You’ve started your e-commerce business, and now it’s time to get the word out. There are plenty of advertising channels at your disposal, but which are worth the investment? And how does advertising fit into your bookkeeping?
If you’re selling on Amazon, it’s a no-brainer to advertise there as well. Amazon ads are seen by millions of potential buyers every second, and they operate on a PPC (pay per click) model, meaning you only pay when your ad gets interaction.
However, as a convergence of these two factors, Amazon advertising can eat up a lot of money very quickly.
Amazon places ads in several different places on the site: as banner ads on search result pages, on individual product pages, as related items in a “sponsored products” carousel, and more. WordStream does an excellent job of explaining the difference between types of Amazon ads and how to optimize them in this post.
While the average ad spend on Amazon is around $0.35 per click, those clicks can add up – Seller Accountant’s 2019 aggregate study of over $140 million in sales found that sellers spent approximately 7% of their total sales on Amazon ads alone over the course of the year.
The most obvious place to start with advertisements, aside from Amazon, is Google Ads. Google’s ad algorithm is very sophisticated and does an excellent job matching ad visibility with targeted consumers. Much like Amazon, Google Ads runs on a PPC model and allows advertisers to set a budget cap for the month in order to monitor ad spend.
One particular advantage to Google Ads is that it’s used as a passive income source by millions of independent bloggers. These bloggers allow banner ads and in-post ads on their site, and Google’s algorithm fills in these spaces with relevant ads. If you sell a product that could be of use to a particular niche, optimizing your ad keywords for that niche will help get your ads in front of the right sets of eyes.
Facebook’s advertising options are seemingly endless (as this article on Hootsuite demonstrates), but they work in much the same way as Google Ads, with PPC pricing and the ability to set a budget cap.
Where Facebook advertising excels is in its ability to micro-target audiences and connect with Facebook users in extremely specific demographics. Their platform allows advertisers to narrow down their target audience by age, location, language, interests, liked pages, and more.
Facebook also offers Facebook Pixel, a platform that connects Facebook’s ad tools to your shop’s website traffic stats. The pixel allows you to further create custom audiences based on their interaction with certain product pages, as well as lookalike audiences that mimic the characteristics of your current customers. The pixel even provides sales funnel insight through conversion rate and revenue reporting data. (More information on the pixel can be found here)
Social media marketing can be a very effective driver of traffic if you know you have an audience that frequents these sites. When choosing which platforms to focus on in your ad strategy, consider the demographics of each and how they measure up against your target audience.
- Aged primarily between 30-49 (37% of users), with 18-29 (28%) and 50-64 (24%) at a close second and third
- Hub for entrepreneurs, would be a good place to advertise B2B services
- Users primarily located in urban and suburban areas
- Over 50% make >$75k/year and have at least one college degree
- Gender demographic leans towards female (43% vs 31% male)
- Heavy use by Gen Z and younger Millennials (13-29 years old)
- Income and schooling levels are evenly distributed among categories
- Available in more than 150 countries
- 30 million monthly active users in the US
- Audience skews younger than Instagram with 13-24 year olds making up 69% of the user base
- Ads are still new to the platform, so prices are high ($50-$500 minimum spend depending on the type of ad) but may drop in the future
- Very small percentage of users are men (15%)
- Audience skews younger (primarily aged 18-49) but not as young as Instagram or TikTok
- Huge international user base (87 million active monthly non-US users)
- 18-29 year olds make up the largest demographic – 91% of US citizens in this age group say they regularly use YouTube
- A higher percentage of men (78%) consume content on YouTube than women (68%)
- Perfect for content marketing or product demonstrations as it’s the most widely accessed video platform
(Source: Sprout Social, Hootsuite 1, 2)
Advertising and Your Books
Advertising is vital to your sales funnel, as well as an important piece of data to track for your accounting. But how do you know how much to budget for your ads – and what you should spend that money on?
According to We Are Pentagon, companies making less than $1 million a year spend the largest percentage of their ad budget on paid searches, display ads, social media, and SEO optimization.
When analyzing the impact of ad spending on your overall gross profit, it’s important to know your monthly PAG, or post-advertising gross.
A more in depth explanation of PAG and how it impacts your financial picture can be found here in a previous blog post, but here’s the Reader’s Digest version:
Sales – COGS = Gross Profit
Gross Profit – Advertising Costs = PAG
Long story short, you don’t have a true picture of what you’ve made in any given period unless you take into account what you had to spend to advertise your product. In a way, ad costs are similar to your Cost of Goods Sold in that they encompass money you spent in order to make sales. However, since ad cost encompasses so many moving parts, it’s more helpful to parse it out into its own category of spending.
For more guidance about e-commerce advertising, check out Seller Accountant’s CFO Tactics course on Teachable or get in touch about our services.