196. Blowing Money on Etsy Ads? Here's How to Profit with Hannah Gardner of Profit Tree

Summary

Crickets to Cha-Chings - Episode 196: Blowing Money on Etsy Ads? Here's How to Profit with Hannah Gardner of Profit Tree

Release Date: December 2, 2024

Hosts: Julie Berninger (Gold City Ventures)
Guest: Hannah Gardner (Co-founder of Profit Tree and Econ YouTube Channel)

---

1. Introduction and Guest Background

In this compelling episode of Crickets to Cha-Chings, host Julie Berninger welcomes Hannah Gardner, the co-founder of Profit Tree and a seasoned Etsy seller since 2019. Hannah shares her entrepreneurial journey, highlighting her transition from running handmade businesses on Etsy to developing a SaaS solution aimed at empowering fellow Etsy entrepreneurs.

Notable Quote:
“I basically designed this tool, Profit Tree, to solve my own problems because we had over 1500 variation options of items and had no way to track the real-time profitability of each item.”
— Hannah Gardner [00:54]

---

2. The Role of Ads on Etsy

The conversation swiftly delves into the often-controversial topic of advertising on Etsy. Both hosts acknowledge a common fear among Etsy sellers regarding ad spend, with Julie admitting her own past apprehensions. However, Hannah elucidates how strategic ad usage can significantly scale a shop's profitability.

Notable Quote:
“Etsy pretty much doesn't give you any information that you need to make a decision.”
— Hannah Gardner [02:48]

Key Points:

• Fear of Ads: Many sellers hesitate to invest in ads due to unclear ROI metrics provided by Etsy.
• Strategic Spending: Properly managed ads can transform a side hustle into a profitable business.

---

3. Introducing Profit Tree

Hannah introduces Profit Tree as an innovative tool designed to provide real-time, automated profit tracking for Etsy sellers. Addressing a critical gap, Profit Tree offers detailed insights beyond Etsy's native analytics, enabling sellers to make informed decisions about their ad spending.

Notable Quote:
“Profit Tree is going to basically show you your operating profit after all your Etsy selling fees, your shipping costs, your cost of goods sold...”
— Hannah Gardner [06:20]

Key Features:

• Real-Time Profit Tracking: Monitors profitability considering all expenses.
• Detailed Metrics: Breaks down costs per sale, providing a clear financial picture.
• Ad Optimization Insights: Helps determine which ads are profitable and which should be paused.

---

4. Case Study Analysis

To illustrate the effectiveness of Profit Tree, Hannah presents a case study of an Etsy shop in February that earned $9,900 in profit with a 40% profit margin while spending $2,800 on Etsy ads. She contrasts this with a hypothetical scenario where ads were not utilized, resulting in significantly lower profits.

Notable Quote:
“If you do your ads properly, you actually are making more profit, not just revenue.”
— Hannah Gardner [12:01]

Findings:

• With Ads: $9,900 profit with a 40% margin.
• Without Ads: Estimated profit drops to $7,000, marking a loss of approximately $2,800 in potential profit.

---

5. Understanding ROAS vs. TACOS

A pivotal segment of the discussion revolves around Return on Ad Spend (ROAS) and the introduction of Total Advertising Cost of Sale (TACOS). Hannah argues that while ROAS is a commonly used metric, it doesn't capture the full picture of ad profitability.

Defining Metrics:

• ROAS (Return on Ad Spend): Measures revenue generated per dollar spent on ads.
  Example: A ROAS of 1.2 means $1.20 earned for every $1 spent.
• TACOS (Total Advertising Cost of Sale): Calculates ad spend as a percentage of total sales, providing a holistic view of ad efficiency.

Notable Quotes:
“ROAS is not really something that we can rely on.”
— Hannah Gardner [18:01]

“Tacos is your ad cost percentage compared to your total sales.”
— Hannah Gardner [24:39]

Key Insights:

• Limitations of ROAS: Especially for low-ticket items, ROAS might appear unfavorable even when ads are profitable.
• Advantages of TACOS: Offers a complete perspective by accounting for both ad-attributed and organic sales influenced by ads.

---

6. When to Use Ads and Considerations

Julie and Hannah discuss critical factors Etsy sellers should consider before investing in ads. Hannah emphasizes that ads are not universally beneficial and should be employed by sellers who are ready for the associated financial risks.

Notable Quote:
“If money is uncomfortable for you, then that just means you don't run ads and you only get weight to get organic sales first.”
— Hannah Gardner [40:06]

Considerations:

• Profit Margins: Sellers must understand their profit margins to set appropriate TACOS thresholds.
• Product Readiness: Ads are more effective when products have already demonstrated organic sales.
• Risk Tolerance: Only sellers comfortable with potential ad spend losses should consider ads.

Example Scenario for TACOS Application:

• Target Profit Margin: 30%
• Acceptable TACOS Threshold: 17% (calculated based on desired profit)
• Listings exceeding this threshold would have ads turned off to maintain profitability.

---

7. Final Thoughts and Takeaways

As the episode concludes, Julie reiterates that while ads can be a powerful tool for scaling an Etsy business, they require careful planning and analysis. Hannah encourages sellers to utilize Profit Tree to gain deeper insights into their ad performance and make data-driven decisions.

Notable Quote:
“The only thing that really matters is profit.”
— Hannah Gardner [38:19]

Key Takeaways:

• Holistic Analysis: Beyond ROAS, understanding TACOS provides a fuller picture of ad effectiveness.
• Strategic Ad Use: Ads should complement a solid foundation of profitable, organically selling products.
• Continuous Optimization: Regularly monitor and adjust ad campaigns based on comprehensive profit metrics.

---

Resources and Further Information

• Profit Tree: Visit Profit Tree (Link to be provided in show notes)
• Hannah Gardner’s YouTube Channel: Ecom Hannah

Notable Quote:
“It's Ecom Hannah with two Ns.”
— Hannah Gardner [49:20]

---

Conclusion

Episode 196 of Crickets to Cha-Chings offers invaluable insights into the strategic use of Etsy ads, emphasizing profitability over mere visibility. With Hannah Gardner’s expertise and the robust capabilities of Profit Tree, Etsy sellers are equipped with the tools and knowledge to make informed decisions that can transform their businesses from crickets to cha-chings.

