The Big Business of Influencing
Breaking down all the ways influencers make $$$
2020 will go down as the best year, possibly ever, to become a content creator. Everyone was stuck inside scrolling through their phones and desperate for entertainment, so if you had a sense of humor, a good sourdough recipe, or enviable dance moves, you could build an audience. If you could build an audience and monetize, you could make a real career of it.
It’s no surprise that there’s a lot of mystery around the business of influencing. That’s because whether you are the influencer or the consumer, you are the product. You can either monetize yourself or be monetized.
I’ve been studying the business of influencing for years and am fascinated by the tactics and economics of the industry. Because I love peeling back the curtain on opaque industries, here are the main ways influencers make money—a lot of it.
Sponsored content
If you have ever seen a post described as #sponsored or #partnership, this is the most lucrative form of creator monetization. How does it work? A company decides an influencer is aligned with their brand or ideal customer profile, and they pay them to post content tagging their products, services, or location. Depending on the contract, influencers receive a flat payment for a set of posts and/or a percent of sales if consumers shop and check out using a unique promo code. Payment rates are determined via a number of factors but engagement rates are what seal big deals (eg. likes, shares, comments, click-through rates, conversion rates). If an influencer is a well-known name or their conversion rates are very high, a company may work with them over a long period of time, eg. one year, which would be akin to making a corporate salary from just one company's sponsored content. Even mid-size influencers do a handful of these sponsored content partnerships per month.
Advertising
Advertising sounds very similar to sponsored content but where the two differ is in the ultra-nuanced way an influencer presents the content. For example, many influencers have podcasts and the primary way they monetize their podcasts is through ads. If the podcast is highly ranked in the charts and part of a good network (eg. Spotify, Sirius, Wondery) a solid influencer can clear $25-50 per 1,000 downloads. If they have 200,000 downloads per episode and run an average of six to eight ads per episode, top-line revenue becomes very meaningful.
Affiliate links
Affiliate links have been around since the early days of the internet but have taken on new meaning with networks like LTK and ShopMy which offer a commission for successfully selling linked products. In my opinion, this is no different than working at a department store and helping shoppers in the hopes of making a sale (and a cut of it). Given the fact that affiliate commissions are very small, the only way to meaningfully monetize this way is if you have a massive and highly-engaged audience. Even Meghan Markle is now getting in on the action.
Subscriptions
I love recurring revenue and so do influencers, so an easy way for creators to guarantee income is to sell subscriptions, essentially gating certain types of content behind a paywall. Whether it's a Substack newsletter, a Patreon page, or an Instagram channel (many influencers utilize all of these and then some), subscription revenue can add up. Below is an Instagram influencer you probably have never heard of and I do not recommend following, but it's notable she is clearing $80,000 per month from this one Instagram subscription channel.
Revshare collaborations
Revshare collaborations are an increasingly popular way for a company and an influencer to team up. By building off the other's following and brand equity, both sides win (at least in theory). Depending on the contract and type of collaboration, an influencer may have to put forth a small investment into the project to show they have skin in the game but yet again, upside potential can be significant. More followers-->more sales-->more revenue to go around for everyone. One example of all this in practice is NY-based influencer Lilly Sisto's partnership with Dillard's. While I don't know the terms of the deal, I'd venture a guess that this is a standard revshare collaboration.
Sell products directly or license their name
It's fairly common for influencers to sell branded merchandise directly to their followers. Whether it's sweatshirts, hats, or water bottles, this type of merch is easy to produce and fairly high-margin. But as influencers grow their brands and audiences, they sometimes venture into more complex categories like beauty or beverages, licensing their name to products and outsourcing all the hairy logistics to a third-party. The challenge with the latter is when you don't own the entire business, it can be harder to exit, so the hope is that the products generate enough free cash flow to be worth the squeeze.
Get paid to show up somewhere
This one is fairly straightforward. If an influencer is well-known, has a big audience, or is generally having their moment in the sun, companies will pay them to show up at an event and post on social media about it. It could be a fancy party, a nightclub, a university, a company retreat, a conference, or name-your-event. Influencers usually get their hotel, transportation, and related expenses covered by the sponsor company, so this is a fairly low-lift monetization mechanism.
The list above is not exhaustive and I’d be remiss if I didn’t mention that most influencers spend real money to make money. An agent gets ~15% off the top, a manager gets another ~10%, a good podcast ad network takes a sizable cut, and then there are photographers, videographers, hair stylists, makeup artists, an accountant, lawyers, a PR agency, and more. But as long as more money comes in the door than goes out, it’s a good business to be in.
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