If you find yourself uncertain about the right compensation model for your paid influencer partners, you are not alone.
Two things that we do know for sure are that inflation has impacted influencer rates, which have increased considerably over the past year, and that brands are struggling with budget cuts.
The pressure to demonstrate ROI is palpable, and we're all looking for ways to prove the value of influencer marketing campaigns.
Multi-touch attribution is a great way to measure the holistic impact of your marketing mix, but it can be complex, costly and time-consuming to implement.
Affiliate marketing and sales-based compensation continues to grow as a popular influencer marketing tactic. Several recent reports paint slightly different pictures about how many brands are paying influencers traditionally with a “pay-for-content” model compared to a percentage-of-sales model.
According to Influencer Marketing Hub's The State of Influencer Marketing 2023 Report, an increasing number of brands are compensating influencers based on the sales they generate.
The report states that "53% of brands said they compensate influencers based on the 'percentage of sales' they drive through their social content, up from 42% of marketers who reported using that payment system in 2022."
Notably, this year has seen substantial shifts: "Payments based on product level (21%) are five times as popular as a year ago. Respondents favoring flat rates have more than halved to 19.6%, and those paying by tiered incentives remain low at 6.9%."
Influencer Marketing Hub speculates that in these tough economic times, brands are demanding stronger evidence of the effectiveness of their influencer marketing investments.
More brands may be prioritizing increased sales as the primary goal of their campaigns, with fewer targeting brand awareness.
Comparatively, the data reported by CreatorIQ, Can Creator-Led Marketing Really Drive ROI, suggests that the “pay-for-content” model remains the most popular, with pay-for-content (60%) and affiliate commission (45%) being the most frequent compensation methods and rated as the most effective ways to compensate creators by respondents.
The “percentage of sales” or affiliate-payment model may sound like a golden ticket because it is a great way to measure performance and campaign effectiveness.
This model can help brands measure lower-funnel metrics, gain a better understanding of how well the influencers drive users to their website, and determine which channels work best for each creator. And in theory, since the influencer receives compensation based on how much product they sell, they should be motivated to produce stronger content.
However, sales-based compensation models are not a one-size-fits-all for every campaign.
There are three things to consider before adopting a “percentage of sales” or “affiliate commission” influencer compensation model.
1. Determine a fair and attractive commission rate
If you are offering a 5%-10% commission rate on sales and your product sells for $500, then $25-$50 per sale may not appeal to top-tier creators as their only compensation. A “percentage of sales” rate of closer to 20%-30% per sale will be more attractive to most established creators.
2. Assess your product's sales cycle
Cosmetics and fast fashion tend to have shorter sales cycles, with frequent and immediate purchases. These are well-suited for the “percentage of sales” model since influencer content can effectively drive immediate sales.
However, products with longer sales cycles may not see immediate success with influencer affiliate partners as multiple interactions may be needed to convert consumers.
3. Consider the nature of your product
If your product is an investment purchase, a higher-priced item, or requires careful consideration before purchasing, it would be shortsighted to expect influencers, on their own, to be an immediate sales driver. Multiple connections with your consumer may be needed in order to convince them to make the purchase.
Before overhauling your influencer payment structure, carefully consider all aspects of your audience's decision-making process.
You will need to test various influencer tactics to gauge their effectiveness beyond raising awareness and engagement.
Be patient. Testing can take time, as it may take multiple posts before an influencer goes beyond awareness and engagement to drive conversions.