---

For more detailed discussions and visual aids from this episode, check out the YouTube version via the links provided in the show notes.

Transcript

[A]

Hey everyone. Welcome to Crickets to Cha Chings. I'm Julie Berninger from Gold City Ventures and we're so excited. We have Hannah from Profit Tree. She's the co founder of Profit Tree as well as from the Econ YouTube channel. We're so excited to have you here. Welcome.

[B]

Thank you so much for having me.

[A]

Well, let's kick it off today by getting into your Etsy backstory and then we're going to talk about Profitree, which for those of you listening, this is going to be one of the most controversial episodes we've ever had. But because the two of us are going to tell you things about running ads that maybe you've never heard before or you've never considered that could be a game changer in your Etsy shop. And a lot of people are afraid of ads. I've been afraid of ads in the past, but Hannah's kind of opened my mind to how you can use ads responsibly to scale your shop. So this is going to be really exciting. I cannot wait to dive in. So, Hannah, let's get started. Can you tell everyone about yourself and your journey with Etsy?

[B]

Awesome. Yes. Thank you. Thank you so much for that awesome intro. I am a fellow Etsy seller. I've been selling on etsy actively since 2019 and documenting that journey on YouTube. So my brands have always primarily, well, they've always been handmade businesses. So we basically manufacture all of our goods in the United States and. Yeah, and just been sharing all of those learning lessons along the way for free on my YouTube channel. And then recently, you know, I basically designed this tool, Profit Tree. It's the first real time automated profit tracking solution for sellers to solve my own problems because we had over 1500 variation options of items and had no way to track the real time profitability of each item. And so my first go at building this tool was trying to solve basically my own problems. And now that there's been this whole print on demand movement and now, you know, digital downloads and print on demand wasn't a huge, it was a thing. But I didn't really know about it when I got into Etsy. So we also are working well. We completely are serving print on demand people, but we are now also building features that are going to help digital download people as well. So the first round of it was like we're just going to try to do profit tracking, automated profit tracking, real time profit tracking for sellers. And now we're starting to get into some features that help sellers make it very Black and white when it comes to running their Etsy ads and, you know, give them clear insights on whether they should keep things on or turn things off. Because I think that is probably the biggest fear around Etsy ads. There's so many misconceptions around Etsy ads. Or not misconceptions, but just fears. And with good reason, you know, because Etsy pretty much doesn't give you any information that you need to make a decision. So.

[A]

Yeah, yeah, yeah. I mean, you think they're. They're purposely trying to have us not spend more money on ads. Right? Because I think what. What's the most common behavior is you go into your ads dashboard, you get excited, you start running ads, and then you go in the dashboard and you're like, off, off. And you keep hitting that little slider because you're just like, nope, nope. So we're going to talk about ways that you might look at your ad spend differently, which will be exciting. And then just before we dive into it, you talked a little bit about your background. I don't know if you share what you sold, which totally fair here, but could you give us some sense, like in the terms of candles, to like, large furniture, to piano keys, like, what. What was your Etsy journey?

[B]

Yeah, so my first company was Fast Fashion Jewelry. I actually made my first exit in 2022 from that company. And it wasn't just an Etsy brand. And so it was actually a full Shopify brand and Fair wholesale company as well. And then my second company is something that I started in the midst of all this with my. And I got my family involved now. So my dad and my sister actually helped me run it. And that is a home decor brand. So we've been. That one started maybe, I don't know, a year and a half into my journey, which is actually something I do not recommend to people. I don't open multiple shops at the same time, but a lot of learning lessons. I mean, I call my first brand, like my freshman year of business, there was so much learning, so much growth, so many mistakes that were made that are documented on my YouTube channel. And then, yeah, so so many things. But, yeah, I would say Fast Fashion, Jewelry and home decor are the two. Wow. Completely different.

[A]

And so then you had an exit, which is very rare because I think a lot of makers or people that are in this space, they're not really thinking about selling the business, which you can't obviously transfer an Etsy shop. That's against the rules. But you said it was on Shopify. That's cool. And then now you're a SaaS founder, so you're doing pretty. You're. You're very impressive. I'm. I'm impressed here. And now we're talking about ads, which is a very complex subject, but we're going to make this easy for everyone to understand and kind of fun. And, you know, the jury's still out in my mind about ads, but I'm. The more I talk to Hannah, the more I'm like, you know what this is? I'm kind of getting it, and I see why it could be useful for people that want to scale. Right. Like my group here, a lot of us are side hustlers, but when we talk about the next step with Etsy, like, how do you get to a larger business? How do you bring in your own customers? Well, maybe you try social, and maybe you go that route, but that can be difficult, and it's obviously not attractive to everyone. I mean, faceless marketing is what you see in all the keywords right now. People are really not wanting to show their face and make their brand a big thing on social. Well, could you scale your business with ads and start bringing in more customers that way? So that's where I think it could really make sense for people like, hey, I have a somewhat profitable side hustle here. How could I take it to the next level and start bringing in more eyeballs to the products? And maybe it is spending a little on ads for a great profit, which is why it's called Profit Tree. Your. Your new product and us getting into this. So Hannah prepared a little bit of kind of like a slideshow demo, and we're going to talk about the case study here. So if you want to pull that up, we can discuss that. And by the way, if you're listening on the podcast right now, feel free to do some easy listening. And then if you want to check it out on YouTube later, we're going to link to the YouTube video in the show notes so that you can look at the screen if you're. If you're curious about digging in. We'll try to. We'll try to speak through what we're looking at, too, so you can hear it.

[B]

Cool. All right, let's see if we can pull this off. All right. Can you see my screen?

[A]

Yes.

