Are You Making A Profit Using Etsy Ads

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If someone asked you, “Are you making any money when using Etsy ads?”  What would you say?  If you immediately think, “Absolutely! I make loads of money.”  You may want to double check the numbers and think it though again.

Etsy Ads has been a topic of contention among Etsy sellers for years since Etsy took away the sellers' ability to choose the individual product CPC (Cost Per Click). 

That being said, you will hear Etsy sellers and Etsy gurus on different sides of the fence with regard to Etsy ads.  Some saying they make thousands of dollars on their ads and others saying they constantly are losing money with advertising on Etsy.

I’m not here to tell you yay or nay but to give you some insights into whether or not they are actually producing a PROFIT for your business.  

Let’s step away from the ads side of this for just a sec and look at other costs, not just ad spend.

 

 

COST OF DOING BUSINESS

One thing many sellers don’t take into consideration when looking at their stats is the cost of making the item itself.  Many simply see REVENUE $850 and think, “Sweet! I just made $850.” But they have failed to think about the cost associated with selling that item.

Some costs of your products include the Cost of Goods Sold, Etsy fees, shipping, etc. 

Think about your materials and supply costs, processing fees and transaction fees charged by Etsy, relisting fees, shipping expense from your shipper (be it UPS, USPS, FEDEX or other international shipping carriers), marketing materials and other packaging costs like kraft paper, tissue paper and bubble wrap. 

These are just a few of the things that you need to know to determine what’s left over after you “Pay the bills'' to know if you are making a profit in general.

As a general guideline, I don’t like to have my total product production cost to be more than 25% of the listed price.  And preferably, I’d like for Labor to also fit into that 25%.  The reason I say this is because if you are paying for Etsy ads and you run a sale at the sale time, you may very well be working for free if you don’t have your pricing right and are able to financially accommodate these two things.  

I have seen time and time again sellers in similar niches to our stores selling for what I would consider to be wholesale pricing, NOT Retail Pricing.  Here’s an article about ways to how to price your products.

If you have the wrong starting retail price, when a buyer then wants a discount, you run a sale, offer a coupon code or run Etsy ads, you are eating away at your profit margin.

 

WHAT IS A PROFIT MARGIN AND WHY IT'S IMPORTANT?

Profit Margin is the revenue left over after you pay for the associated costs of selling products and running your business.

Profit margin can be used to expand your business, buy additional equipment to streamline your production, etc. It keeps your business moving forward.

If you have no profit margin, how will you purchase materials to make that next item to sell?  You can't unless you pull that money out of your own wallet.  That's what profit margins are for, funding your business's future.

To say it bluntly, if there is no profit margin left after you cover your expenses, you don't have a business.  You aren't making money in your business.  Your business is not profitable.

Ouch.  I know was a hard true. But it is one reason many sellers throw in the towel with their online businesses.

Ok, that’s out of the way.

 

WHAT IS ROAS? - RETURN ON AD SPEND

Now let’s talk about Return on Ad Spend (ROAS).  This means how much are you putting into ads versus how much revenue there is once the item sells.  

ROAS does not include all the other costs of doing business, just ad spend compared to revenue from that sale.

Usually seen as numberX such as 2x, 10x, etc.

Here’s an example to help wrap your head around this.

Say you sell signs.  You sell your sign for $50.

**You also offer free shipping over $35 (Etsy has been pushing sellers to offer their free shipping guarantee). I'll get to this in a minute.**

You are running Etsy ads which on a 30 day average you are only getting a 2X ROAS. Essentially paying ½ of the revenue out to Etsy Ads. So, you are putting in $1 and getting $2 back on the sale. Your $50 sale is now worth $25 once you take out the ad spend.  OUCH!

Just from the Ads perspective you are down to ½ the original revenue left because the other half was spent on Ads before you even made the sale.

 

WHAT'S MY PROFIT?

Now, let’s take out fees and other costs. 

For simplicity sake and easy math, we will use 10% as our Etsy fees number. (These change periodically, but I'm just using 10% as an example.)

See the more about Etsy Fees & Payments Policy and Etsy Payments Policy. 

If you have a $50 sale minus 10% for fees, you have to take out another $5.  The fee is also applied to any shipping you charged the buyer.

Your $50 is now $20 ($50-25-5). Ok.  Let’s keep going.

Now take out the cost of the item, just material costs here.  The cost of actually making the item.  Ex. It cost you $8 to make this item.  More math… $50-25-5-8= $12.  You’re now at just $12!! And there are still expenses!!

Remember, I also said you included Free Shipping on your orders over $35.  FRICK!!!  That sign is over a pound so it’s going Priority Mail (if you are using USPS).  There goes that $12+ because you are on the East Coast and it’s going to the West Coast.

You are at $0.

Wait.  WHAT!!!???!!!

YES, I SAID YOU MADE $0!

$0 and there are STILL expenses to take out. 

We still have packaging costs and YOUR LABOR expense.  You have now made less than nothing and have essentially paid Etsy to take this item off your hands, gave a product away for free and have NO more money, in fact, less money in your bank account than before.

We would be compounding this $ deficit if you were running a sale because you would have had a smaller starting revenue due to the sale you were offering.  

Now if you're thinking HOLY CRAP!!!  I’m working for free.  In this example above, you’re damn skippy, you're working for free.  

