YouTube Ads for eCommerce: Launch, Optimize and Scale

Here at the SM Target agency, the majority of our clients are asking the questions of when running ad campaigns for eCommerce products on YouTube - how to launch, optimize and scale ad campaigns, what are the most valuable metrics to look at?

There are also questions about the budget structure and targeting options. In this article, we'll talk about how you can utilize YouTube advertising for eCommerce products.

Pre Launch diagnostics

During the first phase, you have to look at your funnels, your numbers, and your business to see if there's going to be a good fit with YouTube ads best practices.

The first is we want a pretty high acceptable cost per purchase. You should be able to afford at least 40$ per purchase (for Tier 1 countries - US, GB, Canada, Australia, Western Europe), which usually means an AOV (Average Order Value) in the 60 to 100 dollar range. Or you may have a lower AOV if you have some sort of back end or subscription product that allows you to not be that profitable on the front end but still acquire customers at about 40$ or more.

You also want a high conversion rate on your web store. Typically, whatever page we send traffic to, we want to be aiming for around a two or three percent conversion rate.

And the last piece of this is you need to be able to pay usually a 1$ to 1,5$ per click and still be profitable. So, if you are used to getting 30 cent clicks and can only make the numbers work with super cheap clicks, YouTube is not the platform for you.

If you can only spend 20$ on acquiring a customer, you either need an extremely high conversion rate, or you need really cheap clicks. And honestly, super cheap clicks don't work on YouTube unless you're in a market that's outside of the Tier 1 countries. But, if you're in Latin America, Asia, or Eastern Europe - yes, in those markets, twenty dollars could work quite well.
Youtube ads for ecommerce
If you don't fit those requirements, don't despair, you can still make YouTube ads work. But you have to change some things around. Even if your current offer is the lower price, you can try building a bundle or some sort of special offer that is higher priced. Or you can implement a subscription model to increase customers' LTV (Lifetime Value).
There are multiple ways to skin a cat. The main thing is you want to get - that initial order value up, so you can spend more to acquire the initial customer.
We also have a couple of other things to suggest:

  • Number one is we recommend YouTube ads for stores that are focused on one or two products. If you have a store with a thousand products, quality YouTube ads are a lot tougher to make work because you have to create unique creatives for each product. So, usually, one or two product e-comm brands are the best.

  • And number two is the more focused you are, the better it is. If you have one core product that you can focus on, that's perfect. And then you can add a bunch of upselling and cross-selling tactics

Creative is King

Success on YouTube is 80% creative and 20% everything else. Creative is king! One excellent YouTube video ad could make you millions or tens of millions of dollars in your business, especially with e-comm brands, and that's why it's essential to put a lot of effort into creative production.
There is a certain formula that works on YouTube. You need to be able to grab people's attention. Show them a product works (product demonstration videos). Demonstrate social proof as well as have a very clear call to action. You can also make them laugh and feel other strong emotions.
Now what's really important is what works on Facebook usually doesn't work on YouTube. That's because, on Facebook, you'll have very simple creatives that work well, while on YouTube, you actually need proper production and ad content needs to look good as professional YouTube videos. On Facebook, people scroll through the news feed, looking at text and images. There's not that expectation of high-quality production.

Good creative is part art and part science. The art part is more intangible. It relates to creativity and coming up with unique ideas and unique hooks. It's what makes your ad connect with the viewer, and this is where finding good creative production people, creative coordinators, or creative directors is essential.

How to consistently build impactful YouTube ads that will work? The answer is - having the right system. You have to have a team that can dedicate itself to churning out creatives and testing variations. Come up with the scripts and do the whole creative process. The creative coordinator is responsible for managing the whole production and post-production process.
Youtube ads creative team
Live-action video discovery ads will outperform anything else. Proper production of a video ad will create a good result. It's very important to emphasize that being cheap on the creative is just not going to work long term.

You can choose to do voiceover video ads or cheap freelance shoots, and so on. But if you want to give this a good shot, you have to accept that you're going to have to invest in the production.

And the cool part about investing in the production is - you can use that on Facebook ads where it will outperform your current creative most likely. And then, you also can use it on your website and your social media. Keep in mind that video works better than image. It connects with people better, and it's a great investment into your brand.

Planning the first round of ad campaigns and launching

Now let's talk about the third phase which is planning your first round of ad campaigns and launching. According to the expert media buying formula, once we have the creative - now we go into the first round of media buying.