[B]

All right, Maybe we can present. Make it even bigger. Okay. Yeah. So essentially, I just was shooting a video right before this, so I was like, we might as well just bring this up. But essentially. So these are screenshots from inside of profitry. So Profitree is going to basically show you your operating profit after all your Etsy selling fees, your shipping costs, your cost of goods sold, which is the most, one of the most important metrics if you're selling physical goods is your actual product costs on a per sale basis. So it's associating every single item that's sold to its cost. So you can have a beautiful pie chart like this that shows you all of the pieces of the pie, the breakdowns of the pieces of the pie of your business. So I like to make things as simple as possible. I like to look at things in terms of pie charts. And so this is what has manifested. So and this case study example, in this account we basically looked at the month of February of this year and you can see here that after all expenses, this account basically made about $9,900 in profit, running a 40% profit margin percentage. After all the ad costs, the transaction fees, the cost of goods sold, all that good stuff. So the point of me showing you this is just to show you the potential profit that could be lost if you're not optimizing your Etsy ads. And of course, if you're someone struggling to get sales with your organic listings, you may not be ready for Etsy ads. But what we believe is that, what I wholeheartedly believe in that, you know, it made my, you know, $20,000 Etsy sales month, $100,000 sales month was Etsy ads. Like I am almost positive that I would have done a fraction of profit if I, if I wasn't running ads.

[C]

Right?

[B]

And we're gonna, we'll talk about that as well. But essentially to show you here to point blank, right after ads, this account profit wise made around, you know, nine 9K. Now let's play out the same scenario. If this shop didn't invest this $2,800 in Etsy ads. And by the way, this ad cost percentage or this ad cost, this one's about 3,000 is a bit higher because in your Etsy ads account, this spend does not account for offsite ads for anyone that's going to be like, oh, why is it different? It's because the time period is the same, the spend is slightly less because this does not account for your off site ad spend.

[C]

Right?

[A]

And just Hannah, before you kind of get into the reveal, just to set the context for people, and we're going to get talk about pod and printable and we're going to talk about maker, but this is a handmade shop, a real Handmade shop that is connected to Profit Tree and it's looking at. And they run ads. So they had a somewhat successful shop. They run ads now. But the person doesn't really know how profitable are these ads or not? Because Etsy gives you like two columns to make that decision whether you know your ads are profitable or not. So they're using Profitry because they want that information, more information to be able to know, like, hey, are these ads profitable or not? Can I make the right decisions about which listings I should run ads to? That's why they're using profitry.

[B]

Yes. 100. 100%. So in this first case scenario, we're just validating that ads, if done right, actually make you more profit.

[C]

Right.

[B]

Some people are like, oh, it doesn't make me more money. You know, like ads just waste my money. Right, but this is validating. In this case study, what we're doing is we're trying to validate, well, what is the point of running ads in the first place if. If they don't make you more profit?

[C]

Right.

[B]

So.

[C]

Right.

[B]

So we're playing out this scenario here. So the first case scenario with ads on, they cleared almost $10,000 in profit. Now let's play out the scenario. If we took out the additional revenue, if ads were not ran, right. So they would have had a loss of $10,000 in revenue. But does that mean that even though they didn't make this a man. Can you hear the background? I'm so sorry.

[A]

No, no, it's totally fine. And just, I'm just curious, like, how did you even. How can you even guess? Or how can you know what wouldn't. What would have happened in a different world where they didn't run ads that month?

[B]

So. Oh, sorry. Okay. You couldn't hear the background? Okay. There's no, no, there's loud people in the background. I'm sorry. It's like the grass people cutting. Okay, so the way that we validated is basically like, so for that same time period, right? So the last month, in this month case study, right, the top line was 24, $24,000. But that's including this $10,000 that is coming from revenue directly from ads. So if we didn't spend this $2800, in theory, we would have not made this an additional $10,000. So that means that the top line revenue, if we didn't spend $2,800, would have been around $14,000.

[C]

Right.

[B]

And so then if we take the profit margin percentage out of this $14,000 not including.

[C]

Right.

[B]

If we, if we take out the 12% add costs and take out the new profit margin or the new profit.

[C]

Right.

[B]

The profit would have been only $7,000.

[C]

Right.

[B]

So if we make the difference of this, essentially we missed out in profit on around $2900 by not running ads. If this account didn't run ads, why do we know that? We know that because Etsy is telling us that the revenue made directly from the ads was about $10,000. So this whole series right here is just validating. Wait a second, if you do your ads properly, you actually are making more profit, not just revenue. Does this make sense?

[A]

It does. And I think that's the biggest fear, that people are just, either either they're losing money or they're just like one to one, they're just running an ad and then they're making a sale and it's not really adding any more profit to the business. And we're all about profit. It's not about revenue here.

[B]

Exactly. And so this, this is just validating ads in general.

[C]

Right?

[B]

The ads make you more money and more profit.

[C]

Right.

[B]

If we were just saying, oh, it makes you more revenue, that doesn't mean anything. We want to make more profit.

[C]

Right.

[B]

So, and also if you're handmade, you don't want to run ads and have to fulfill all these orders without getting paid more. Right.

[A]

So. Oh my goodness, yes.

[B]

All right, so that's, that's what we're validating here. Now let's just talk about this. $2,800, right? So the minimum loss in profit was around $2,800. But this also is the minimum loss in profit because there is indirect losses by not running ads as well. So this does not include, you know, potential sales that could have happened from outside the attribution window, which is an attribution window. And ads is like when you got the click you might have in etsy, you have 30 days for that, for a purchase to come in. So if they purchase outside of that 30 day attribution window, that's not being attributed.

[C]

Right.

