Over the last few years, influencer marketing has blown up. From a $1.7B industry in 2016 to a $16.4B industry in 2022, the growth is insane (Source). What’s driving this growth though?
There are more people interested in becoming creators than ever before, but that doesn’t explain what’s driving brands to spend money with creators. Let’s talk about that.
Understanding Performance Marketing
Before we can jump into really understanding this, we need to understand how advertising evolved over the last ten years. As consumers went online and social media platforms like Facebook, Instagram and YouTube became where consumers spend significant amounts of their online time, brands shifted their marketing budgets from traditional media channels like television, radio and print to online digital marketing.
Like Google, Facebook and most of the social media platforms are programmatic and auction-based ad networks. That means that a given brand is bidding for an spot.
For instance, in any given day, there might be 100,000 people in the United States searching for ‘comfortable shoes’. If Brand A is willing to pay $1.00 for each click and 1 of those 10 clicks becomes a sale, they’re effectively paying $10 for that sale. Maybe it costs the brand $50 to make the shoes that they sell for $100.
Throwing fuel on the fire is Direct to Consumer (DTC) brands – you know, the brands that launch on Instagram and have no retail locations? Those brands, without the costs of operating brick and mortar stores spend tons and tons on Facebook and Google. The biggest spenders are often backed by venture capital and so they need to grow rapidly to keep their investors happy. They need to get in front of consumers at scale and nothing beats Facebook and Google in this regard.
What Happens when the Cost per Click (CPC) Rises?
The cost per click a brand pays to an ad platform like Facebook or Google is called a CPC rate. If Brand A was bidding and winning clicks for $1.00 per click, what happens when Brand B wants to bid for those clicks?
When Brand B comes in and bids $2.00 for those same finite 100,000 clicks, the CPC rises. At double the CPC, Google or Facebook make twice the money. Now let’s say Brand A comes back and bids $3.00 CPC. Again, 10% of clicks are converting to a sale. So now, it costs $30 to get a sale.
If the shoes cost $100 with $50 of profit, with $30 going to marketing costs, the profit goes down proportionately as marketing costs rise.
Auction-based ad networks like Facebook and Google have become behemoths over the last decade because they know so much about consumers and what they are interested in. Likewise, they have billions of users, so Brand A can actually scale their sales from $0 to millions, or even billions really quickly. Other platforms don’t offer this level of targeting or scale.
Looking for New Marketing Channels
This is exactly what has happened over the last couple of years. The cost of a click is too high because competing brands are bidding it up. This is true for Facebook and Google, the two biggest ad platforms that bring in tens of billions of dollars per quarter. Everyone – Snapchat, TikTok, Reddit, etc. – mostly doesn’t have the same level of targeting so they’re still playing catch up.
But now, it’s crazy expensive.
Brands new need new advertising channels that are not going to cost a fortune to acquire new customers. This is where creators, you, come in.
Working with Creators
There are over 2B people globally that use Facebook and more than 4B that user Google monthly. There are tens of thousands of creators that have large influential followings off of social media platforms like Facebook, Instagram, YouTube, Snapchat and now TikTok.
Brands started realizing 5 years ago that they could work with creators and pay them to tell their followers about their brand. While rates vary across platforms (e.g. Instagram vs. YouTube) and niches (e.g. financial services vs. beauty), they’ve risen across the board in the last 2-3 years as brands are interested in working with creators more and more.
That’s what’s happening right now. All these brands are interested in new channels to help drive traffic to their pages and working with creators was much cheaper than traditional channels like Facebook and Google. This all goes to say that it also works to drive new sales but measurement is a different topic.
