Facebook relies on ads to bring in revenue and keep the social media platform free for its more than 1 billion users. The latest stats on Facebook ad spending show the strategy is working. Plus, increasing engagement for ads, along with an update for ad placements, is all good news for marketers.

Increase in Facebook Ad Spending

Facebook ad spending is up by 249 percent from last year. Plus, Return on Ad Spend (ROAS) is also up — by more than a quarter year over year. This is according to data from the third-quarter report from Nanigans, based mainly on direct response advertisers in gaming and e-commerce.

A major reason for the expansion is Facebook’s Audience Network (FAN). Last quarter, the social media platform began using FAN to enable brands to target non-users — by placing ads on sites and mobile apps separate from Facebook. Ads on FAN have increased in spending by four percent between the second and third quarter.

Further changes video ads, which Facebook began allowing in May, and, finally, the cost per click (CPC) rate. CPC has dropped to just $0.36 (the lowest ever in a Nanigans report), while the global click-through rate is at a new high of 1.66 percent.

Higher Engagement Rates

Click-through rates on Facebook have been increasing gradually throughout the year. A report from Kenshoo shows they are up by 14 percent from one year ago, most likely due to more specialization and improved targeting.

The greatest growth has come from dynamic products ads. These work by retargeting to show users products from sites they visited recently. The success of these types of ads is clear from the numbers: they make up 42 percent of all clicks (up from just 15 percent last year) but account for only 21 percent of ad spending on Facebook.

The same report found video advertising spending has greatly increased — by 155 percent since last year — and this may also contribute to the higher engagement. Plus, mobile ad spending has increased by 61 percent, leading to 47 percent more mobile impressions and 79 percent more clicks.

Ad Placement for FAN

To encourage marketers and users to continue with the current trends in increased spending and clicking, Facebook is making some updates to its ad placements for FAN. Currently, the majority of marketers favor Facebook’s newsfeed for ads, but Facebook is implementing some changes to encourage more advertisers to explore this new area.

Facebook will be assigning scores for its ad slots on external sites and mobile apps according to the likelihood that users both click on an ad and take action after clicking. This means Facebook will price slots higher if they receive high number of clicks and conversions but will offer advertisers placements that receive less attention at lower rates. The system provides an excellent opportunity for marketers to pay more for greater chances of conversions.

As the new pricing model takes action into consideration rather than just clicks, it eliminates the risk of pricing a slot too high due to accidental clicks. Facebook already has a system in place to measure the number of users that take a desired action after clicking an ad, whether a conversion may constitute as viewing a video, downloading premium content, or something else.

This update is intended not only to make the Audience Network more appealing than it is currently but hopefully to make it as desirable as the Facebook newsfeed.

One thing is staying the same — advertisers will still need to purchase a slot for the Audience Network with one in the newsfeed. Facebook hopes there will be no need to sell slots separately in the future. This should be possible if the platform can maintain appeal for both options.