What percentage of gross sales should we budget for ad spend?


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Hey, hey. Välkommen. Jag skulle vilja prata affärer.


Practicing my Swedish. Still kind of suck, but I can order a coffee. I can say I want to order some food, I can order taxis, I can do road names. There's a few things I can say. I can kind of get by. But still definitely not fluent.


Anyway, fantastic questions today, as always. And we've got a lot of them. And today again, I'm wanting to focus on the theme. Quite a few people have been asking about marketing and advertising their products.


What percentage of gross sales should we budget for ad spends?


Louis starts off by saying, I keep losing all my profits in ad spends. What percentage of gross sales should we budget for ad spend? This is a great question. When you're thinking about marketing and advertising, we do want it to make your products way more visible, we do want it to be effective. But we don't want it to eat into your margins so much that you end up losing money.


So I'm gonna ask you a question. I'm going to give you an answer, though, that probably isn't what you expect. And it's probably not what you want. So right now you're asking what percentage of gross sales should we budget? I wouldn't look at it like that, actually. What I would look at it is - this is my advertising strategy okay?


First of all, you do absolutely everything you can to get your product onto page one. Usually this means losing money initially on sales. It's going to be ugly. You're going to be giving away products through a promotion service like AMZ tracker or something like that. And you won't even be charging way too little for your product.


All you're doing is you're just trying your hardest to get sales and also to get reviews and to get visibility. Once your product gets to page one, then you want to spend as little as possible marketing and try and keep it there.


That's what should aim to do in order to get your product visible and get it selling. 'Cause once it's on page one, it should be relatively self-sustaining. I mean, you'll get organic search results. People will type in the keyword, find your products without you paying for ads and you make sales. And those sales will keep the product well ranked, that will keep you on page one, which will get you more sales.


Then you can spend a lot less on marketing. So it's like a big push to get to page one and then you just kind of let the dust settle and you stay there. That's ideally what we want.


So to answer your question, what percentage of ad spend should we allocate? What percentage gross profits should we allocate to ad spend? Well, as little as possible is the answer. As little as possible.


I think it's hard to give a realistic percentage because I think every single product is different. I think every single niche is different. And if a niche is way more competitive, the keywords are going to cost more and you're going to have to pay more to get onto page one. It's just the way it is.


So I think you should think about it like this. Try and make as much profit as you possibly can, so there's always a way to find a cheaper way to source your product. There's always a cheaper way to ship your product over. If you can get some sort of external traffic as well as advertising on Amazon, then that can start to work out cheaper as well.


If you have an email list and you can send traffic from the email list to your page as well as Amazon pay per click, I mean that's going to be seriously cheap marketing for you. It's basically free traffic. So do everything you can to get a larger profit percentage on your products. Then what will happen is you can spend more on advertising than all of your competitors because you've caught back in all other areas.


Therefore you can be more fiercely competitive and you can stay on page one. Also try and launch products where you've got a great margin. Think about this from the very beginning. Products where you can charge a lot. Go in with a slightly more luxury angle and aim to charge more than everyone else by providing more value to the marketplace. This will give you a lot more chance to make profit even after those costly advertising spends.


So I don't think there's an exact answer to your question, but that's the strategy I would use to approach it, to solve your problem. I hope that's helpful, Louis.


How do you know that your advertising is effective?


Catherine says, how would you know that your advertising is effective? This is a great question and the only purpose of your advertising really is to get your product visible. So like I just said to Louis, right in the beginning when you are advertising a new product, it's not about trying to make a profit, it's about getting the product onto page one as quickly as you possibly can.


The way you know your advertising is effective is if people are clicking on your product and they're buying it as a direct result of your advertising. It's very easy to see on the advertising page. You can see the amount you've spent on ads, the amount of sales you've made, and therefore the A cost- or the advertising cost of sales.


So if you're making sales, the advertising is working. If your A cost is low and you're spending a little bit and you're making a lot on sales, the advertising is very effective. If the A cost is high, you're spending a lot on ads, and you're making a bit of sales, advertising isn't as effective.


And usually the thing that makes the difference isn't what you do with your keywords. It's more to do with your listing and the product itself. Because that enables you to charge more, which inevitably makes your A costs better, because you can make more profit and relatively spend less on ads.


I hope that answers your question, Catherine.


Automatic or manual advertising?


Dorian asks, what's better, automatic or manual advertising? Which one is better? Well, this is the funny thing. It depends.


I've got products where I just couldn't get the manual campaign to work that well. For whatever reason, I tried all different kinds of keywords, all different keyword types and search types that you can do. I've tried putting tons in, I've tried refining the keywords, I've tried everything under the sun and for whatever reason, the manual campaign just doesn't work as well as the automatic.


So the key thing to do when you find an advertising campaign that works generally is just to leave it alone. I advertise on various platforms. I advertise on Amazon, advertise on Facebook, advertise on Google and YouTube. I've also advertised on Reddit, and various other platforms as well.


That is one piece of advice. I would say it's consistent. As soon as you find a campaign that works, regardless of what you're doing, just leave it, just let it run, let it do its thing. And it will only get better over time as the algorithm gathers more data and as it understands exactly what your objective really is.


So if the automatic is working, leave it. If the manual's working, leave it. I think it's a good idea to spend less time trying to spend less on advertising, spend more time trying to launch products that allow you to spend more on advertising per sale.


There's a quote which is very, very, very powerful when it comes to marketing strategy. It's, 'who can spend the most to acquire a customer wins.' Who can spend the most to acquire a customer wins. So what does that really mean?


Well, if you can spend two pounds per click to get your product to sell in your niche and all your competitors can only spend one pound 50 to get their product to sell per click, then you can buy way more advertising than everybody else. You can get your products way more visible. You can get way more sales and you will outlast all of your competitors.


So the key is to focus on kicking back as many expenses as you possibly can, launching products that you can sell for more money by adding more value to the marketplace. Therefore having more room so you can spend more on advertising. This is the aim. This is what we want to do.


And then, again, follow the same strategy that I mentioned earlier to Louis. Get your product to page one and then it should stay there. You can just top it up occasionally with promotions and advertising.


Awesome. So I hope this helped, guys. Hope it gave you a little bit of an insight into how to use advertising and how to work your marketing strategy so you can dominate your niche.


If you've got any follow up questions or anything you want to add, comment below on this video. If you're watching this video outside of Ollie's e-Commerce Q&A Facebook group, then click the link either above or below this video to join the group. And as you enter, you'll be asked to leave a question. Once you've asked a question, I'll approve your request to join the group and I may just answer it on one of these daily videos.


Thank you so much for your amazing questions and I'll catch you all very soon.


Oliver Denyer About Ollie

Ollie is an ecommerce and lifestyle business enthusiast.
He's sold tens of thousands of products he's never had to touch, pack or ship himself.
A persistent disdain towards feeling like he's in a "job" has inspired him to create businesses that are FUN to run.
This means leveraging big companies to ship products, outsourcing laborious tasks to a team of VA's and running everything from a laptop.
He's passionate about sharing his knowledge with the world and helping people find more freedom through business.

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