Is Facebook Advertising Getting Too Expensive For Startups?

    Sofanatics, the Finnish social sports media startup, has decided to quit advertising on Facebook for the time being, citing increased costs and lower conversion rates as the main factors behind the rather radical decision. The company says that despite optimizing and targeting their ads on Facebook, customer acquisition costs have almost doubled due to higher click prices and declining conversion rates.

    The cost-per-click of Facebook advertising has reportedly increased steadily throughout the year and it could rise by an estimated total of 80 % in 2011. For Sofanatics, the price of Facebook advertising has risen 50% during this year. The company has also noted a decline in conversion rates, but is Facebook to blame? According to Toni Laturi, CEO of Sofanatics, after pulling the plug on Facebook advertising, the number of visitors to the Sofanatics site dropped slightly, but the average time spent on site almost doubled from 13 minutes to 25 minutes.

    Creative Director Sami Kuusela admits that the company has mainly concentrated on growing its user base, but is now shifting its focus on quality, not quantity. According to Kuusela, the money spent previously on Facebook advertising will now be directed at improving the customer experience and growth will hopefully come organically through the existing fanbase and not through “purchased” Facebook visitors.

    In another post he outlines the implications of this decision for the community and goes on to apologize for the the inactive users in the community that have signed up through their advertising. Talk about honesty towards your users.

    Will more startups follow suit and pull out of Facebook advertising altogether? What methods are you using?