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.