As brands fight to retain customers during a turbulent global economy, their job is being made harder by enormous inflation in the cost of digital advertising on Meta’s platforms, with an increase in costs that far outpaces global inflation levels.
In our most comprehensive study to date on Meta advertising trends, we analysed a sample of 63 million ad impressions to calculate how advertising costs have changed since the pandemic.
The outcome is not good for advertisers, with the average CPM (cost per thousand impressions) going from $5.05 in Q3 2020 to $6.56 in the same period of 2022. That’s an increase of 29.9% over a two year period. For context, despite the high levels of inflation that we are seeing in the global economy right now, average retail prices have increased over that period by just 13.8%.
In short, the cost of advertising on Meta is increasing by more than double the expected rate of inflation.
The rate of change depends according to the sector running the ads, and we believe that the trends seen across different industries reflect the changes in those industries since 2020, in particular with the shift to online shopping and how consumers are reacting to ads.
For example, the highest increase we have seen is in the jewellery sector where advertising costs were already high and have jumped by a staggering 88.3% in two years. The primary reason for this is the increase in digital advertising competition from jewellery brands, in the context of a market where people are spending less time out of the home and are making fewer impulse purchases for high value products. This means that ads attract fewer clicks, and the ad platforms’ algorithms are programmed to charge more for ads that appear to have lower interest levels.
At the other end of the scale, the only sector on our report that has seen a decrease in advertising is food and drink where ad costs have actually dropped by 12.6%. This is a market that has had a huge boost since 2020 with many more consumers engaging with digital ads from food and drink brands and large jump in the amount of online transactions in this sector, meaning that ads are appealing to more people than ever before and so Meta’s system charges a little less for the same level of exposure.
Across all sectors other than food and drink, the direction of travel is an increase in costs. Whether your objective is sales, leads, engagement or brand awareness, you’re likely to be paying more for your ads than you were two years ago.
What should you be doing about it?
There’s maybe not all that much that you can do. Despite the bad press recently, Meta still dominates as the biggest social media advertising platform, by a long way. New kid on the block TikTok is still lagging way behind, and giving credit where it’s due, Meta still does a far better job than any other platform of matching ads with the right people. For many brands, the right approach is to continue as normal.
However if you’re in one of the sectors that is seeing a big increase in advertising costs, or you’re a business that relies exclusively on Meta for your sales then now is the time to start thinking about three things:
- Testing other channels, keeping Meta running and taking 10-20% of your budget for other platforms.
- Improving your creative, using more engaging imagery and videos to squeeze more clicks out of the same number of impressions, so that even if the CPM goes up you can stabilise your CPC.
- Adjusting your pricing to offset the increase in costs. This is often the easiest thing to do, as a big proportional increase in ads costs will typically be a small increase in real terms, and passing that into your pricing will for most businesses be almost unnoticeable. Particularly in the sectors at the top end of our CPM chart.
The future for the global economy remains uncertain, and there’s always a chance that there will be a big drop in competition for advertising but we believe that even if that did happen it’s unlikely to reverse the trend that we’re seeing with ad costs on Meta. The best we can likely hope for is a slow down in the rate of increase, but whatever happens we are strongly recommending to all our clients that they plan for further increases in ad costs over the coming year.
If you or someone you know is struggling to get the best out of Meta in the face of rising ad costs, just reach out to us and we’ll be happy to see if we can help improve your campaigns.