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Why the price of Facebook Ads will increase in 2018

The price of Facebook ads could almost double in 2018. Is this gold acquisition channel drying up? Should I stop your campaigns and switch your ads to another network? Do not panic, we explain here why this increase and what it implies for your use of Facebook Ads …

#HOW DOES FACEBOOK EARN MONEY TODAY

Here is a simplified diagram of the Facebook business model:

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Revenue depends on four factors:

  • Number of Active Users: the number of people using FB each month;
  • Time Spent: the average time spent by each user on FB;
  • Ad Density: the average number of ads each user sees on FB;
  • Ad Price: The average price paid by advertisers to advertise on FB.

So far, Facebook’s revenue growth has been driven primarily by growth in the number of users, time spent (hence the focus on video) and advertising density.

 

#FINANCIAL RESULTS

Let’s come to the results announced by Facebook. These are, as always, record results:

  • Turnover 2017: 40.6 billion dollars (+ 47%);
  • Net profit 2017: $ 16 billion (+ 56%);
  • Active users (monthly): 2.1 billion (+ 14%);
  • Active users (daily): 1.4 billion (or 2 users out of 3!);
    (for complete results, this is here).

I am not a financial analyst so I am not going to dissect their results, but I would like to emphasize a few points that seem important to me in this announcement and that will help us understand why the price of advertising will increase.

 

1. TIME SPENT ON FACEBOOK DECREASED BY 5%

That’s 50 million fewer hours a day, about 2 minutes per day per user.

Not surprisingly, Zuckerberg announced on Jan. 12 that this would be a direct consequence of the shift in focus of the algorithm (“Now, I want to be clear: Facebook and some measures of commitment will go down But I also expect the time you will spend on Facebook will be more valuable.

This goes in the direction he wants to give Facebook in 2018: less emphasis on time spent (“Time spent”), what matters is the quality of time spent (“time well spent”).

 

2. THE PRICE OF ADVERTISEMENTS INCREASED BY 43%

Facebook’s CFO David Wehner announced that the average price per ad has increased by 43% and the number of ad impressions has increased by 4% (note that a year earlier, it was almost exactly the same the opposite: the average price per advertisement had increased by 3% and the number of advertising impressions by 49%).

What does that mean ?

That advertising inventory (the number of ads that Facebook can display to its users) increases almost no more while there are still more advertisers on the platform (6 million to date), which automatically pulls price up.

3. FACEBOOK LOST USERS IN NORTH AMERICA

Another notable piece of news: For the first time, Facebook has lost users in the US / Canada, a sign that the North American market has matured and will need to be relied on to generate growth.

The number of users continues to grow in other markets, but much slower than before.

4. INCOME PER USER IN EUROPE FAR BEHIND USA / CANADA

Finally, in the US and Canada, each user reported to Facebook $ 26.76 in the 4th quarter while in Europe it is $ 8.86.

There is therefore a LARGE margin of increase in advertising revenue per user in Europe.

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Now let’s go back to the Facebook business model.

If the number of users increases slightly, if the time spent decreases (so fewer opportunities for advertisers to reach users) and if the advertising density stagnates, the only real growth driver is … the price of advertising.

 

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Some estimates indicate that the price of advertisements could increase by 25% in the next 3 months, by 48% in the next 6 months and by 79% in the next 12 months.

 

#DOES IT MEAN THAT YOU HAVE TO STOP YOUR FACEBOOK ADS CAMPAIGNS?

Certainly not.

Given the power of targeting and the quality of the formats, Facebook Ads will remain profitable for performance marketing, ie Bottom of Funnel campaigns (the bottom of the sales channel, either conversion, sales or marketing campaigns). lead generation).

On the other hand, if your campaigns are limited to the Top of Funnel (the top of the sales channel, ie awareness, branding or awareness campaigns), the price increase may make the cost of Facebook ads prohibitive for campaigns. who do not have a clear goal of ROI. In this case, you should stop considering Facebook only as a social media but rather as an acquisition channel (of users, prospects … or customers).

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