At the conclusion of every quarter, investors, researchers, and members of the news media all want to get a read on whether Facebook can continue its impressive growth. Because I work for Ampush, a Facebook Marketing Partner, or FMP, I get a lot of those questions. After nearly every quarter, I come to the same conclusion:
They’re asking the wrong ones.
The questions typically go like this:
“How has cost per thousand, cost per click, click through rate, and cost per install changed quarter over quarter and year over year?”
“Which ad products are advertisers spending on the most?”
“Any unusual trends you’ve noticed in Q3?”
“Which industry segments are spending the most on Facebook?”
“How much has total advertising spend changed on Facebook?”
I can answer all these questions, but very few think to ask the right question: is Facebook creating more value for advertisers than it costs? After all, advertising is just one of several inputs a business may need to fund. If a business is to stick, it needs to make more money than the aggregated costs of these inputs, which means there’s healthy pressure on each input to show a positive ROI.
Facebook’s two year stock chart, by the way, suggests that in general, advertising on the platform works.
The question about how much advertisers are spending overall isn’t bad, but even that requires a careful answer. Some advertisers operate seasonal businesses, for example, and therefore decrease spending when they’re out of that season. That has nothing to do with Facebook.
Otherwise, most of the questions miss the mark. Asking how much Facebook advertising costs is like asking how much a car costs. It depends a lot on the advertiser and goal. Inquiring about how often a customer clicks on a particular ad similarly offers just the illusion of usefulness. The answer nearly always is, “It depends.”
While costs are a necessary consideration in calculating the return on any investment, they only cover the denominator, and yet in my 18 months at Ampush, few have ever asked me about the ROI our partners get on Facebook (or Instagram, Pinterest or Twitter).
Wouldn’t it be more interesting to know that, to find out if advertisers are making at least as much money on their Facebook advertising as it costs to buy?
It’s far more interesting to talk about the lifetime value of a business’s customers and how cost per acquisition on Facebook compares to other channels. It’s even more interesting when we talk about businesses and products that are so new that they’re still getting acquainted with the buying public. These companies wouldn’t exist were it not for Facebook.
Consider MyGeekBox, a subscription service that will send you cool tech toys, gadgets and games every month. It’s unlikely that consumers are using search engines to discover MyGeekBox because can’t search for stuff they don’t know exists. That’s why there are so many companies that rightly are spending more on Facebook than on search engine advertising. They know that Facebook can help them get discovered by an audience that is more likely to engage than even a targeted TV ad buy can deliver.
Planned the right way, advertising on Facebook can help boost search engine performance, which goes a long way to understanding why the Facebook and Google are emerging as the dominant advertising platforms of our day. Companies can rely on Facebook to drive discovery all the way to conversion, and the smart ones are figuring out how advertising on Facebook positively affects both their search engine optimization and marketing.
So why do so many fixate on costs and changes in advertising spending at a macro level? I suspect it’s driven in part by how we have sized up traditional advertising channels. TV, for example, generally wasn’t held to account for conversions, at least not until digital alternatives came along and advertisers started demanding more accountability. TV, print and out of home have always been used to support awareness, reach and frequency. It you want to know how healthy these channels were, understanding how costly they had become and how much advertisers were spending isn’t a bad way to go.
With Facebook and any other platform that can close the loop between advertising and sales, there are just so many more interesting questions to ask.