By Elan Dekel, I write from NYC about technology and building products.

In my last four posts I’ve shared some of the lessons that I’ve learned from helping set up lullubee.com, a new business that makes and markets kits for making crafts. After we launched the site and figured out how to take ordersand ship products, the next task we faced was to get more visitors to the site, and ultimately more sales. In the next few posts I’ll cover several of the techniques we implemented, but in this post I’ll focus on Facebookmarketing.

The first thing we did was to set up our Facebook Page, as recommended in Facebooks “Four Steps to Business success on Facebook“.

Once you set up your page, you need to get users to visit it and, hopefully, to “like” it. The reason you want people to like your page is that your posts will then appear on that users news feed. Over time this will allow you, according to Facebook, to start “building loyalty and creating opportunities to generate sales.” The first method to get likes is to promote it on your own website using Facebook social plugins. As this costs nothing, you may as well do it, but the percentage of visitors that click on these is typically very small. The second is to purchase Facebook Ads that persuade people to visit your page and to like it. The irony of spending money to promote our Facebook page instead of our site was not lost on us.

After some experimentation I was able to create several ads that successfully generated likes on our page at costs that averaged from $0.27 to $0.57 per like. We spent some money and built up several thousand likes, all the while optimizing the campaign to better target likely customers. We justified the expense as it seemed to be analogous to building up a database of email addresses of people that wanted to learn about our site and our products. However, we shortly discovered our error.

Once we started posting on our Facebook page, we were shocked, shocked, to see that not all the users that liked our page were seeing our posts. For example, with over 6,000 likes on our page, a typical post would only be seen by fifty to several hundred people. To reiterate, only 1% to 5% of the people that liked our page saw our posts. If we were justifying our expense as analogous to building a database of emails, then it was a database that only allowed you to access a tiny, randomly selected, subset each time it was used.

Not quite what we had expected.

Facebook, of course, has a solution for this quandary. Unsurprisingly it involves paying Facebook yet again. Next to each post is a small “Promote” button which innocently suggests that for the mere sum of anywhere from $5 to $300, you can have your post reach from 500 to 50,000 people.  This is equivalent to paying from $6 to $10 CPM, advertising rates typically paid for premium ad inventory, to have your post appear on the news feeds of people for whom you have already richly paid Facebook once before. Bear in mind that this is just for your post to appear fleetingly on their feed, with no guarantee that they will see it or click on it.

We have done over 20 promotions now at varying costs from $5 to $50, and the results in terms of users actions have been dismal. The effective cost per user action is over $2, and on some campaigns it can even reach $6 or $12. If we only look at “page likes” and “link clicks”, and leave out “post likes”, “post comments” and “post shares”, whose value is even more ephemeral, the cost per action goes up significantly, from $6 to $20 and in some cases $50. Compared to the alternatives, these are unreasonably expensive. Unless Facebook is charging other companies an order of magnitude less than the rates we are seeing, Facebook promotions are simply not a viable option for small businesses.

Our biggest disappointment was our misunderstanding of how Facebook Pages work. Instead of building a database of users that you can contact at will, you are essentially paying Facebook to build a list of people that you can then advertise to.

Facebook, you can’t have it both ways. Either ask businesses to pay for likes, or ask businesses to pay for posts. But asking them to pay premium rates for both is unreasonable and drives the cost of marketing on Facebook into the stratosphere. Perhaps this model works for celebrities or famous brands that can build up huge followings organically. But for small businesses that closely track their spending, Facebook Pages in their current incarnation are a bad investment.