It's important to acknowledge that YouTube is way more different than Facebook when it comes to media buying. It's a lot harder initially to build momentum, but long-term YouTube wins consistently over Facebook.

YouTube is a long-term play for the following reasons:

  • The first is that scalability on YouTube is massive and much bigger than on Facebook.

  • The second is that YouTube allows you to build a very strong brand presence that just goes beyond direct response. It gets people searching for your brand, it gets people interested in your brand, and it gets people to remember your ads. This helps a lot. Both in terms of basically long-term organic sales, and also in the sense of any valuations, etc. Once people know your brand then, you have a long-term foothold in the market, and customers immediately think of you when they are ready to buy. It's really important to acknowledge that most sales don't happen on the first touch - it takes many. So if you can leave a really strong first impression, it's a big bonus, and you don't get that with Facebook. Because people on Facebook can scroll past the news feed, while on YouTube they have to watch at least the first five seconds of the preroll video ads. And most people do more if the ad is intriguing and entertaining.

  • The third reason YouTube is a great long-term play is that Google is far more relaxed about ad policy and Google ads account bans.
Preroll video ads
The downside and the price you pay is that YouTube is a lot harder to make work initially. It requires persistence and testing.
The first week can be really bad. And we typically find that we'll test a massive number of audiences to find a few that work. The upside of all this testing is once you make things work and start feeding the algorithm data, you can make big broad audiences that work perfectly.

You have to understand that it's going to take some time, and it may take one or two months for you to hit profitability. It takes longer than Facebook. Because with Facebook, you have a simple strategy. You create your lookalike audience, and you set them up, and you'll get some good results initially, but you'll hit a wall very quickly.

With YouTube, it's the other way where the initial results are much tougher to come by. But once you get it working, it's much more scalable and profitable in the long term.

Usually, after two weeks, you have a good idea of what audiences are working. And if the creative is working or not. Then you can adjust from there. A big thing to keep in mind is the main metrics you're going to be looking at are click-through rate, cost per click, cost per add to cart, and then cost per sale. And ROAS as well if you have multiple products.
Youtube ads bidding type
For our initial campaigns, we're using maximized conversions bidding type. And the goal is to test at least three to five creatives and more than twenty different audiences in the initial batch to see where we're getting some momentum and results.

A few words about ads budget structure. For eCommerce products, we'd always recommend starting a budget off at least $25 per day, and that's using the CPV format that allows us to get some good test data in. So, once we get enough test data we'd break this out as TCPA campaigns at 5x the target conversion cost. If we're trying to get leads for $10, we'd set that budget at $50.

When looking at targeting options, especially for eCommerce, we'd always start with warm audiences first. Always take the lowest-hanging fruit. Right? So, if you have a customer list - it's perfect. If not, you can always target your subscribers, those who've liked your videos, those who visited your website.

And after we've exhausted the warm audiences, we launched highly targeted keyword campaigns, specifically targeting the brand or the product. The third type of audience we utilized would be custom intent people that are already searching for your products or similar products (search ads) and just getting in front of that their intent to buy.
Youtube ads audience
The approach to YouTube advertising for eCommerce products is really important. You must have a clear call to action. People didn't know during this ad that if they click over, they're going to buy this product.

You're not trying to generate leads, you're trying to generate sales, and the goal is to build up that conversion value and make it profitable. Once you find these profitable campaigns, you can scale them quite a lot.

Optimization phase

Let's talk about the fourth part of this, which is the holistic optimization phase. If you're lucky, you're immediately profitable, and things are going great. However, chances are that that's not going to happen. You're going to get a lot of data, and you're going to feel a little confused and a little frustrated. Perhaps, a couple of campaigns would be profitable, but most of them aren't.

At this point, you need to look at the data to understand what's going on. If click-through rates are consistently low, let's say below one percent, chances are that your creative is not working. So you need to take a look at your creative to see what's not connecting with the audience. The below one percent click-through rate is very common when brands try to shoehorn their Facebook ads creative into original YouTube ads.
A healthy click-through rate is usually above 1%. But preferably above 1.3% to 1.5%. And 2% is just amazing. That's where you want to be.
If your click-through rates are looking good, but your cost per click is still too expensive, you may want to look at broader audiences. We typically see those custom audiences, in-market audiences, and interest topic audiences are broader so you can get cheaper clicks. Sometimes, if you try to go for very niche audiences, the clicks can be prohibitively expensive.

