Why Online Advertising Costs Are So High and What to Do About It

We don’t need to tell you online advertising costs are high right now. You are likely feeling it in a very real way. Today we’re looking at why costs are high and how you can save money and still reach your audience.

How Much Have Online Advertising Costs Risen?

In case you’re wondering how much they have risen in the last year, here are some jaw dropping numbers from the top ad platforms. CPM (cost per thousand impressions) has risen significantly across the board.

 Year over Year (YOY) CPM Increases

• Meta – 71% YOY increase with an average cost per thousand of $17.60
• TikTok – 185% YOY increase with an average cost per thousand of $9.40
• Google Programmatic Display – 75% YOY increase
• Google Search Ad Cost Per Click – 14% YOY increase
• Amazon Cost Per Click – 14% YOY

Why Have Online Advertising Costs Risen?

There are a few contributing factors to the steep rise is online advertising costs, but at the base of all of them is unprecedented levels of competition. 

Competition – Supply and Demand

For those that need an ECON 101 refresher, when supply is low and demand is high, prices increase. This is the case with online advertising right now. Two of the main causes being the pandemic forcing businesses online and the effect of iOS 14.5.

The Pandemic

The pandemic pushed businesses of all kinds into the digital space. When you purchase an ad on Facebook, you’re not just competing against your direct competitors you’re competing against every single business trying to make them their customer i.e. the business trying to sell them shampoo, the businesses trying to sell them clothing, the B2B businesses who want to sell them software, local events hoping they’ll buy tickets, car manufacturers, etc. 

The iOS 14.5 Effect

Yeah, yeah – you know, your mom knows, Bill in accounting knows – iOS 14.5 has become a major headache for online advertisers. Apple no longer allows advertisers and ad platforms to track user activity across the web, which makes digital advertising less effective. Because the targeting is no longer as good, the users who opted out of tracking are seeing irrelevant ads.  This causes advertisers to have to buy more top of the funnel ads to get the same amount of interested buyers they had pre iOS 14.5, consuming more of the supply.

What to do About Rising Online Advertising Costs

Focus On Creative  

Make your advertising stand out. Some people think that the unprecedented targeting Facebook offered before iOS 14.5 resulted in mediocre marketing. There is definitely some truth to that thought. The focus on ROAS alone meant not asking the questions you should be asking.

• Is this ad really any good? 
• Is the messaging and creative any good?
• Are we selling the right products? 

Asking and answering these questions will improve your ads. Make sure your creative and messaging is worth of people’s time. You’ll get more of the right people clicking on your ads and when Facebook releases Basic Ads, which will promote ads based off of engagement, you’ll be able to get in front of people for a much lower cost.

Invest in Direct Communication Marketing Channels

If you’ve been doing business online for any length of time, you’ve heard — the money is in the list! With first-party data, you can build highly targeted online audiences for your advertising and directly communicate with them through lower cost marketing channels such as email or text messaging.  

Email

Email is an app. An app most people open 15 times per day. And if you have a website visitor’s email, you have direct access to it. Email is powerful, and 79% of businesses say it’s their highest performing marketing channel. It’s also more cost-effective than online advertising. Build a list, segment it, and start retargeting website visitors through email.

SMS messaging

SMS messaging has the highest open rate of any form of direct communication. While there is a fee to have direct access to a person’s messaging app, it’s less than advertising costs. Use ads to get people to your site, and then do everything you can to collect their phone number and email address. 

Direct Mail / Catalog

Many ecommerce marketers are going back to the days of catalogs delivered through the mail. Not only do you get beautiful pictures of your products in the hands of your target audience, but most people keep them around for a while. While catalogs are not inexpensive, a group of customers who received both a catalog and email marketing had a 49% increase in sales over the control group. 

Yes, online advertising costs are high, and they show no signs of slowing down. Focusing on building first-party data, so you can communicate with your customers and potential customers directly, will allow you to reach them now and continue to reach them no matter what the future holds.

Need help getting started with first-party data? Contact us, we’d love to help, or get started with RAEK for free.