[B]

You also, it doesn't include, you know, if you're running ads the previous month and you got a review that was a five star review with a beautiful image and now you're getting all these new organic sales because you're converting people because of this five star review. Well, you never would have got that review if you didn't spend money on ads the month before. Right. And it also just in general is not running ads on Etsy, is You not playing the game of Etsy to your max potential. So when you're selling third party platform like Amazon, Wayfair, Fair, Walmart, doesn't matter, right? You're playing in someone else's sandbox. And so that means that that sandbox has a cryptic set of rules strategy like the game of Monopoly to help you win that game. And so what we want to do as sellers is think about what does the platform want. The platform does not only want you to have high average order values, great CTRs, great conversion rates, but on some level we have to assume if I'm competing against all these people, who is Etsy going to favor in the long term? Me. That's saying I'm willing to invest $0 in the platform. Or Johnny down the road that's maxing out his bids every single day and showing Etsy that he's willing to spend the max. Even though if you set your Etsy account ad account to $1,000 a day, it's not going to, in most cases it's not going to spend it like you know, in our account niche contingent. But like for my fast fashion jewelry company, if we had it set to 1000, it would only spend 4 to 600. You know my home decor brand, that's super expensive home decor, right. It will only spend 100 to 200 per day. But we're willing to show Etsy that we're willing to outbid Johnny down the street. So there's just this snowball effect of benefits that happen when it comes to investing in your Etsy ads, if you do it correctly. So now we need to, we need.

[A]

To double click into those. I feel like you just dropped so many gems and they might get lost if we don't summarize them. So what I heard the last one that you just said was Etsy is a company and, and they need to make money. And one of the ways they make money is through ad revenue. They're not just using a direct algorithm that shows search results, they're giving a good real estate to people that pay to play on that first page. So while they're not gonna directly say it, maybe in some ways they do. If you're showing them you're willing to pay to play, then you're going to get some benefits from it. Because we're helping them, they're helping us. There's some synergy there versus somebody that doesn't give them a dollar. Cause truthfully, I mean we are giving them transaction fees, but it's low cost, it's like right now 15 to $30 to start the Etsy shop, 20 cents a listing. It's not like Shopify where they're charging us monthly or anything like that. So okay, there's that, there's that element. So then the second thing that you said kind of at the beginning was that there's a 30 day attribution window. And I know a lot of us who are regular Etsy shoppers, we actually will look on Etsy much more than 30 days before an event. Like for example, at the time we're recording this, it's much before the holidays. But I have already done some holiday shopping mentally on Etsy for my parents. Like I kind of have an idea of what I'm going to get my mom. It's grandma's little cookies, cookie tray with all the different grandkids. So that's on the list. I get my sister, Hope you're not listening. The oven mitts with dogs on them because she, she loves her golden retriever, she's all about it. And then I haven't quite decided for my dad yet, but I'm still on the, I'm still on the hunt. My husband, he comes, he comes later, I love him, he comes first. But you know, right now he's coming later, a little harder to shop for. But in that case, like if I clicked on any ads, if I end up making that purchase more than 30 days from now, if I'm hearing you correctly, that seller, it's not gonna show up in their dashboard. Like I was from the ad, but I was from the ad, I was from the ad. So they're not gonna have that information right now. So potentially when they're just looking straight in the account, they're not necessarily realizing there was a sale that was influenced by the ad. If they're just looking at the straight numbers, right? And then the third one you're saying so was beyond attribution, what was the other one you're saying how, how someone could make a sale but it wouldn't get attributed.

[B]

So there's like other indirect things that happen when you're running your ads, right? Like all of a sudden if you're getting more clicks and more add to carts, right? That add to carts number is sexy, right? So that excites people. The more add to carts, the more people want to buy it because other people are buying it, right? You could have got a mega beautiful 5 star review from a purchase from an ad with a beautiful image review. And now you have all these organic traffic clicks coming in and now that review is what's making people make that conversion, right? Or a percentage of people convert.

[C]

Right?

[B]

So there's all these like snowball effects and just increasing your numbers of reviews, your numbers of clicks, right? There's this snowball back benefit wheel effect. I don't know what I just said. There's a snowball effect that basically comes from running ads. And this is also why if you talk to any seven figure, eight figure Amazon seller, they think of it in the same way that you know. And this is also why ROAS is not really something that we can rely on. I can go ahead and we can jump into this.

[A]

Oh my goodness, no. I just want to say for anyone listening, like just rewind that and listen to it again if you have to. Because that's the crux of this whole argument that we're making in this episode. It's that we know Etsy search algorithm favors recent recency. It favors add to carts, favorites and conversion rate and such. So if you're like jump starting your listing and it's a good listing and now you're given Etsy and like you said, even little things like somebody who clicked on your ad and bought it left an awesome picture and now you're getting like so many more sales, maybe that's not a direct one to one attribution if you just look in the Etsy ads dash part of your dashboard. But actually like the ad did influence the overall, the overall shop and like you, you will show up higher in search because Etsy wants to make money and they want to put the best listings in front of the customers that are the most relevant. So you're helping it understand that your listing is the best by giving it those little metric check marks like yep, this is a good listing, good conversion rate, blah, blah, good, good reviews, all that. So, so yeah, that's just so huge. So okay, so that, that's, that's the main crux here. So you can keep going. But I just want to mention for anyone listening like that that's a huge argument of why Etsy ads.

[B]

Yes, yes. And so we kind of want to look at. So so how does this break down into your actual optimization of your ads? Right, so this is obviously, this is what Etsy gives you, right? They give you your views, your clicks, your click rate, your orders, your revenue, your spend and your roas. And while this is interesting stuff to look at, I personally like to look at click rate because historically the ones that have high click through rate means that the image is good so there was something in that image that I want to pay attention to. I do like to look at views and spend, obviously because I care about what's spending my money and what's getting the most exposure. Because if it's getting a lot of exposure, that means that the algorithm likes it for some reason. However, none of these are clear key performance indicators. KPI, whatever. KPIs of whether or not you should turn it on or off or on or off or not. One thing that they give you here is something called roas, which is your return on your ad spend. So if this spent $700, right. It's taking your revenue divided by your spend, right? And this is what a lot of people look at. They look at is my am I hitting a target? Roas, a return on ad spend. And so for people that are selling really low ticket goods, it's almost always that your ROAS looks really, really bad. So if you're selling digital assets and normally your roas, your break even ROAS is 1.12 or 1, let's just make it worst case scenario, 1.2, right? So people selling, you know, low ticket digital downloads that are like a few dollars, the roas almost always looks bad. And so then they go, oh my gosh, I need to turn it off. But wait a second, there's a huge issue. There is, because this isn't telling the whole story, right? Because what will happen is sometimes your ROAS looks horrible. But then you analyze another metric which is the actually what we believe is the only important metric, which is something that we're going to share right now. And that metric actually looks really, really good. So let me just pull that up. Do you have any questions so far?

