E-commerce acquisition costs on the rise: How and why?

E-commerce acquisition costs have increased globally. This is not a trend. And believe us, it won't go away easily. This is, unfortunately, the future for e-commerce, the near future at least. That’s why today, we want to take a quick review of the factors behind this increase in acquisition costs. Let us begin! 

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In this first article, we want to explore the reasons behind the global increase of acquisition costs, the mechanics behind this rise, and why we believe the forecast is for a continuous rise in the near future. But do not despair, there are ways to fight back the rising acquisition costs, and in our follow-up article, we will give you the tools and tips to keep your business profitable. All being said, let us begin today by understanding the issue behind the global increase in acquisition costs. 

Higher e-commerce acquisition costs, due to more competition  

The first main reason behind the global rise in acquisition costs is the massive increase in e-commerce use and competition:  Since the global shift to online retail in 2020 due to the Covid pandemic -  retail e-commerce sales have continued to grow by double digits through 2021, 2022 and will do the same in 2023, according to most sources. 

This makes up an increasing share of total retail sales worldwide in the retail e-commerce sector that will total $6.169 trillion in 2023 and make up a 22.3% share of total global retail sales. The figure is massive. And inside it, are hidden thousands of brands that, before 2020, did not have active e-commerce sites or capabilities. 

The math is pretty clear: more companies selling online equals more competition and henceforth it is by far more expensive to get your ad, promotion, product, or brand, to your buyer persona. 

All in all, this won't decrease, on the contrary: e-commerce has been established as the normal evolution of commerce and will only keep on growing. In fact, in a post-covid world, it is just unthinkable for a brand not to have its own e-commerce, or use a marketplace like Amazon or Alibaba. 

Impact of data restriction in the e-commerce acquisition costs 

The enforcement of new personal data restriction laws in the EU, as well as the natural saturation of social media with ads - due to the massive increase of brands now selling online - has skyrocketed the prices of Facebook ads, Google ads, and even Youtube. 

For example, Apple's change on its privacy features could cost Meta around 10 billion dollars of lost money due to not being able to monetize the data captured from the users of its social networks like Instagram, Facebook, and WhatsApp.  

Add to this the yet-to-be-defined new Data Restriction and Regulations from the EU, that won’t push Meta out of Europe - that won’t be a smart move for Zuckerberg's company - but surely will increase - even more - the cost of advertising with them.  

And the reason is simple to understand: both governments and the general public - at least in Europe - want to have more control over the way the social networks use and capture personal information on them. This includes not only the most obvious information like your home address or credit card number but also your routine - the time of the day at which you go to work and gets registered in Google Map because you use the GPS - the friends and family that went to your last birthday party, the kind of music you like, and so on. The concerns about how much of ourselves is registered by social networks - or by the internet in general - are valid and legit. And imposing restrictions on this is something that will surely change the way many social networks and websites currently operate. 

How much does it currently cost to run an ad on social media? 

Recently published data from BusinessInsider and MediaPost show how much ad costs are rising across major platforms, as measured by average CPM - Cost per thousand - focusing on brands selling via Amazon, reported a 20% increase in CPM costs between Q1 and Q2, in their social media advertising.

Also, the average CPMs rose from $3.60 in February to $8.60 in May and June, according to WPromote, a performance ad agency.

Another performance ad agency Adespresso presented an in-depth analysis of $636 million in ad spend that found that, on average, Facebook advertising costs companies $0.97 per click and $7.19 per 1000 impressions. And the average cost for ad campaigns to get more likes or app downloads is $1.07 per like and $5.47 per download.

According to a survey by Liveintent, 85% of marketers are worried about the rising cost of Facebook ads, and 47% believe they will be “priced out” if the ads continue to become more expensive.

Why are Meta - former Facebook - ads getting more expensive?

• With more companies and brands bidding for ads inside the platform, demand is going up while supply remains the same. The cost per 1000 impressions (CPM) is increasing dramatically.

• Unless you’re a big brand like Apple, that can absorb the increased advertising costs or that has enough brand awareness to, at least for a while, reduce the amount of advertising and brand exposition, your e-commerce most likely will need to not only pay more for the advertising on social media but also due to the increase of competition, consume more CPMs to get the same sales results. 

• More retailers have shifted their focus to e-commerce. But the problem is, with an accelerated increase in online competition, Meta marketing - and that means Facebook, Instagram, and Whatsapp - have not increased their capability to show ads. And most likely they won't due to the possible technical soft-lock reached on these platforms: there is no physical way to increase the amount of advertising exposition that you can cram in the user experience, without a detrimental effect on the quality of the user experience per se. 

A similar situation is also happening with Youtube and Google and it is possible to predict that this will happen across all social network platforms and across most of the global internet services like email services, hosting services, and so on. Generally speaking, the current way websites and social networks gather information is the same. 

All in all, these factors combine to paint a pretty clear image: acquisition costs will keep on rising in the near future. Now, what can we do to keep our business profitable? The following article of this series will give you some tips to fight back this increase in your costs and keep your e-commerce economy healthy!