is providing better outcomes for its advertisers.  But some small-business owners don't necessarily see it that way. One small business owner states the price increase is great news for Facebook's top line, but it buries the small-business owner who has a limited ad budget.

While the value of Facebook ads may be improving for some, many small businesses are disadvantaged because they don't have the financial or human resources to manage the work behind a successful social-media ad campaign, including designing ads, measuring their reach and making changes to improve their effectiveness.

One reason some businesses' Facebook ads are reaching fewer users and costing more is that competition for ad space has intensified. Roughly 1.5 million firms of all sizes pay to advertise on Facebook today, up from around one million a year ago. Also, there's less space available. Ads in Facebook's right-hand column recently took on a new, larger design, allowing room for fewer per page.

Lauren Pohl, founder of KidzCentralStation.com, began paying Facebook 11 months ago to advertise her online platform for parents to find and book children's classes, initially setting a $10 daily limit.

She says she has worked hard to make her ads more compelling by first testing them free of charge in her New York company's news feed. For example, she has run ads with slightly different images and marketing language. After seeing which generated the most "likes"—such as the photo of the one child with the words, "NYC top class providers"—she would pay for just the better-performing ad to appear inside and to the right of users' news feeds.

The most useful Facebook tool for her so far has been the built-in menu options for targeting users based on their age and location, gender, if they have children, and the ages of their children. She gets better results focusing on parents of children ages 12 and under in two New York City boroughs, instead of moms throughout New York City with children any age.

Ms. Pohl says her ads' impressions and clicks have since declined 55% and 73%, respectively, though her sales have risen 129%. She also advertises through Google and email marketing campaigns. Facebook currently accounts for just half of her total ad budget—though in the fall, she plans to increase her daily spend on Facebook to $50.

In an April survey of 728 small-business owners, 83% said they expect to spend nothing this year on Facebook ads. But 14% said they expect to spend between $1 and $4,999 this year and 1.3% said between $5,000 and $9,999.

Of those who previously paid for Facebook ads, just 19% said they've seen a quantifiable increase in sales, revenue or brand awareness, according to the survey, by The Wall Street Journal and Vistage International. Fifty-five percent didn't, and 26% were unsure.

Facebook sells ads on an auction basis, whereby advertisers bid against one another to have their ads displayed to users. The price of ads varies based on a range of factors, including advertiser demand, ad-targeting parameters, and how well Facebook's technology figures specific ad content will resonate with its users.

Click here to access the full article on The Wall Street Journal.


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