[A]

No. And as you're pulling that up, just roas, for anyone who hasn't heard it in their life, return on ad spend, as Hannah said. And when she's saying 1.12 or 1.2, she's saying for every dollar you put into ads, you're getting a dollar back in revenue. But that isn't break even because you've got to consider the transaction fee. So Hannah, correct me if I'm wrong, but you said 1.2 because you're like, well, let's add back the transaction fees. So unless it says 1.2, you would think in your mind the ad isn't worth it. But that's why the whole concept of profit tree and your company exists because you want to show people who want to scale their business that, oh, actually there's another metric that's better than Roas. That's going to tell you the full picture.

[B]

Right?

[C]

Right.

[B]

And so for people selling digital downloads, your break even point because you don't have product costs, you just have fees, right. So that means that your break even point normally is anywhere I would say from depending on the sale price of the listing, it could range from usually it's under 2 for digital downloads, like either between 1.12 to like up to 1.8. Basically that means that it's, you're breaking even on the money that they gave you and the money that went out. And the money went out that and also the money that went out in fees, basically. So what people normally do is like if they don't see 1.8 here or whatever their break even point is, they automatically assume it's not working and they turn it off. That is like usually the standard, but sometimes that's not correct. And so we have now run, at this point we've run multiple thought experiments spanning across, I want to say 250 serious sellers to challenge this idea of what we're trying to challenge here, which is what matters then like what matters with your ads basically. And so yeah, we've run these thought experiments basically challenging the idea of something called Roas Roas, which we already know. But then also another metric that we, that we're now giving sellers in profitree, which is called tacos. So tacos is a really known metric. It's not something that we made up but it's, it means total advertising cost of your sale. So this is not live in profit tree yet. So this is profit tree. So this is what this new tab is going to look like. We're going to have an advertisement tab. We have all these other tabs, except for advertisement is not. This is actually coming next month. And essentially what this advertisement tab is going to do for you is it's going to calculate something called tacos. And this is the percentage of cost or it's, it's your ad cost percentage compared to, to your total sales. But the kicker is is that if you look at, okay, what is total sales?

[C]

Right.

[B]

The way that we calculate total sales and why it's so powerful is because finally the top we have a metric that is giving you a holistic view of the quality of the clicks that that listing got. So if you calculate tacos, tacos is your SP spend divided by your total sales and your total sales. Here is the, your organic sales including. It also includes your sales from the, from the ad. So you ran an Ad, someone clicked on your ad on your listing and they bought off that listing, right? That's that revenue amount. But it's also including if someone clicked on your ad, right? And they discovered your shop through that ad, but then they purchased a different product, right? And so that is what that total sales is encompassing. So now you actually have a holistic picture of your spend against the revenue that came out of that listing. And so basically what we have, basically how this all has now come to fruition is the only thing that matters when it comes to deciding if your ads are good or not is essentially, are you hitting your target Tacos.

[C]

Right.

[B]

So let me just pull up a profit tree dashboard here so we can compare, right?

[A]

Because I think that's the most important thing. We're not sitting here saying to people, oh, well, you should just run ads because you know all this good stuff. It's like, no, not every listing should have an ad running. Not every shop should run ads. But if you want to run ads, maybe having more data at your fingertips so that they are profitable by using Profitree is reasonable. It makes sense.

[B]

Right, Right. So basically every shop has an ad cost percentage, right? So when you turn on your ads, right, that percentage of that you're spending is eating into your profit. And so what we want to do is you decide, right? If you're a digital download seller clearing an 80% profit on average, and you don't want more than 20% of your sale price to go to marketing, right. Then that means that you would need to keep your ad cost percentage here less than 20%, right? And so we give you in Profitree already, we give you your ad cost percentage. You can also calculate it yourself easily without profitry. But the way that we're now going about helping people run ads is it's very black and white. If you want your ad, your tacos and your ad cost percentage are the same thing. If you want your ad cost percentage to always be less than 20%, then in order to get this down, you have to come in and analyze your tacos and basically turn off anything that's not hitting that threshold. So anything over 20% you would come in here and turn off, right? And that's how you would overall decrease your ad cost percentage and increase your profit margin percentage and ensure that you're hitting the numbers like you saw when we opened this conversation and started screen recording, basically.

[C]

Right.

[B]

So, and I think one of the biggest misconceptions around ads is that people think that when they increase their budget, like their ad Cost like their, their ad budget from like $50 a day to $500 a day or whatever, they think that all of a sudden this ad cost percentage is all sudden going to skyrocket. But that's not true because it's in the name of ads. Etsy ads are, the way they charge you is something called pay per click. It's called PPC. So you putting your ad budget from $100 a day to $500 a day doesn't mean that tomorrow this ad cost percentage is going to skyrocket to 30% because it's a proportional scaling thing. It's the same data sample of people seeing your ad at $100 a day versus $500 a day. So in theory, if you're somebody that's just running your ads right now and you've been spending $20 a day for the last three months or even month, that's even a month is a good amount of data that you've collected and you pull out your ad cost percentage. In theory, if you just increase your budget without doing anything else, like if you out and launch 100 new listings, that can make it go up. But if you just increase your budget on the same data sample of products, right, your ad cost percentage shouldn't increase. You should proportionally scale up because again, it's the same quality of people seeing your ad and the same data sample quality of people seeing your ad at $100 a day versus $500 a day. So if you're somebody that's in that situation right now, that might give you confidence to just go ahead and increase your budget. But moreover, when you're tweaking the dials to decrease this number, we know now that the only way to decrease it is by turning off any tacos that aren't hitting what we want. So if it's 15%, then we would come in here and you know, we'd set our time period for the last 30 days. I kind of like to look at it in a 60 day window, but it also depends on how fast your budget spends. So if you're selling low ticket items, maybe 30 days is, you know, if it's been over your threshold, after 30 days, you come in here and turn it off and let that add money go to listings that are hitting your target. Tacos. Does that make sense?

