Risks and Rewards: A Guide to Understanding Social Media Influencer Income for Valuation Professionals

The rise of social media has transformed the landscape of marketing and personal branding, leading the way for a new breed of entrepreneurs known as influencers. These individuals leverage their online presence to engage with audiences, promote products, and shape consumer behavior across various platforms and can earn significant amounts of money doing so. While the influencer industry has created numerous opportunities for creators and brands alike, it also presents significant risks. This article aims to explore the challenges faced in this industry and offer insights into how to examine and assess these risks when performing a valuation analysis or assisting with litigation matters involving someone in the influencer industry.

What Is an Influencer?

An influencer is a person who has the power to affect the purchasing decisions of others based on their authority, knowledge, position, or relationship with their audience.¹ Typically active on social media platforms like TikTok, YouTube, Facebook, Instagram, and others, influencers create content that resonates with their followers, ranging from lifestyle and beauty to travel and technology. Brands collaborate with influencers to promote products or services, leveraging influencers’ authenticity and connection with their audience to drive engagement and sales. Influencers shape trends and opinions by sharing personal experiences and recommendations, making them key players in modern marketing strategies.

Growth of the Influencer Industry

The influencer industry has experienced rapid growth over the past decade, driven by the rise of social media platforms like Instagram, TikTok, and YouTube.² Initially dominated by celebrities, the influencer landscape has evolved to include everyday individuals who gain popularity through relatable content and niche expertise. This shift has allowed brands to connect more authentically with diverse audiences, leading to significant investments in influencer partnerships as businesses recognize their potential for increased engagement and brand loyalty. Advancements in data analytics have enabled brands to measure the impact of influencer campaigns, further solidifying their role in marketing strategies. Today, the industry encompasses a wide range of influencers, from micro to macro, each serving distinct market segments and contributing to its continued expansion.

According to Goldman Sachs, the creator economy could approach half a trillion dollars by 2027, almost double the amount from 2023. Eric Sheridan, senior equity research analyst covering the U.S. internet sector, stated, “The ecosystem is expanding for a number of reasons, including the increase in digital media consumption and the advent of technology that has lowered barriers to content creation.”³ Platforms such as Facebook and YouTube, which introduced short-form video content and live streaming, have helped drive this creator economy and will continue to do so. Goldman Sachs expects the global creator economy to grow at a compound annual growth rate of 10% to 20% from 2023 to 2027.⁴

Revenue Streams and Platforms

With the emergence of the influencer industry, valuation professionals need to understand influencers’ revenue streams, the platforms they use, and the risk factors associated with their business.

Influencers generate revenue through several outlets. In general, platforms can be distinguished into a few categories. There are social media platforms, such as Instagram, TikTok, and Facebook, where influencers share photos and videos. Additionally, there are streaming platforms, like Twitch and Kick, where creators produce live content for audiences, often in the form of video game streaming. The next category is video-sharing websites, such as YouTube, which creators typically use to publish longer-form video content. The final category is subscription platforms such as Patreon.

Here are the main revenue streams for influencers:

• Subscriptions: Subscriptions are one of the only predictable revenue streams for influencers. The influencer charges a recurring fee to the subscriber, typically based on a tier system. This service provides subscribers exclusive content and perks depending on the tier they pay for. Subscriptions can be offered through a variety of platforms, most notably Patreon, which typically distributes income to the influencer at the end of every month.
• Advertisement Revenue: Many platforms allow videos to be monetized through ads. The creator’s ad revenue is directly correlated to the number of views the content receives. This revenue may come to the influencer from the social media platform, but in some cases, it can come directly from the advertiser.
• Affiliate Marketing: Affiliate marketing is a digital marketing strategy where influencers earn a commission for promoting a company’s products or services on social media. Influencers provide a link or code in their profile or produce content to promote specific products and brands. Once fans or followers use the influencer’s link or code, the influencer is paid a commission, usually a set percentage of the product cost. This type of revenue stream can be generated through almost any social media platform, and influencers typically receive income through payments from the brand. In some cases, they may also receive in-kind benefits such as discounted or free merchandise.
• Brand Sponsorships/Sponsored Posts: A brand sponsorship is a marketing collaboration between brands and social media influencers to promote a brand’s products or services. One type of brand partnership is a sponsored post in which a brand pays an influencer or creator to create content to post on social media. Influencers on platforms such as TikTok and Instagram can also insert sponsored posts or content within live and short-form videos. Like affiliate marketing, brand sponsorships, and sponsored posts can result in income to the influencer from the brand or in-kind benefits like free products or discounts.
• Brand Ambassadors: Brand ambassador marketing functions similarly to brand sponsorships; however, instead of a one-time post, companies pay brand ambassadors (whether in cash, commissions, or in-kind benefits) to promote products or services over a longer period of time. Some in-kind benefits may include sponsored trips or events, which are often used to generate additional content for the brand ambassadors.
• Brand Merchandise and Donations: Many influencers sell their own merchandise lines and have a donation portal for fans and followers to drive their revenue stream. Influencers will place links to online storefronts in their profiles or video descriptions and post and promote these links in regular social media posts and on their personal websites.

Understanding the Risks

Influencers face many risks in this industry, which are crucial to understanding when performing a valuation related to the social media influencer industry. For example, social media and streaming platforms constantly change their payout structures and incentives. These changes may be associated with the promotional concerns of advertisers and platforms, factors that are largely out of an influencer’s control.⁵ Here are a few examples of notable promotional funds to influencers, also often called creators:

• From 2020 to 2023, TikTok ran a $1 billion creator fund, which paid eligible creators for posting to the platform.
• With a similar temporary fund, YouTube’s TikTok competitor, Shorts, allowed creators to earn anywhere from $100 to $10,000 monthly.
• Instagram’s Reels Play bonus program rewarded creators with fluctuating payouts.
• Snapchat’s Spotlight rewards program gave $1 million a day to the platform’s top creators.

