You’ve just opened your new shop and are full of excitement. You’re obsessing over your stats. No sales yet… and not very many views either. I wonder if I should turn on Etsy ads, you think.
Are Etsy ads worth it for new shops though? In a word, yes. Etsy ads can help your new shop gain traction faster if you do them the right way. You need to carefully consider your budget, which products to advertise, when to advertise and when to turn them off. Otherwise you risk losing an uncomfortable amount of money.
As someone who has spent over $20k on Etsy ads in the past 2 years, I credit ads with helping me to start and scale my successful 6-figure business. I’ll guide you through all these considerations so you’re in the best possible position to get sales and traction from your ads as soon as possible.
I have spent over $20k on Etsy ads in the past 2 years!
Is it too early to start advertising?
Should you turn on your Etsy ads on Day 1?
There are 3 reasons I would wait to turn on ads:
- You don’t yet know which products will resonate the most with customers.
- You haven’t had time to fine-tune your offering and improve your skills.
- Without a sales history, you have no social proof. Potential customers will find it hard to trust you and make the purchase.
As tempting as it might be to turn on ads as soon as you launch your shop, I would recommend instead waiting until you have a few sales under your belt. Otherwise you could waste a lot of money. For me, this was a few weeks, but it can of course vary a lot.
Don’t expect your ads to be profitable right away. At the beginning, the goal is to improve your visibility and build up a history of sales and positive reviews. In time this will result in a higher conversion rate from clicks on your ads, and eventually profit.
What ad budget should you set?
Set your daily ad budget according to your risk tolerance and timeframes.
There is nothing wrong with starting with a budget of $1 or $2 per day, and slowly increasing it. This is what I did in my own shop. Initially my budget was $1 per day, but now (3 years later) my ad budget is around $100 per day during peak periods.
I don’t recommend increasing your budget too rapidly, as this can cause more unpredictable behaviour with the ads algorithm as it readjusts. For example, $1 to $2 to $5 to $10 is fine, but $1 to $50 to $200 could cause trouble.
What is your timeframe?
One way to calculate a good ad budget is to observe the average cost per click (CPC) after you’ve turned on ads. You can then calculate how many clicks you will get per day from your budget. Combine this with your conversion rate (number of clicks per sale) and you can calculate how much it will cost you in ad spend to make a single sale.
For example, say your clicks cost an average of $0.50, your daily ad budget is $1 and your conversion rate is 2%. Then 2 in 100 clicks will result in a sale, or 1 in 50, at a cost of 50 x $0.50 = $25. With an ad budget of $1 per day, this will take 25 days. If this is too slow for you, increase your budget.
These numbers don’t look good!
Obviously these numbers don’t look great, but with digital products there are definitely higher conversion rates possible, above the average for ecommerce (mine have been as high as 10%-15% during peak periods). Customers come to Etsy ready to shop, so this is a warm customer base.
The cost of ad clicks can also vary depending on many factors including your product’s sale price and the competition in the niche. A lower cost per click will make it easier to get value from increasing your ad budget.
As mentioned above, the goal initially is not to make a profit, but just to get a few sales and positive reviews so that future customers will be more likely to buy from you. The extra data Etsy gathers from running ads will also help the algorithm to better understand which customers to show your products to in both paid and organic search results.
What is your risk tolerance?
While it all seems rather mathematical so far, running ads does also have an emotional component which should not be underestimated. What is your risk tolerance? How upset will you be to see your ads spend $5 per day without a sale? Running ads does require a level of consistency and patience. It is not a good idea to play with the campaign too often.
Do you have to turn on ads at all?
No, you can run your shop without ads and may still find success. However, be aware that you are choosing not to use a powerful tool which can help to grow your business much faster.
What products should you advertise?
A question many people ask is whether they should advertise all of their listings or just a few. The answer does depend on your situation, which is why you might hear opposing advice out there.
Scenario A: You have set a low ad budget and have a low risk tolerance.
Only advertise a small number of your most popular listings, preferably based on past sales.Scenario B: You have set a higher ad budget and have a high risk tolerance.