[A]

It does. So I want to give people like scenarios of people that might resonate with them. So let's do, let's start with a handmade seller first. So we have, we had Crystal come on the podcast. And she sells metaphysical jewelry. And how does she, how does she know what roas she's supposed to hit and what tacos like? Do you, does she enter how much it costs for all her supplies and a labor cost and stuff into profit tree? Where, where is she getting that from? And how is she supposed to know what her goals are?

[B]

Okay, so if she's worried about, if she just cares about tacos, right? So break even roas are really for people that looking at roas are honestly for people that don't believe that ads contribute to your organic growth. Which after interviewing pretty much all the top sellers, we know that that's not true, but that's what we know. There's going to be a percentage of people that don't believe in tacos. So for her, if she just in her scenario, we'll play out two scenarios here. If she just wants to look at roas, right? This roas is the same roas that you have in your ads account. And then what we're also calculating for you is your breakeven roas, which the way that you calculate break even roas, in order to calculate it, you have to input your product cost because it's one divided by your net profit percentage before marketing is your break even point. So instead of trying to calculate that confusing metric, basically all you have to do is come into your catalog and add your product costs on the listing or on all the products that exist in the listing and then that will automatically calculate the break even roas for you. So these little red marks here mean that there's products in the listing that are missing their cogs, their cost of goods sold or cost of goods sold just means product cost. So that means that you need to go and up and add your product cost. So this can be calculated properly. So now these are all fake numbers by the way. This is a prototype. But so now you know, let's just pretend you see that the roas on the ad is 2.27 and your break even ROAS is 2.27. You know that you're breaking even on the ad level. So it's on the ad level, it's not making money. And then say your tacos is 21%. But maybe you know, you don't want to break even. But then you look at your tacos and your tacos is only 21% and you know that your any tacos under 30% is make is wildly profitable for you, then you would probably keep that ad on.

[A]

Wait, so let's just go so for Crystal, does she enter her shipping and her labor into that section?

[B]

Oh no, no, no. So all that's already calculated in here. So shipping, once you, once you make a profit tree account, your shipping costs, your transaction fees, your listing fees, your processing fees, all that is already calculated.

[A]

For you because it's pulling from Etsy.

[B]

It's already pulling from Etsy. The only thing that's missing is the product cost. So you have to come in here and add your product cost.

[A]

Okay, cool. And then for, just for the tacos. So I get how Crystal gets her break even Roas. How is Crystal knowing what number she's supposed to look at for the tacos?

[B]

So you, once you make a profit account, you'll see your profit margin, right? And you decide based off your parameters for your business what is a good profit. Some people in the handmade space want to make 30%. For us, I would say industry standard, after all, costs businesses in general, this is a really big generalization. 20% is good profit. Like and I, and I, and I don't. And so when I look at, when I, when I talk to Etsy sellers, they're like 20%, that's nothing. But that's usually because they don't realize that like big, big businesses, like 20% is actually a really healthy profit for a business. So for us in our, in our handmade business, anything less than 20% isn't worth the effort to hand make our goods because it's quite a lengthy process. But for you say you want 30%, right? Maybe you're a digital download and you want 40, 40%, right? That means that, that whatever that profit is that you want is going to help you determine what threshold of ad cost percentage you're willing to give to ads, right? So maybe for example, in the print on demand space, if you want to clear 20% profit, you have to make sure that your ad cost percentage is not going less than 10%. So that means when you're analyzing your tacos, you're going to be strict and you're going to turn off anything that's not hitting at least 10% under 10%.

[A]

And so what, what do you want? Your tacos, I guess like in the case of Crystal, what is she looking for in that column?

[B]

You want your tacos to be as low as possible because tacos is what eats into your profit. Tacos and ad cost percentage are the same. It's the, it's just on your dashboard, it's calculated for your whole shop, right? And on this advertisement tab is being calculated on the individual listing. So you want your tacos to be as low as possible and how low you want it to be depends on your. How much profit. Profit you want to make. So if you want to clear a 30% profit, that means that I cannot let my tacos go over 16.43% or 17%.

[C]

Right.

[B]

So that means then I'm going to come in here and analyze my listings and anything that's going over 17%. Oh, that's not sexy enough. That's what's making this ad cost percentage go up and kill my profit. So I'm going to turn off anything that's not hitting 17% and I'm going to let that money that would have went to that listing otherwise go to other listings that are making me that 10%, 8% tacos. Does that make sense?

[A]

So I, I love this. I totally get, I get that. How Does Crystal get 17% from 30%? Like, is there somewhere where. Or is it like turn red or something? Like where you enter, hey, 30% is my acceptable margin. And then it will like tell her like, or how does she get that 17% to know?

[B]

So the first version of this, we're not doing notifications yet, like, alerts in the first rendition of this, but that is the goal. So we, we have a lot of ideas like that, like basically set your tacos threshold and send me an alert as soon as, like, you have to watch these ones or send you an email or something. And then you all of a sudden have like a watch bucket, like, hey, these ones are going up. Like something's going on maybe. So we don't have that yet, but that's definitely like the next iteration of this for sure, because that's really easy to do. But this is not going to be live. I mean, profitree is live already. Like, you can come in here and already start getting your profit, your cost of goods sold, right? Your listing reports, all that stuff. Like you're, you know, we have product reports, listing reports, all that stuff. But this tab is not going to be live until November.

[A]

Okay, cool. So you're giving us a link below. So I'm going to link to it whether you're watching on YouTube or listening. And I'm so excited. So, Hannah, when, what month did this launch? In 2024. Right.

