As ads on Facebook become more effective they also cost retailers more, according to a new report from social media advertising firm Nanigans based on more than 100 of its retailer clients and over 150 billion impressions on Facebook.
The average click-through rate for Facebook Inc. ads for Nanigans’ retailer clients stood at 0.20% in the third quarter of 2013, up from 0.05% the same period a year earlier. However, the cost-per-thousand (CPM) impressions for the ads increased 169.7% to 89 cents in the third quarter compared with 33 cents a year earlier. But while CPM costs have risen, the cost per click has decreased. The average cost per click fell to 45 cents in the third quarter, down from 62 cents a year earlier.
But the costs matter less than the results, and Facebook ads are generating strong returns for retailers, says Dan Slagen, Nanigans senior vice president of marketing. Retailers averaged a 109% return on their investment in Facebook ads in the third quarter, the Nanigans study finds.
“Facebook is now a performance marketing platform and retailers are focusing on results,” he says. “They’re generating strong returns, which is leading them to continue to continue investing in the platform.”
That shift has led Facebook and vendors such as Nanigans to focus more on concrete performance metrics like revenue-per-click, which demonstrate the value of an ad, and less on more nebulous measures such as Likes, he says.
Facebook gives marketers a wide array of targeting options, which can help retailers generate a strong return on their investments, Slagen says.
Retailers are also adapting to an important shift, as more consumers go to Facebook on mobile devices. The social network says it has 819 million mobile monthly active users as of June 30, up 50.8% from 543 million in in June 2012. And retailers are increasingly targeting those mobile users with ads. Retailers allocated 18% of their budgets to mobile ad units in the third quarter, up from 14% in the second quarter. Nanigans did not track mobile ad spending last year and thus could not provide a year-over-year comparison.
The report finds that while the CPM for Google Inc.’s Android and Apple Inc.’s iOS users was roughly the same—$4.87 for Android and $4.99 for iOS—iOS users brought more value for retailers in the third quarter. The revenue per click for iOS users was 94 cents compared to 15 cents for Android users. And the return on investment was 162% for iOS users compared with -10% for Android users. That’s in line with results of a survey for the recently published Internet Retailer Mobile 500 guide, which showed that most retailers are getting a majority of their mobile traffic from Apple iPhones and iPads.
Facebook also lets marketers choose where their ads appear—in the news feed, which is the first page a user sees when logging on to the social network, or in display ads in the right sidebar of the site for desktop users. Mobile users don’t see the sidebar ads.
The report found that 57% of retailers’ spend on desktop Facebook ads went top ad formats that appear in the news feed. And those news feed ads vastly outperform the right sidebar display ads. News feed ads, which both desktop and mobile users can see, had an average click-through rate of 1.19% in September, compared to a .04% average rate for right sidebar ads during the same period. However, news feed ads cost much more. The CPM for news feed ads averaged $5.48 in September, compared to a 24 cent average for right sidebar ads.