Decline In Organic Reach Changes Facebook’s Value Proposition For SMBs

sumallFacebook’s declining organic reach has plagued small- and medium-sized businesses (SMBs) since it tweaked its algorithm about eight months ago. A study by analytics platform SumAll, released in October, highlights exactly what that fallout looks like for smaller advertisers on Facebook.

Because Facebook’s algorithm change reduces the reach of Facebook posts, it has made it easier for click farms, or people paid to like pages, to flourish. Unfortunately, click farms reduce the number of potential customers or fans a business can reach with each message.

“And that, in turn, is driving up the cost relative to the effectiveness of using Facebook as a tool for small businesses to publicize and advertise themselves,” said SumAll head of business development Scott Pollack. “This is basically spoiling the pool.”

SumAll embarked on this research when it noticed that cost per action and cost per acquisition on Facebook had steadily increased, Pollack said.

Using data pooled from The Loop Loft’s pages, SumAll found that cost-per-action (which includes likes, comments and conversations) increased 417%, from $0.05 to $0.24. The cost of acquiring a new site user rose 492%, from $0.20 to $1.16. The Loop Loft saw CPMs rise 70.4%.

While The Loop Loft saw a direct correlation between Facebook activity and new users going back to 2012, the correlation began to drop off in 2013, when The Loop Loft noticed it was acquiring more likes, but not more revenue. “We started digging into the data in around September and released the analysis towards the end of October,” said Pollack, “hence the last three months being excluded. Then we just ran a year-over-year comparison versus the same period last year.”

Additionally, the site saw its click-through rate decline by 90% at the start of 2014, dipping from 3.34% in January to 0.34% in September.

“The cost to acquire users skyrocketed through whatever changes Facebook might have made,” said The Loop Loft’s founder, Ryan Gruss. “Also, more companies have come to Facebook to advertise, so the cost to advertise on Facebook is also going to go up.”

(The Drum recently reported a 700% rise in Facebook CPMs, which Pollack said was in line with SumAll’s findings.)

Gruss calls these changes “disheartening.”

“We developed a ‘like’ fan base on Facebook of almost 150 thousand people. But we now have to pay again just to reach them,” he said. “Even if we put a really engaging, creative post up, people don’t see it unless we put money behind it.”

Pollock, however, wasn’t sure how much blame for these changes lay with click farms and how much went to Facebook’s deliberate algorithmic changes.

“I couldn’t offer a percentage,” said Pollock. “But I think there’s an aggregate effect that’s happening.”

But SumAll’s findings were hard to swallow for Jan Rezab, CEO of analytics firm Socialbakers.

“I don’t believe that click farms are attributing to rising CPMs on Facebook,” Rezab said. “Facebook itself says that the maximum click farm ratio is a small percentage, which I believe.”

Rezab noted that click farms aren’t exclusive to Facebook and that click fraud is an industry-wide problem.

He said Facebook’s rising ad costs had to do with lack of efficiency in the buying ecosystem. “If you clutter a lot of ads into the system, the natural price will keep increasing,” he said. “If more people compete for the same space, they will have a less effective, thus more expensive ad.”

Regardless of the reason, the decline in organic reach has changed Facebook’s value proposition.

“We still advertise on Facebook and we will continue to do so in the future, but we approach it much differently now,” Gruss said. “Now we’re using Facebook to target users and get direct conversions on sales, rather than just trying to get users to like our page.”

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