Today, these platforms have revamped or completely changed how they pay creators, in many cases eliminating creator funds. Influencers whose revenue depends heavily on a certain platform or rewards program may find their revenue has evaporated overnight.

However, many platforms continue to offer rewards to creators. Instagram is currently testing a seasonal, invitation-only program that rewards creators for sharing Reels and photos. YouTube debuted an ad-revenue share model last year, in which qualifying creators receive 45% of revenue from ads displayed between content. Snapchat has a program that gives creators who meet specific criteria a portion of the ad revenue that appears between posts. Its Spotlight program also continues to pay creators based on performance. It is important for a valuation professional to understand what platforms an influencer is using and the platforms’ current and historical payout structure.

Individual social media platforms pose various industry-specific risks to creators, such as bans, demonetization (where ads can be blocked from a specific post so that it no longer earns revenue), and algorithm changes. Each platform has specific regulations, user agreements, and community guidelines – some stricter than others. Enforcement of guidelines can also be uneven. It is critical to understand whether an influencer’s niche involves any content that risks bans or demonetization, as an influencer’s revenue stream is directly affected by their ability to post and generate income from their content.

Media platforms utilize algorithms that guide both the content and advertisements an individual user sees online. These algorithms rank different content types, highlighting some and disregarding others, based on user behavior and the media platform’s goals, and change frequently. As a direct result, influencers are often left to chase views determined by an algorithm they cannot control, which is constantly evolving and lacks transparency. What sparks massive engagement for an influencer one month might not work another. Engagement is key for influencers to be successful, as measured by views and interactions (such as likes, comments, and shares). Both platforms and advertisers track engagement to determine which influencers they engage in marketing strategies and how much compensation an individual influencer may receive. As engagement is so strongly tied to algorithms, this is a crucial source of risk for influencers’ income.

Creating content online has extremely low barriers to entry. Now, with the widespread availability of AI tools, content creation has become significantly simplified. These factors have increased competition in the industry. A larger number of influencers targeting the same niche risks shrinking the available customer pool and audience, not to mention the available income to any given influencer. It is important for a valuation professional to understand an influencer’s target audience, content type, and other creators in a similar space.

Questions Valuation Professionals Should Ask

Along with the industry’s risks, a valuation professional needs to ask certain questions of an individual in this industry. Because the industry and the business are so unique, there are special considerations we need to understand to help us value the business.

A valuation professional seeking to understand an influencer’s income sources should consider asking the following questions:

• Income Breakdown: Can you provide a detailed breakdown of your income sources? Is most of your income generated through sponsored posts, affiliate marketing, ad revenue, merchandise sales, or other sources?
• Platform Performance: Which social media platforms or channels contribute most significantly to your earnings?
• Brand Partnerships: How do you negotiate and structure your deals with brands? Are these deals typically one-time projects or long-term collaborations?
• Ad Revenue Details: How much do you earn from ad revenue on platforms like YouTube or Instagram? What are the typical rates you receive per view or per click?
• Merchandise Sales: Do you sell your own merchandise or products? What is your profit margin on these items, and how do you manage inventory and distribution?
• Subscription Services: Do you utilize subscription services like Patreon or YouTube memberships? How much revenue do these platforms generate for you?
• Major Expenses: What are your primary business expenses? This might include production costs, marketing, equipment, staff salaries, or other significant expenditures.
• Revenue Consistency: How consistent is your income month-to-month? Do you experience significant fluctuations, and how do you manage these variations?
• Growth Strategies: What are your plans for future growth? Are you exploring new platforms, diversifying your income streams, or expanding your brand in other ways?
• Content Related: Who is your target audience? Have you ever been banned or suspended from any platforms? Have you ever had your content demonetized? What brands do you typically work with?
• Content Investment: How much do you reinvest into your content (e.g., upgrading equipment, hiring a team, professional editing)?
• Fan Interaction Revenue: Do you generate income from direct engagement with your audience, such as in-person or virtual meet-and-greets, personalized messages, or fan donations?

These questions will help an analyst gain a more comprehensive understanding of how an influencer generates and manages their income, allowing for better knowledge of future cash flows and revenue generation.

In conclusion, while the influencer industry offers opportunities for fame and financial gain, it also has unique and substantial financial risks that cannot be overlooked. Valuation professionals must understand these risks to accurately value an influencer’s income streams.

Sources

1. Influencer Marketing Hub, “What is an Influencer? – Social Media Influencers Defined,” August 30, 2024, https://influencermarketinghub.com/what-is-an-influencer.
2. Valentina Dencheva, “Influencer marketing worldwide – statistics & facts,” Statista, December 18, 2023, https://www.statista.com/topics/2496/influence-marketing/#topicOverview.
3. Goldman Sachs, “The creator economy could approach half-a-trillion dollars by 2027,” April 19, 2023, https://www.goldmansachs.com/insights/articles/the-creator-economy-could-approach-half-a-trillion-dollars-by-2027.html.
4. Ibid.
5. Sarah Needleman and Anne-Marie Alcantra, “Social-media influencers aren’t getting rich—they’re barely getting by,” Wall Street Journal, June 17, 2024, https://www.wsj.com/tech/social-media-influencers-arent-getting-richtheyre-barely-getting-by-71e0aad3.