Influencer unit economics: how you can make money
In 2020, brands spent $8bn paying influencers for marketing. With the pandemic continuing and our social media usage sky-rocketing, brands are increasing their influencer marketing budgets for the foreseeable future — let me explain how you can benefit from this.
Advertising is a key consideration of every business — how do they expand their customer base? How can more people find out about their products or services? For most businesses (if they’ve been designed properly), more customers mean more revenue and hopefully more profit.
Advertising has always been around, you telling your friend ‘I got this from here, you should try it!’ makes you an advertiser (feel free to add this to your LinkedIn skills).
In the last century, advertisers aimed to reach as many people as possible and hope they’ll buy the product; this used to come in the form of print media (newspapers) & TV adverts. With the mass adoption of the internet, the amount of time we spent consuming the previously mentioned media reduced drastically while our social media usage increased.
Companies had to adapt to this change, so they pivoted to spending more money advertising on social media. It is well known that you are more likely to buy something if it has been recommended by someone you trust — cue influencer marketing.
Influencer marketing has been around for centuries — find someone with a lot of influence and get them to endorse your product. Before the internet, this was solely celebrities or historical figures (modern historians argue that the Queen and the Pope are the earliest influencers) now we have the ability to reach anyone through social media.
The early 2000’s ‘Hi welcome to my blog’ is the equivalent to todays ‘Hi welcome to my youtube channel’, blogging was a lucrative business and really gave rise to our first internet influencers. Sites that started off as blogs are now indistinguishable from news outlets:
- The Huffington Post, started by Arriana Huffington in 2005 is currently worth over $1bn, has 90 million visits per month with an estimated revenue (90% ads) of $250m per year.
- Mashable, started by Pete Cashmore in 2005 has 14 million visits per month with an estimated revenue of $30m per year
- Tech Crunch, started by Michael Arrington in 2005 has 17 million visits per month with an estimated revenue of $23m per year
Blogging did have some barriers to entry, at one point you needed to have your own domain, and finding your audience and growing organically was difficult outside of search engine optimisation and word of mouth.
In 2010, Instagram was launched and this allowed anyone to be a ‘blogger’ and communicate with people and brands. Brands saw this as an opportunity to advertise in a more organic way, Influencer marketing has a better Return on Investment (ROI) than other advertising forms with some studies showing it’s 11 times greater by this metric.
Brands approach influencers, directly or through an agency, and tend to offer money or products in exchange for promotion. This method has proved to be very impactful with many brands set to increase their influencer marketing spend in the next few years. Most influencers charge per post, some eye-watering amounts, here’s a list of the top 5 highest prices per post:
- Dwayne ‘the Rock’ Johnson — $1,015,000
- Kylie Jenner — $986k
- Cristiano Ronaldo — $889k
- Kim Kardashian — $858k
- Ariana Grande — $853k
Brands are continuing to increase their marketing spend, first spending $10m on influencer marketing in 2013 to a total spend of $8bn in 2020. In 2021, there are 1.2 billion Instagram users and brands are expected to spend $10bn on this form of advertising in this year alone.
Fashion and beauty brands dominate affiliate marketing spend, e.g. Fashion Nova spent $40m on affiliate marketing in 2020. Other top US spenders can be seen in the graph below.
I don’t have a million followers though? Don’t worry, an emerging trend is the rise of micro-influencers, influencers with a smaller following — this may seem counterintuitive however the most important metric is engagement.
In 2020, brands increased their ‘micro-influencer’ spend by 300%, realising how valuable engagement is.
Accounts with a smaller following tend to have higher engagement:
- <1,000 followers — 8% engagement
- 1,000–10,000 followers — 4% engagement
- 10,000–100,000 followers — 2.4% engagement
- 1- 10m followers — 1.7% engagement
A key part of being a successful micro-influencer is knowing how much your account/content is worth. Influencer Pay Gap is an Instagram page that allows people to share how much they charge per post. After collecting data from this page, there seemed to be a noticeable trend in pricing. The engagement rate and the influencer’s niche also played a large part in how they priced themselves, with beauty and fashion influencers being paid the highest.
Alternative Influencer Revenue streams
Now we’ve established how much there is to be made as an Influencer through Social Media Ads, let’s take a look at all the other revenue streams that a full-time Influencer usually have:
- Affiliate marketing (links): Affiliate marketing is where you have your own link that you share with others and you get paid a commission when someone purchases a product using your link
- Amazon Affiliates is a very popular option, where there are varying rates for different product categories e.g. Beauty — 10% commission, Amazon Products (Kindle, etc) — 4% commission
- Own merchandise — Creating your own product and selling it to your followers. For example, Jackie Aina recently launched ‘FORVR Mood’ her own candles which had a waiting list of 45,000 — the cheapest candle is $35, minimum earnings are $1.6m
- Teaching — Setting up a course or hosting a skillshare that shows others how to improve their content creation or any other skills that are particular to your brand
Costs to consider
Content creation is not easy! Starting out as an influencer you have to invest your time in perfecting your craft and sharing the highest quality content with your audience. Time is the largest cost however as you grow many influencers opt to hire a creative team to help with the process.
As you grow as an influencer you’ll probably have to hire management at some point who will help with the creative process as well as dealing with all the admin and contracts which allows you to focus on creating content. Agencies operate with two different models, similar to talent managers:
- Monthly management fee — a retainer model, with deliverables for each month, this fee can be anywhere up to $18,000
- Commission based — they take a cut of earnings e.g. Studio71 charges 10–20% per influencer
Influencers are clearly a threat to traditional advertising mediums, in the last few years there has been a larger shift to consuming and creating content with new apps enabling this trend. Tik Tok, has become the fastest growing platform for influencing with over 700m active users, it allows anyone to create engaging content and share it with the rest of the world quickly.
This article has stressed how much there is to be made as an Influencer however it is also important to note that it’s not easy work. YouTuber Ali Abdaal recently released a video where he broke down how he made £1m in 2020, consistency played a large factor in his success as he has posted a minimum of 2 videos per week for the last 3 years. Influencing and content creation are one and the same. With the online spacing being increasingly saturated by new participants you need to be finding new ways to distinguish yourself as an Influencer — this is far easier said than done.
I think regulation will begin to play a larger part in influencer marketing. For example, when a company produces an advert it has to be clearly labelled as such to fit the advertising standards agency principles. This is much harder to do and monitor on the internet. Currently, only 14% of influencers are compliant with legal guidelines. As brands are being forced to be compliant with this new model of advertising by increasing their ad spend regularly, it is also likely that influencers will be forced to be compliant as well, you may have seen posts labelled ‘#Ad’ or ‘Sponsored Post’ etc. It has been proven that engagement is much lower on sponsored posts than organic ones, this is a reason for influencers to try and avoid labelling their posts.
We plan on releasing a data visualisation tool based on the data collected for this report to help influencers price themselves, if this is something you would find useful please share the article and contact us via DM on our IG page
This article may have encouraged you to become an influencer, it’s not easy to do the job of an influencer however I believe the most important thing is to be consistent in doing what you love — good luck!
Also, if this article convinced you to sponsor us, please feel free to reach out via our Instagram!