[B]

Profit Tree launched in the beginning of May of this year. The beginning of May. And we've learned a lot. I mean, profit, I mean, I'm sorry, software is the craziest industry that I've ever been in. I'M new to software and just learning a lot. And now at this point, the only way you can improve a SaaS product is by talking to your customers. You know, we'd love for you guys to try it out. We'll give you an exclusive extended trial. And we just. At this point, the winning for us is just feedback. You know, it's not about making money. It's about learning about Etsy sellers and how we can further, you know, solve their problems, because there's a lot of them.

[A]

Okay, cool. Well, I bet, like, there's a portion listening that they're ready to. To kind of test this out. And I also would, plus one, just talk to Hannah and her team. And I know there's people listening who are, like, intimidated. They're like, yeah, this sounds good. Kind of intimidated. Well, what happens if I'm in this? If I'm looking at this on the dashboard, I don't know what is going on. I'm guessing there's some sort of, like, customer support or, like Facebook group or how to. How would somebody, like, screenshot and be like, what is this? Like, how would someone get help from you on that?

[B]

On our website, we actually have an intercom chat. So I'm still answering the majority of the messages in that chat. So you can drop your questions in there and. Or we do have a community. It's hosted on school. We can link that as well. But yeah, I mean, overall, the most important thing is we're trying to make this as simple as possible for Etsy sellers to understand their. Their numbers. And that's really the starting point. Before ads, before anything, it's getting your dashboard set up and under and getting comfortable with seeing your metrics. Right. And I think when it's in front of you like that all the time, you can't have a vanity relationship with your business because there's no. I think I made this much money. Right. You're not getting caught up in vanity metrics, like revenue and impressions and clicks.

[C]

Right.

[B]

The only thing that really matters is profit. And so, you know, the first thing, like I said, is really just understanding what is your profit and where. How can you tweak the dials on your business to increase that piece of the pie? So, yeah, all the things.

[A]

Awesome. And I do want to. I feel like we should give some sort of Surgeon General's warning here with ads. I still believe that ads are not for everyone. And in fact, what gives ads a bad rap is sometimes people that don't have winning listings start running ads and then you know, you'll look at the listing and you're like, you still need some help. Which everyone needs help. We've all been on our Etsy journey. We all were new sellers. We all put together those first listing images that we really were not good. And, you know, the second ones weren't good and the fifth ones weren't good. And then finally we figured out something that works over time. And whether you're figuring that out through YouTube or you're in some type of community like we have at Gold City Ventures, or watching all of Hannah's amazing content in her YouTube, you're. You're learning what, you're getting that feedback of what could be improved. If you're not there yet, though, and you start running ads, it's no, there's no magical wand that's going to make a customer want to buy your product. Ads are not going to do that. In fact, you're just going to spend money because. And you need to focus instead on improving the product. So it could be kind of hard to tell whether or not you are ready. But if you've made a sale, I think if you haven't made a sale yet, that's probably not a good idea. If you've made a couple sales, we have this 100 sales club, which is kind of our, like, graduation cap for our programs. I don't know, Hannah, if you have any thoughts on sort of qualifying, like, who is this for? Who is it not for?

[B]

Yeah, I mean, it's, it's either for people that are like, you know, I was gung ho when I started my business. I, I didn't wait. I immediately out the gate put $15. Like, I went in hard and it served me well.

[C]

Right?

[B]

But I was also willing to. There's a given. There's pros and cons, right? I was willing to lose money. I had. Well, I didn't have the money, but, but I don't know, I was just really aggressive and I already was okay with the loss. If you're not okay with the loss, if money is on comfortable for you, then that just means you don't run ads and you only get weight to get organic sales first. If you can't make sales organically, ads are not going to work.

[C]

Right.

[B]

So the easiest, safest play to people that money is uncomfortable for you is do not spend money on ads. Don't even look at ads.

[C]

Right.

[B]

Prove to yourself that you can make cash flow with your organic listings first. Once you make enough cash flow to reinvest into your Business, right? Then you invest in ads. Like one thing I tell people is, you know, I didn't take a dollar out of my first company for months, right? Every dollar I spent went back into marketing, every dollar went back into inventory, right? It was, I was feeding it. I was feeding it, right? And it's those people that play that long game that win in the long run, honestly. But the safest play to not be babbling too long is if you get organic sales first. Get a few sales. If you're getting, if you, if you launch your store and you're getting a few sales a week on a new listing, right. That's a pretty good indicator that ads might work well with it. But sometimes it's normal for not all of your listings to make sense with ads on. But that's. And for people that. So to your point, you've said this a few times. You know, ads aren't for everyone with their existing product line. So sometimes like you can have products that actually sell really, really well organically, right? But they don't make sense financially. After you factor in ad spend and that's okay, you just turn off the ads for those listings and you focus on product opportunities where it does make sense. So if you're somebody that all of your listings are $0.70, right. And three clicks is going to eat your sale price, then that means that you figure out how to focus on product opportunities that are selling what higher ticket product opportunities, right? Where it does make sense because having this ad money backed in your account is going to build a mode. It's going to build a layer of competitiveness around you for the long term, right? So out of all like every 100 products you launch, maybe only 5 to 10% makes sense and are yielding you the max profit with ads on. And that's part of this game. And again, this doesn't mean that tomorrow you have to stop everything you're doing and focus on higher ticket product opportunities. Just know that that should be the goal. That should be the goal, right? It's like your Etsy listings are like a filtration system. You're putting things in and turning on ads and putting, you know, the ones that are really profitable with ads in this bucket. And you're trying to make that bucket bigger and bigger and make full, make full margin on the ones that don't, right? But the winning is that you're building that strong moat and putting more things into that filter that are making that pile or that bucket taller and taller and taller. That makes you so competitive. If that makes sense.

