May 1, 2012, 12:00 AM

Facebook ad prices soar 41% despite extra ad inventory and fewer clicks

Facebook ad prices soar 41% despite extra ad inventory and fewer clicks.

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Increasing the supply of ad spots on Facebook hasn't lowered the price of those ads, according to a new report from Facebook advertising firm TBG Digital. With demand for Facebook ads continuing to rise, the average cost per thousand impressions, or CPM, over the last year increased 41% compared with the same period a year earlier.

In the first quarter of 2012, CPMs rose 15%. Retailers' ads accounted for 23% of all impressions in Q1, a 10 percentage point increase from the previous quarter.

The average cost per click, or CPC, jumped 23% over the fourth quarter in TBG's top five territories: the United States, the United Kingdom, Canada, France and Germany. However, for marketers whose ads click through to another place on Facebook—for instance, a retailer's Facebook page—the social network offered a 45% lower CPC than ads that took consumers off the social network. TBG says that Facebook aims to encourage marketers to keep consumers on the social network, rather than sending them to another site. Facebook provided no immediate comment on the practice.

The report shows that Facebook is earning more money per impression or click even though it increased the number of ads it shows on most pages from six to seven. "Facebook has seen an increase in pricing at the same time when it has also grown the number of ads per page—sometimes up to seven—which you would naturally expect to deflate prices," says Simon Mansell, CEO of TBG Digital. That's because demand continues to rise.

Despite the rising costs, the average click-through rate declined 8% in the United States and 6% across the top five territories. That may be due to Facebook increasing the number of ads it presents consumers, the report says. More ads mean that consumers have more options that they can click on, which results in fewer clicks per ad.


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