Using Etsy ads is one way to get added visibility on Etsy in search results and in other places on Etsy. Deciding how much to budget for those ads is a problem if you’ve never used them before, or if you just don’t know if you’re spending enough. And deciding whether it’s worth paying for them is another issue!
Let’s look at how I decide to set a budget for ads, and how to decide whether it’s worth it or not. It’s a simple formula, but the answer is going to be different for everyone.
How much to spend on Etsy Ads
As a general rule, the daily budget for Etsy ads should be based on your average conversion rate, either for the listing or the entire shop, and on the average cost per click that you’re charged for the ads. By using the number of expected visits it would take to make one sale, the daily budget can be estimated based on the average cost of ads and how many sales from ads the seller wants per day. This will vary from seller to seller depending on profit margins and the time it takes to make the items.
In short, the formula for how much to spend for your daily budget on Etsy ads is:
Your average Cost Per Click (CPC) x (100/conversion rate) x the number of sales you want per day.
The Etsy ads system is set up as a process where sellers set a daily budget and which listings to advertise, and Etsy chooses the keywords and cost per click for those ads. The seller isn’t able to limit the cost per click (CPC), only the daily ad spend. Sellers only pay if a customer clicks on an ad and goes to the listing. If a customer clicks on an ad, there is a cookie assigned to the customer that attributes any of their purchases in your shop to that click for the next 30 days.
Because sellers can’t limit the cost per click (CPC), we need to be aware that our budgets can be spent very quickly if Etsy assigns a high CPC to our listings. The CPC will vary depending on where the ad shows up, what time of day it is, and more factors that Etsy doesn’t disclose.
- To calculate your average cost of ads per sale, start with your conversion rate.
The photo above shows my ads data from this year. My conversion rate through ads is 5.2%, or 50 orders divided by 961 visits from ads, multiplied by 100 for the percentage. (50/961 x 100)
This means that I need about 20 people to click on an ad before I make one sale. (100/20 = 5)
Every shop is going to have a different conversion rate, and if you’re a newer shop or have never run ads before, you should use the conversion rate for your entire shop to get an estimate for your ads budget. You would expect ads to have a higher conversion rate than organic search because ads should be a little more targeted, but you can always adjust your numbers once you get some actual data after running ads for a while.
If you’re a brand new shop and don’t have any sales, just use 2% as a general estimate of your conversion rate!
2. Next, figure out the average cost per click that Etsy charges you for ads.
The photo shows that I spent $264 to get 961 clicks on my ads. That means that $264/961= an average cost per click of 27 cents. This number will be different for everyone, so you’ll need to check this for yourself to see what your clicks are costing you.
If you’ve never run Etsy ads before, use 25 cents as an estimate, then adjust it once you see how much the actual average CPC is.
3. Multiply your average CPC by the number of visits you need to make one sale.
I need about 20 visits to make a sale, and each click costs 27 cents. So .27 x 20 = $5.40, which is the average amount I need to spend on ads to make one sale. This amount needs to be added to my expenses for every sale in order to figure out the actual profit I’m making.
This is where it gets tricky…You need to track how much the profit from your ad sales was, and subtract out the cost of the ads in order to have a real idea of whether Etsy ads are worth it for you or not. This is going to depend on your normal price points, profit margins, and whether the customer buys more than one thing when they check out after clicking on an ad.
Let’s say I make one sale from ads…That would have cost $5.40 in ad spend.
- If the one sale is for my lowest-priced $7.50 item (a mini mold,) I’ll lose money because the cost eats up my profit and more.
- If the one sale is for an average priced item, it would mean I made an extra $1.60 profit. I can make 5 items per hour on average, so that’s like working for $8 an hour.
- If the one order is for multiple items, the profit would be higher but the time to make it is longer. Say 5 items were purchased, so that’s 1 hour of work. The average profit would be $35, minus the $5.40 cost of ads, so that’s $29.60 an hour extra through ads.
Your actual profit from running ads is going to be HIGHLY dependent on whether customers buy one or multiple items. It’s also dependent on your average order value, and whether you have small or large profit margins.
So to set an actual budget, if you’re happy with the potential amount of profit for each sale after the cost of ads, figure out how many sales you can afford to pay for per day. If it costs me $5.40 for each sale through ads, then I can expect $21.60 ad budget per day to result in 4 sales. Remember these are all estimates, and sales count for 30 days after the ad click, so the sales might come later than the actual click.
Also consider how much time you have per day if you do make more sales and have to fill them all. If you only want to have a couple of extra sales per day, you could set your budget higher than that, then turn the ads off after getting to the number that you like.
If you set your budget very low, you’ll still get clicks, but it will take a lot longer to get to the total number of clicks that you need to make one sale. If I only get 4 clicks per day, it would take 5 days to get to the 20 I need to make one sale, on average.
How to know if Etsy Ads are worth it.
- When you make a sale through ads, keep track of the profit for each item sold, and how long it takes to make that item.
- Calculate the profits made through ad sales, then subtract the cost of the ads to get the net profit.
- Divide the net profit by the number of hours it took to make the items to get your hourly profit.
If it turns out that your hourly profit is really low, then ads might not be worth it. If, however, you’re happy with the ROI (return on investment) then ads might be a good addition for your shop. ROI is the amount that you made after ALL expenses are taken into account. It’s not the same as ROAS (return on ad spend.) That’s a simple fraction of how much you made divided by how much you spent. ROI is a much more accurate way to figure out whether ads are worth running or not!
More things to consider:
- Would you have made the sales anyway without ads? Ads should increase your sales volume, it shouldn’t stay the same.
- Can you advertise more expensive items to tilt the scales in their favor?
- Did the ads bring you increased organic sales because of improving the listing sales history of the items that sold through ads?
- Do you think it’s worth it to run ads just to get the added visibility and traffic even if you’re not making as much of a profit? Sometimes that’s a good goal!
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