Facebook ad prices have been steadily increasing over the past few years. There are a few key reasons that Facebook ad costs continue to rise:
Increased Competition for Ad Inventory
Facebook has millions of advertisers competing for a limited amount of ad space in the News Feed each day. With more businesses utilizing Facebook ads, the auction-based bidding for ad placement leads to higher costs per ad.
According to Facebook, over 9 million businesses actively advertise on the platform. With so many advertisers bidding for a spot in the News Feed, prices are driven up through the ad auction process.
High Demand from Large Brands
Large brands with big budgets are investing heavily in Facebook ads. Major retailers, consumer product companies, and other large advertisers are buying large amounts of Facebook ad inventory.
These big brands have the budgets to spend aggressively, especially when advertising new products or seasonal items. Their high spending contributes to rising average costs per ad.
Increase in Mobile Usage
As Facebook usage continues to shift toward mobile devices, ad prices are impacted. On average, mobile ads cost more than desktop ads within Facebook.
Mobile ads allow for more targeted messaging based on real-time data like user location. Advertisers compete more intensely for the ability to reach users on mobile, driving mobile ad costs higher.
Advanced Targeting Options
Facebook offers very advanced targeting capabilities that enable advertisers to hone in on precise demographics and user interests. These sophisticated targeting options come at a premium price.
Narrow Audiences
With Facebook ad targeting, businesses can define their ideal audience using parameters like location, age, gender, interests, behaviors, and more. Targeting a narrow audience tends to increase ad prices.
For example, an advertiser could target men ages 18-35 who live in Los Angeles and are interested in surfing. Reaching such a specific group of people costs more than a broader targeting approach.
Lookalike Audiences
Facebook Lookalike Audiences allow you to target new potential customers who are similar to your existing customers. Advertisers are willing to pay a premium to reach these valuable, high-converting audiences.
The more refined the Lookalike Audience, the higher the ad costs. Advertisers might pay 2X or 3X more to reach a 1% Lookalike Audience compared to a broader 5% audience.
Video Ads
Video ads on Facebook can drive higher engagement and recall compared to images or text ads. But video ads come with a higher price tag.
Higher Production Value
Creating effective video ads typically requires significant time and resource investment. The production costs involved with filming, editing, and designing video ads increase the base price.
Premium Placement
Video ads may appear inline in the News Feed or as standalone videos prior to playing other video content. These premium placements attract more focused attention and engagement from users. Facebook charges a higher rate for video ads as a result.
rising CPM Rates
The average cost per thousand impressions (CPM) that Facebook charges advertisers continues to creep up. From 2020 to 2021 alone, global average CPMs on Facebook increased around 24%.
Facebook ad prices are also seasonal. CPM rates typically increase significantly during the busy fourth quarter holiday shopping season.
Increasing Revenue per User
Facebook’s average revenue per user (ARPU) has grown steadily each year. The company has been able to extract higher ad spending across its user base.
According to Facebook’s Q2 2022 earnings, global ARPU reached $8.76, up 22% year-over-year. As overall monetization goes up, ad prices follow.
New Ad Formats and Features
Facebook continually launches new ad products like carousel ads, collections ads, bumper ads, and more. These new formats and premium features enable more customized marketing, which comes at a cost.
The Metaverse Strategy
Facebook parent company Meta is making massive investments in building out the metaverse and sees virtual reality advertising as a key revenue driver.
Ads within Meta’s metaverse apps can leverage precise eye-tracking and emotion analysis for next-level targeting and engagement. Expect ad pricing in VR spaces to be at a premium.
Unique Audience Interactions
Virtual and augmented reality open entirely new ways for brands to connect with audiences. Special branded virtual experiences and immersive interactions will be highly sought after by advertisers.
Data Tracking in VR
The data Facebook can collect about user behavior in virtual reality is unmatched. This extremely granular data about how users navigate and interact in VR will enable advanced microtargeting for VR/AR ads.
Conclusion
Facebook ad prices have been steadily rising due to factors like increased competition, sophisticated targeting, new ad formats, and Meta’s big investments in VR/AR. Given Facebook’s dominance in social media, most brands continue to view Facebook ads as a worthwhile investment despite higher costs. Careful testing, optimization, and measurement remains key to getting the best return from Facebook ad spending.