On the other hand, if you've tested a lot of different types of audiences your click-through rate is great, you may need a different strategy on the landing page side. Very important to try different things to see what works and what doesn't.

For marketing video ad, a good landing page conversion rate for an e-comm store is 3%. Keep in mind that the same landing page may have a different performance with Facebook ads compared to personalized YouTube ads. You have to optimize each platform on its own.
Youtube ads quality score
A good view rate is also essential. For those that don't know what the view rate is, it's the number of impressions or the number of times that YouTube's served your ad and how many times the videos have been watched past the 30-second mark or if they've clicked right.

So, a good view rate for a YouTube ad campaign is usually around 20%. If you're seeing view rates of around 50% - it's most likely your creative is not scripted correctly for the skippable in-stream format. You have to write a specific script structure where you get only one in five people watching through the video, which is great because you're only paying for that view.

Another metric that we look at for an e-commerce product is the conversion value divided by the cost. For example, let's say we have 10 items that we sell for $10 each, that's a conversion value of $100. Let's say it takes us $100 an ad costs to get that $1.00 in conversion value. Therefore, the conversion value divided by costs would equal 1.

The reason we call this holistic optimization is we're looking at all parts of the funnel, we're looking at landing pages, we're looking at the creatives, we're looking at the ads, we're looking at the audiences. So you want to look at everything, and then, basically, you want to fix whatever you think is the weakest spot at that particular time.

Prescale phase

At this stage, you have to prepare for scale and make sure your numbers work. Once you've established profitability at a lower scale with ad spend between three hundred to maybe a thousand dollars a day, you need to start looking at the scale. Let's assume you're hitting your KPIs and your goals. Now your task is to increase spend while maintaining KPIs.

Please keep in mind that your cost per acquisition will go up as you scale; this is a fact of life. Sometimes, you get away with it, but the more you spend typically - the more you run into the bigger advertisers, who are more aggressive and who bid more. So the reason they can bid more is they have better back ends. They have higher customer LTV. They make more money from the customer in the long term, so they're willing to outbid you.

If you're hitting your goals and you're exceeding them significantly. Let's say your goal cost per acquisition is 40 dollars, and you're doing 30. You have a lot of room, so you can probably scale quite a bit before hitting that 40$ cost per acquisition wall.
There's a good chance that as you scale - that cost per sale it's going to go up by 20 to 25 percent. So you need to make sure your email marketing is set up properly to squeeze every dollar you can out of each customer.
You also want to make sure your cross-sales and upsells are set up. And you want to focus on optimizing your funnel to make sure you increase conversion rates.

Because you have these two factors: you're scaling, so you're running to more competitions, so your costs are going to go up, but then you're also optimizing, so it should balance out. It's really important to understand this and not expect that you can just scale your ads without doing anything else, and it will just work out magically.

Youtube ads scaling methodology

Now let's talk about the sixth part of this. And this is implementing the link scaling formula to spend ten thousand dollars a day or more. So this is the fun part. In terms of scaling, there are two ways we scale successful YouTube ad campaigns: by increasing budgets and by testing new audiences.

We don't duplicate campaigns. It hasn't worked that well. The only time we duplicate a campaign is if the first campaign stopped working, and so we relaunch as another campaign. But we don't duplicate a winning campaign because it never really works well with Youtube advertising.
Youtube ads scaling
In terms of budget increases, we do it conservatively. Preferably around 10% to 15% per day as long as the performance is holding strong.
If you want to add spend rapidly, the way you do that - is by testing new audiences and scaling those more aggressively. However, do not scale your core performers aggressively, because if you do that, they could screw up your whole ad account.

The last piece of this is you want to be testing new video ads. You want to make sure you have a queue of four to five video ads ready to go. Because your ads are going to start performing worse over time. That's why the creative machine is so important.
As soon as you see the first signs of the ad not performing well, you can add new ads into the mix and thus be able to keep the account going.
The other thing I want to mention about scaling is you need to test broader audiences. So custom audiences, affinity audiences, in-market, even open targeting. You want to be testing new audiences that are much broader. And that's how you're going to be able to start scaling your ad account.

Hopefully, this article was useful for you, and now you know better how to use YouTube ads for ecommerce products. If you have a project in mind and would like help from a reliable social media advertising agency, don't hesitate to contact us!

We also offer a free YouTube ad account audit. It's absolutely free, and there's no obligation or pressure to work with us afterward!
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