As an Etsy seller, maximizing the profitability of your advertising spend is crucial. Etsy Ads can boost your shop’s visibility, but without proper optimization, you might end up spending more than you’re earning. Unlike platforms like Google or Meta, Etsy provides limited levers for ad optimization. Specifically, you can only control:
Which listings you advertise
Your total advertising budget
In this article, we’ll share our approach to optimizing Etsy Ads—a data-driven method that has helped us make our advertising profitable. While this isn’t the only way to optimize ads, we hope it provides valuable insights to help you make informed decisions for your shop.
Strategy 1: Optimizing Advertised Listings
A good starting point is to turn off underperforming listings. The definition of an underperforming listing can vary depending on your profit margins and goals, but here’s one straightforward method:
Turn Off Listings with No Sales After a Certain Ad Spend
We set a cutoff point of $10. If a listing has spent more than $10 on ads without generating any sales, we turn off advertising for that listing. This helps us allocate our ad budget more effectively toward listings that are likely to convert.
Steps to Implement This Strategy:
Navigate to your Etsy Ads dashboard
Update the performance period to cover as long as possible (Etsy provides data for up to two years)
Sort listings by Ad spend
Identify underperforming listings: Look for listings that have spent more than your cutoff amount (e.g., $10) with zero sales.
Turn off ads for these listings: Disable advertising for these underperforming listings to prevent further unprofitable spend.
Consider Additional Performance Metrics: ROAS
Our initial criterion is helpful, but it has a limitation. Sometimes, a listing might spend a lot on ads, make one sale, and then continue spending without more sales. Since it has at least one sale, our initial method wouldn’t flag it, and it would keep running, possibly wasting your ad budget.
To handle this, we use an additional metric called ROAS.
ROAS
ROAS stands for Return on Advertising Spend. It measures how much revenue you earn for every dollar you spend on advertising. ROAS = Revenue form Ads / Ad Spend
Formula: ROAS = Revenue form Ads / Ad Spend
Breakeven ROAS
Breakeven Return on Advertising Spend (Breakeven ROAS) is the minimum ROAS you need to achieve to cover all the costs associated with producing and selling your product, without making a profit or incurring a loss. In other words, it’s the point at which the revenue generated from your ads exactly equals the combined costs of the product and the advertising.
Formula: Breakeven ROAS = 1 / Profit Margin
By incorporating ROAS into your evaluation, you ensure that your ad budget is spent on listings that are not just making sales, but are also profitable.
Turn Off Listings with ROAS Below Your Breakeven Point
By adding this step to your review criteria, you can further refine your ad strategy to focus on profitability.
Example
Example
Example: Selling a Mug on Etsy
You are selling a mug for $19.99 and after production cost, shipping and Etsy fees you are left with $8 in profit. Your profit margin is 40%. After checking your Etsy ads dashboard you have spent $128 on ads and it has resulted in $378 in revenue.
ROAS calculation:
ROAS = $378 / $128 = 2.95
Breakeven ROAS = 1/0.40 = 2.50
Conclusion: Your ROAS is 2.95, which is above the breakeven ROAS of 2.50. This means your ads are profitable.
Breakdown:
Revenue: $378
Costs: $226,8
Marketing: $128
Profit: $23,2
Tip: Check out the Etsy profit calculator to get your exact profit margin including all Etsy fees.
Using Etsy Ads Optimizer
Manually reviewing and adjusting your listings can become tedious, especially if you have a large number of products. To streamline this process, we developed an Etsy Ads Optimizer tool.
This tool automates ad management by analyzing your listings' performance data based on customizable criteria you set. You can choose to examine all shop listings or just those on the current page.
The optimizer allows you to create multiple criteria groups, such as turning off ads for listings that have spent over $10 with no revenue, or those with a ROAS below 2.5 after spending $25. Once you've set your criteria and selected a performance review period, a single click on "Optimize" will automatically turn off ads for underperforming listings.
After the process, you'll receive a detailed report summarizing the actions taken and the reasons behind them. This tool ensures consistent application of your optimization rules, saving time and aligning your ad spend with your profitability goals.
Strategy 2: Optimizing Your Advertising Budget
While optimizing individual listings is crucial, it’s equally important to consider your overall advertising budget. Adjusting your total ad spend based on your shop’s performance can help maximize profitability and prevent unnecessary losses.
Your shop’s Return on Advertising Spend (ROAS) isn’t just useful for evaluating individual listings; it can also guide decisions about your total ad budget. Here’s how to use ROAS to determine whether to increase or decrease your overall spend.
When to Increase Your Ad Budget
ROAS Above Breakeven Point: If your overall ROAS is higher than your breakeven ROAS, your ads are profitable.
Action: Consider increasing your total ad budget to capitalize on this profitability.
Why: Allocating more funds allows you to reach more potential customers, potentially increasing sales and profits.
When to Decrease Your Ad Budget
ROAS Below Breakeven Point: f your overall ROAS is lower than your breakeven ROAS, your ads are not profitable.
Action: Reduce your total ad budget to minimize losses.
Why: Decreasing ad spend prevents overspending on unprofitable ads, allowing you to reassess and optimize before investing more.
Additional Tips for Optimizing Etsy Ads
Advertise All Listings Initially
We choose to advertise all our listings initially to allow each item the opportunity to perform. This approach can lead to discovering unexpected best-sellers.
Regularly Monitor and Adjust
Ad performance can change over time due to factors like seasonality, market trends, and competition. Regularly review your ad metrics and adjust your strategies accordingly.
Utilize High-Quality Photos and Keywords
Even with optimized ad spend, listings won’t perform well if they lack compelling photos or relevant keywords. Ensure your listings are attractive and optimized for search.
Conclusion
Optimizing Etsy Ads requires a strategic approach focused on data and performance metrics. By turning off underperforming listings, adjusting your budget based on ROAS, and utilizing tools to automate the process, you can maximize the profitability of your advertising spend.
Remember, this is just one strategy among many. Continuously test and refine your approach to find what works best for your shop.