The story of Facebook’s IPO is well-known. A social media giant, arguably the first of its kind, is about to make its debut as an overvalued and over-anticipated investment opportunity. Within a month the stock lost over a quarter of its value; within three it was valued at less than half of its IPO price. Fast forward to today, Facebook outperforms projected performance, earning $1.6 billion in its second quarter of 2012 and being deemed a “must buy” by JMP Securities Analysts.

This begs two questions: How did this happen? And how do I cash in on this?

Facebook’s revenue stems almost entirely from advertising. With immediate access to users’ demographics, interests, and preferences, Facebook is a marketing department’s dream. Facebook is well aware of this, and is constantly looking for new ways to improve its ranking as a host for advertisers. Their advertising strategies are personalized for their users to an unparalleled degree and are uniquely able to determine an ad’s effectiveness within the parameters of a very specific target demographic. All of this states the case for utilizing Facebook as a marketing tool and explains its recent success as such. It also states the case for why you should consider Facebook for your advertising needs.

Approaching Facebook from a marketing perspective can be a bit overwhelming to the uninitiated, but with a little finesse can be done easily and successful.

Create an Attractive Design

The majority of Facebook users scroll through their news feed at a rate which allows only quick snippets of information to be absorbed. Photos and brief statuses are most of what the average Facebook user will focus on, blocking out anything which is perceptively mundane and/or time-consuming. Thus Facebook ads have to be both catchy and succinct in terms of text, and attractive in design if you want to maximize your brand’s cyber presence. Engaging images go a long way! (For advice about logo design and color theory, feel free to contact us!)

Bid Successfully

Quality of Audience:

Facebook utilizes a bidding system for its ad sales. Not only are you competing with other advertisers for quantity of ad exposure, but are also competing with them for quality of exposure. Facebook ranks users in terms of quality- users who are online more often are deemed “low-quality,” as they are exposed to more ads than most in a given day, and are less receptive to your own ads than less frequent users of “higher-quality.” Your maximum bid determines what quality of user will see your Facebook ads, making it more difficult to find the point of equilibrium where you have the most bang for your buck.

Reaching Cost Effectiveness

A suggested bid range is provided based upon the competition for your specific demographic’s attention, presented by other advertisers. If your business sales wouldn’t necessarily fluctuate with the time of year, then it may be to your advantage to avoid holiday seasons or any other time or events which would increase the demand for advertising.

However, how much you are willing to spend doesn’t always determine your ability to secure advertising space. Facebook advertisers who have a history of good Click Through Rates (CTR) receive favor in ad auctions, even at lower bids. CTR is calculated by dividing the number of clicks received by an ad by the number of times an ad is displayed. Thus you may want to consider initial high max bids, as this will give you increased exposure to higher quality users. Low quality users will in most cases ignore your ad regardless of quality and will not be a good measure for specific ads’ effectiveness. The subsequent CTR of exposure to higher quality users will be both a better measure of effectiveness and a method to lessen future costs because of a history of higher CTR.

CTR is not always the best indicator of Returns on Investments. Many point to Cost Per Click (CPC) as a more effective method of determining your ROI. Facebook doesn’t measure this, but Google Analytics provides a good tool for doing so, illustrated in this article on FBPPC.

Facebook ads present new and exciting prospects for advertising and should definitely be considered essential for any established or burgeoning business. However, social media is constantly evolving, so your strategies should evolve with it. Make sure to inform yourself before embarking on any new advertising endeavors.