Advertise a larger number of your listings to see where customer preferences lie. Then fine-tune this list as performance data comes in.
With my established shop, I fall somewhere in between these two. I don’t advertise every product (I have over 1000!). I wait until a product is showing positive signs with at least 2 recent sales before turning on ads.
When should you turn ads off?
Etsy ads are not a set-and-forget thing. You should monitor your ads regularly and turn off under-performing ads. Otherwise you could find your budget being wasted on the wrong products. Not all products are well-suited to advertising, even if they do sell organically.
How do you determine if an ad is under-performing?
ROAS
The easiest way to check if your ads are under-performing for a particular product is to check its return on ad spend (ROAS). This is listed right in your Etsy Ads dashboard, and is the ratio of revenue to ad spend.
Formula for ROAS
ROAS = Revenue / Ad Spend
Etsy Ads dashboard showing ROAS — Return On Ad Spend.
You might think that anything over 1 is a positive return on your investment, but you do need to take into account fees (listing fees, transaction fees and payment processing fees). As a digital seller, you don’t need to worry about other product costs or shipping. Then you can calculate your break-even ROAS and compare it to the one in the dashboard.
Formula for break-even ROAS
Break-even ROAS = 1 / Profit margin
For example, say my product price is $5 and my fees and costs are $1 (not the real number for Etsy, by the way. I have a free profit calculator on Gumroad that you can use to calculate actual fees and profits). Then I make $4 profit from each sale. My profit margin is then $4/$5 = 0.8 (that is, 80%). So my break even ROAS is 1/0.8 = 1.25.
If after a suitable amount of time, the ROAS for the product is less than your break-even ROAS, you would turn that ad off.
TACoS
Now it just sounds like I’m making up acronyms! But TACoS stands for Total Advertising Cost of Sale.
This is a measure of the success of your ads that looks at the bigger picture of how sustainable your advertising is.
It considers all the revenue that is related to the ad, not just ad clicks that resulted in a sale, but also the sales of your organic listing. It answers the question of whether advertising that listing is helping your overall store to be profitable.
You set a target TACoS based on what percentage of revenue you would like to be spent on advertising. Then if an ad rises above that target, you turn it off.
It is not so simple to calculate TACoS. The only tool I’m aware of that does it is ProfitTree. Note that its ads dashboard assumes USD shop currency (there are workarounds though).
ROAS is a good start, but TACoS is more holistic and a better measure in the long run.
How long should you let an ad run before assessing it?
How long to let an ad run before deciding if it should be turned off is one of the trickiest part of all of this, in my opinion.
There is no exact formula for when to assess your ad performance. A good rule of thumb I follow is to allow the ad spend to reach the product price.
So, for a $5 product, I would turn the ad off if the TACoS (and/or ROAS) didn’t meet my targets after spending $5 on ads.
This is better than deciding after an arbitrary time period, because you need to let the ad algorithm run for long enough to collect a representative sample of data. If you base this on ad spend, you are basing it on number of clicks, whereas if you base this only on number of days, you don’t know how much data has been collected in that time.
Exceptions can of course be made. Many digital products have seasonality, and you might use this knowledge to turn ads off sooner. For example, after Christmas you might be wise to turn off your Christmas ads, even if the historical data was good.
Final thoughts
Etsy ads are worth it for new shops, but there are a number of important considerations. As a new shop, you should not expect your ads to be immediately profitable. Increased visibility, sales and reviews are the goals, even at the expense of profit.
One caveat around very low cost digital products. Below a certain price, it will be unlikely you will ever make a profit from ads unless your conversion rate is very high, simply due to the cost per click. This doesn’t mean that you can’t still use ads as a way to help your shop gain early traction, but it does mean that you might have difficulty running profitable ads. In that case you should consider increasing your prices, creating bundles or bulk discounts to get your average order value up. But this is a topic for another article!
This is a large and complex topic and I could not cover every situation here. So please join my free Etsy Digital Seller community and ask me anything!