In 1. Managing Your Biz Numbers

There’s a lot in the news right now about Facebook, thanks to whistleblower testimony in the US Congress. The shine’s been off that rose for me for a while, as you may know, and I’ve grown increasingly disenchanted, come unhooked from, the attention-eater that is social media over the past couple of years, suspicious of what it’s really doing (also: hiding from relatives).

Lately though, my concern has been financial, on behalf of small businesses. If we’re unhappy about how Facebook is getting used to foment insurrection and breed hate and division, how may we be responsible for that? What might we be contributing to that machine?

It’s hard for me to unhook my attention from Facebook and the like when I’m up close and personal on a monthly basis with what’s powering that engine: advertising by small businesses.

Advertising comprised 98% of Facebook’s total revenue of $86 billion in 2020, revenue which increased 21.6% during the pandemic. Among those 10 million advertisers are a handful of Do Your Thing’s small business clients. And as a small business ourselves, we too have spent money on Facebook and Instagram in the past to boost traffic to posts and/or to increase registration for new programs. We’ve paid experts to try and work with/game the requirements of the algorithm. We’ve been blocked for weeks at a time for inadvertently falling afoul of the rules. We too have seen how changes in the algorithm have eaten into our former reach, our ability to speak to the people who opted in to Follow or Like us, requiring a bigger and bigger spend to achieve what was easier and cheaper in the past. 

The digital ad spend, for me anyway, increasingly felt like an addiction, an ever-deepening hole of spending, chasing the dragon, trying to get that same hit, that same result as the first time.

Recently I tallied up the total spend so far this year by the subset of Do Your Thing’s clients paying for Facebook “family” advertising (so FB and Insta, but excluding Google and Pinterest and the like). Sure, that almost $700K over 9 months is a drop in the bucket when it comes to Facebook’s $38.4 billion in revenue from US and Canadian sources last year. But for some of the businesses spending that money, it’s a huge chunk of change, in some instances representing 25% or more of gross income — that is, income BEFORE cost of goods sold, the money that has to get spent to build the product or service, BEFORE salaries for the people who make it happen, before rent and all the other costs required to run that business. 

For businesses who go down this path of Facebook ads, there’s the very real and present danger of “good money after bad,” having invested so much in this channel that the pressure to spend more is difficult to resist. After all, that’s where all “our people” are, right? And with all the time and cost required to optimize the ads, there’s little time to consider other strategies that might be, could they be, more sustainable, healthier in the long term. And why bother, when there are even loans available specifically to fund marketing costs like digital advertising, with attractive terms of 6% interest. 

But how do we know it’s working? That it’s worth it?

Once I saw the total number for the year — again almost three-quarters of a million dollars — I couldn’t stop thinking about it. Especially since this total came from just 7 businesses. I couldn’t stop considering the implications of this spend, and who’s truly benefiting, the businesses paying for the ads or Facebook itself. I want to know, for all of you relying on Facebook ads, how you are assessing the benefit to you of this cost. It’s easy to focus on cost per click, but I worry that that sole focus masks other areas of greater cost to the business long-term. 

Is there a qualitative difference in the customer that comes from FB ads vs. a customer acquired through different means, like the clients on your actual mailing list, or clients who come in referred by other happy clients? Are these “weak ties,” to quote Jenny Odell quoting Barassi? 

I.e., is there a difference in the loyalty of that FB customer? Is their attention to you just a by-product of a momentary click, of the dopamine high? Do these customers stick or do they just move on to the next shiny object served up in their feed?

Is there then a quantitative difference in the lifetime value of an FB customer compared to a customer from a different source? 

Is spending $XXXK [insert your total there] on Facebook ads in 9 months the right allocation of your marketing budget? Is it really a necessary part of your growth as a business? Is it the only way to get there, however you define “there?”

I’m not a marketer, I fully admit that. I’m a numbers person, so it’s from that position that I ask these questions. How is money spent on FB ads serving you?

 

Stats about Facebook 2020 financial performance derived from How Facebook Makes Money, How Facebook Makes Money: Business Model Explained, Facebook Nearly Doubles Its Profit, and Revenue Rises 48%, as Tech Booms.  Also worth a read: How Big Business Exploits Small Business.

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