Everyone working in advertising is aware of the seasonal shifts in media prices and competitiveness. Advertisers want to reach consumers in the critical fourth quarter, so the prices are highest around that time of year, before typically falling in early Q1.
Facebook advertising experiences the same peaks and valleys. CPMs and CPCs on the network grew significantly in Q4 of 2011, and Facebook display rates are growing on a year-over-year basis. Advertisers often lay low in the early part of the year, but they should be doing the opposite when it comes to Facebook. The social network offers a unique advantage: It enables brands to invest heavily right now, when rates are low, and build an engaged fan base that they can activate in the fourth quarter without blowing their budget.
Facebook's seasonal price spikes are very similar to search, but the social network differs tremendously because it enables brands to acquire fans early in the buying cycle and retarget them later in the year. Search is based largely on purchase intent, where the opportunity to reach the consumer comes only at the start of their research. Facebook's model lets brands reach consumers earlier in the planning process, driving awareness and brand engagement. By building the initial engagement at a lower price, brands give themselves time to build consumer relationships.
Recent studies have predicted Facebook CPMs will continue to grow every quarter without coming down, but we're simply not seeing that . Facebook prices generally drop after the fourth quarter, and this year was no exception: CPMs fell 9%, while CPC inventory dropped 32%:
That's why starting your social engagement activities early in the year is key. By Q3, Facebook CPMs could grow as much as 41% higher than they are right now, if last year's cost data is any indication. A flat budget, allotting equal amounts each quarter, will perform worse over time. That could leave a brand without the money it needs to maximize Q4 results.
Allocating more budget to the fourth quarter will help brands compete, of course, but at a time when the rates are higher and the competition stronger. Shifting money to Facebook earlier in the year means brands can shift their focus when Q4 arrives, moving from fan acquisition to ad quality and audience targeting. At that point in the year, engagement is critical in making every dollar count.
Investing now is a sound long-term strategy as well. Facebook is the popular kid on the block, and it's only getting more popular. First-quarter CPMs are up 28% over this time last year, while CPC rates are up 12%. More advertisers are recognizing the opportunity to reach customers on Facebook, and competition raises prices. Facebook's targeting capabilities have improved by leaps and bounds, as well, making it all the more appealing to brands that may have avoided social in the past. And then there's the fact that the platform is maturing, with advertisers finally learning to build engaging content strategies, and using advertising to support the content and boost visibility on the network.
Brands can plan now for the fourth-quarter price jump, laying the groundwork now so they outpace the competition when its time to activate those engaged fans around the holidays. Capitalizing on the short-term opportunity created by lower costs can particularly help brands with fixed budgets, which need to maximize their returns. It's getting more difficult to sustain performance on Facebook year-round, but the brands that hit Facebook properly now will create the initial engagements needed for a monster holiday season.