[A]

It does. Okay, so to summarize, for everybody, ads are not for everyone. But if you're the type of person that is comfortable taking on risk, then yes, they're for you. If you're the type of person that has another business or another cash flow stream. Because sometimes, for example, I was just this morning working on starting another business, which I do quite often. And for me, because I have multiple profitable cash flow businesses, then I can just cut, cut right to the chase. Like, why spend a million years trying to see if people want my product or not? Like I'm just going to run ads at the beginning because I just want to know whether it's going to work or not sooner so I can move on, fail faster as people say. So maybe you're somebody like you are an amazing nail tech coach or something and you want to start this Etsy shop and you're just like, you know what, I'm just going to run ads because I want to find the nail techs and I want to get this going. Like maybe, maybe that's just, that's for you. Or maybe you're like, If I spend $35 and I lose it, I'm going to be really upset about it and maybe this is not for you quite yet. All things to think about. Also, Hannah said, think about your not just like your one listings, think about your whole shop and what type of product mix you have in there. And if ads will lead to growth, then do you have the right players on the team that are going to get you to the super bowl where you want to go to scale and think about how ads can work well with your existing product line. Do you need to make any changes? You need to add certain things. If you're doing this, do you have the right setup to run ads? Think about that. And then also think about in general just pricing of your products and how ads are going to make sense. Also, are your listings working? I think. Have you gotten feedback from anybody? Uh, whether it's paid Coach, free coach, YouTube has. Have you looked at your listings? If you're not getting the, the feedback from Etsy with sales or whatever, can you figure out what is wrong? And by the way, do not feel bad if this is you. We all started here and we either had to pay people or we had to watch hours of videos or whatever. But at some point there's a learning curve where you're going to get that feedback of what's going on. Why are you not getting sales? Why are you not getting views? You're going to get that feedback and then you'll make sales and then at that point you'll be ready to kind of move into this. So I hope I accurately summarize that I missed any of the other consideration points.

[B]

No, no. 100%. 100%. You know, there's so many ways to skin a cat. There's no wrong answer. It's just going out into the universe, collecting the data, making improvements, going out, failing forward, making improvements.

[C]

Right.

[B]

And you're going to collect that data exactly like you said either by like my in my case losing money or getting feedback or going the organic route and know doing it that way as well. So yeah, it's just, I think the most important thing is knowing the potential, knowing what's out there and then you choose ultimately what is the best for you.

[C]

Right.

[B]

Because it's, it's your life and your, you are the only one in your situation. So 100%.

[A]

Yeah. Your money or your life, which is a famous, famous book. Okay. So. And you know what I really wish? I wish I had ever be and erank founders on. I wish I asked them because anecdotally. Right. You said I've talked to a lot of seven figure 8 figure E commerce sellers and they're all running ads. So they're run the best seller, the top sellers run ads. And on the other end typically what I see in more of the side hustlers, we don't run ads. We don't need to run ads. We don't. But there are people that want to go from the side hustle to this is their main gig. This is a very, very profitable venture. Super more built up corporate type business. If you want to go there, you're probably going to have ad spend at some point. I wish there was a stat where like someone from E Rank or ever be could tell us like yeah, like the people that are making the most money, 80% of them run ads just so that we could mentally like kind of map it. But I'm guessing you've talked to a lot of those people and they, they are. Is that, is that true?

[B]

Yeah, I mean you can also, you can just prove it to yourself. Like you can go into Erank or ever be and you can literally like look up their listings. I mean anyone at the top has, has their ads on like ads. It's just, it's just part of it. It's. It's who who wants to pay to play, who wants to compete. Um and unfortunately it's. That's just what it is in business in general, not just on Etsy.

[A]

But I do. I do think you had a great point at the beginning. Like, yes, it's unfortunate, but I actually think sometimes why I'm not in those big, like, complainer Etsy seller Facebook groups is because this is just how you run a business. Like, you have marketing cost. Yeah, it's just. It's literally just like facts, like, just how you run a business. And whether Etsy charges us in the upfront for like a monthly platform fee or they charge us in the back end, like, there's going to be. There's going to be this element to it. And I know it stinks. Like, depending what you sell, like, it can really. It's like, oh, now you got to. I have to add this. If it could feel like you're squeezing me even more, Etsy squeezing me even more. And I totally empathize like that. That's really. I hate that feeling. But at the same time, I also get that there's going to be marketing cost as your business grows. And I just don't know if there's any way around that. And as you mentioned, the margins, like the poor restaurant owners, isn't the margins, like they have like 5%, 1% margin sometimes on restaurants? So, yeah, you know, if 20. If 20% is like a margin, yeah, it stinks. But it's not the worst in the industry necessarily. And maybe, like you said, maybe there's tweaks of, like, what you sell to types of products you sell. If the numbers don't work out for what you're currently selling, is there anything adjacent that you could do? Or maybe what I've been experimenting with lately is like, could you reskin your product a different way? Like, for example, Etsy has been really pushing this whole roommate gift concept. Like, maybe people are willing to spend more money on a roommate gift than they are to spend on this other thing. And all you have to do is, like, change the labeling of how you're labeling your thing. So I think there's a lot of levers that people can pull before getting, like, super frustrated and just saying, I'm out. Um, and I hope that, you know, we can help everyone come up with the creative ways to do that before they get super frustrated.

[B]

Yeah, yeah. I mean, all the things. All the things. I don't even know what to say. You covered all the things.

[A]

Okay, cool. Well, Hannah, we're gonna thank you so much for being here today. We're gonna link to everything below if people want to follow you and what was your YouTube handle in case anyone wanted to look you up there?

[B]

It's Ecom Hannah. Ecom Hannah.

[A]

Cool.

[B]

Yeah.

[A]

You come with two M's. 1 M. 1 M. 1 M.1 M.

[B]

Hannah with two N's.

[A]

Hannah with two Ns. E. Come with one M. I want to clarify that because we, you know, all of us, some of us might be typing that in wrong. So there we go. Okay, well, thank you so much, Hannah. This is great.

[B]

Thank you. Thank you. Bye, guys.

[A]

All right, let me stop recording.