As an ecommerce mentor, it is so difficult seeing Etsy sellers stuck in this same dilemma.  It’s not only sad but just downright depressing, and many times sellers don’t even realize this is happening. 

You’ve heard about Burnout among sellers and small online business owners.  THIS is a direct route to burnout if not corrected.

See how to avoid burnout here.

So let’s shift gears.  

 

 

WHAT THINGS CAN YOU DO TO FIX YOUR ETSY ADS TO MINIMIZE COSTS AND GET A BETTER ROAS ON YOUR ETSY ADS CAMPAIGN?

SPEND YOUR ETSY ADS DOLLARS ON CURRENT SEASONAL PRODUCTS

First, look at what is selling through your Etsy Ads.  Look at both 30 days and the last 12 months.  Some items you have may be seasonal and will only sell during certain times of year so don’t spend money on those items outside of peak selling season.  Not many people are buying Halloween around Valentine’s Day.

The one situation I can think of that would counter this is the idea of Christmas in July.  You may get some buyers jumping on that seasonal/holiday phenomenon. 

I don’t know about you, but I live in the middle of the United States where it is muggy and humid in July, one of our hottest months, so I, personally, am not shopping for Christmas in the middle of a heat wave, but others may if that is a tradition for them.

KEEP TRACK OF YOUR CPC

Look at your CPC. Etsy doesn't blatantly show you this data anymore, and you will have to calculate this yourself.

Look at the listings you are running ads on and see how much you spent on the ads and how many clicks resulted.  CPC equal Budget Spent divided by Number of Clicks.  Ex. $35/70 = $.50 CPC.  $35 spent divided by 70 clicks.

If that number seems overly expensive for your industry, price point, etc.  Remove it from ads as you will just end up working for free again.  We don’t want that.

Any listing that is spending more than ¼ of your revenue on ads has a CPC that is way too high for most pricing strategies.

I've seen in my own shops that Etsy ads work for products that are higher ticket items or super trendy and have a much higher conversion rate and do not work as well or at all for low price point products.  The higher priced items simply have more dollars in the margin to work with.

A product with a $3 price such as a digital download can't tolerate a $.50 CPC if your conversion rate is about 2-5% overall.  You would spend way more on the ads than you would make in revenue from one sale.

WHAT KEYWORDS DOES ETSY USE FOR MY ETSY ADS?

Are your keywords working?  Do you have the right keywords that are producing good click-through rates and purchases?

Click the “Search terms” text for a listing you are advertising. Are these keywords working?  Look for the High Click rate and High Order rate.  High order rate is the money $!!

Are the keywords even accurate for the item? 

Note that you will see Etsy use some words you do not have in your title and tags for that listing. There isn’t anything we can do about what additional words Etsy includes in the search terms for the listings in the Etsy Ads system.

We currently have the ability to turn off keywords if we feel like the terms Etsy is using are irrelevant to our product. I suggest using that feature so you aren’t spending on irrelevant search terms.  

Just a heads up.  One thing to keep in mind is that I have heard from sellers that this feature can sometimes revert back and start showing the item for the irrelevant keywords again even though you haven’t changed anything. So this would be something to monitor periodically.  They could also take this away at any time.

Etsy can also decide to add new words to these search terms at any time so keep an eye out for this as well.

 

PICK WHICH PRODUCTS TO ADVERTISE WISELY

Another tip is to not advertise your entire shop.  If you have 500 items in your shop, you are more than likely spreading the ad budget too thin and won’t see good results.  Focus on what sells well and turns a GOOD profit. No working for free just for the sake of sales but no profit.

Remember the 80/20 rule.  20% of your products will produce 80% of your revenue.

Put your money where the ROAS is. Only run ads on products that are producing good results.

See How I Made $1200+ With A $25 Product Listed In My Etsy Shop In Just 1 Month

BUILD ETSY ADS FEES INTO YOUR PRODUCT PRICING

If you are wanting to run ads on your products, you need to build in the expected cost of these ads into the price of your items.

Do your prices allow for Etsy ads?  Do you have enough profit margin built in to run ads?  Do you need to bump up your prices so you can advertise your products?

You will need to account for running ads in your product pricing so you’re not losing all your profits to ads.  

You can add a separate line item to your product pricing formula for ads spend or you can bump up your markup to account for the extra expense of running ads. (I, personally, add my ad spend into my markups.)  

However you decide to build this in, it more than likely will result in the need to increase your prices. 

Ads aren’t free, and you don’t want to get stuck in a situation where there is no profit left for you in the end.

So if you made it this far, you may be thinking that you need to do some revamping to your Etsy Ads or at least giving them a good once over.

Make sure your business is PROFITABLE. Don’t let Etsy Ads run amuck in your Etsy shop. You don’t want to regret it later. 

If you aren’t sure what all your product-related expenses are, start there.  Make sure you are covering all costs associated with selling your items. And if you aren’t turning a profit, do the math, adjust prices if necessary, see what ads are and aren’t working and make sure you aren’t working for only $2 an hour.  

Need some help with figuring out your product pricing?  Check out these self-calculating Product Pricing Calculator Spreadsheet to help you get an accurate baseline for your product prices.  * Don’t forget to add in the cost of your Etsy Ads *

You are a talented maker and should be able to support your family with your creative works. Don’t sell yourself short.  Make a good profit and enjoy your creative adventure.

 

Are you thinking about starting your own Etsy shop??  Use this link to get 40 FREE listing credits!!

 

 

 

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